How big is the pipeline?

FY23 RESULT

Need To Know

• Group EBIT $329.7m +13.1% on pcp, +2.7% on consensus
• Building Products higher revenue and margins the focal point
• Aluminium the laggard

The construction pipeline for detached housing remains ahead of completions, according to the ABS, and this stood out in CSR’s FY23 result. The housing backlog persists, at least for now, and this supports strong earnings in the Building Products division. In contrast, Aluminium appears to be bending.

FY23 result (Figure 1): Group EBIT $329.7m +13.1%, 2.7% ahead of consensus. Net Profit $225m was 6.5% ahead of consensus.

Building Products (BP). The clear driver of CSR’s earnings is due to the on-going backlog of housing construction, still at historically high levels. Multi and non-residential construction is also boosting revenue, but CSR did not mention additions and alterations activity. Lurking in the background is rising costs of energy and other cost increases that could impact future earnings. BP EBIT of $273.4m was 4% ahead of consensus and 2H23 margin of 14.5% was higher than the 13.6% in the pcp. CSR saw volume growth in Gyprock, Hebel and Cemintel.

Property EBIT was $71.7m and included the sale of the next tranche of Horsley Park and Warner. The company has $44m and $68m of contracted earnings over the next two years.

Aluminium. FY23 EBIT of $8m included $13m of income related to power disruptions in 1H23. This implied a 2H23 EBIT loss of -$9.4m. Coke and pitch costs increased $54m in the period, alumina increased $20m, energy increased $16m and freight added $17m. 

CSR declared a final dividend of 20cps fully franked, comfortably ahead of consensus at 17.2cps. The balance sheet has net cash of $131m. Operating cash flow of $114m was well below last year ($215m) mostly driven by still elevated working capital levels.

Investment View

Building Products clearly benefitted from the backlog of construction but was handily assisted by strong pricing outcomes across many product categories. CSR may be entertaining further price increases in FY24, but this could be tempered by the fragile state of many homebuilders. CSR may be tempted to offer greater rebates and discounts to look after their customers. After an impressive margin performance throughout the year, it may require some giveback if cost pressures cannot be mitigated.

We expect to see some downgrades for Aluminium as guidance has been set at -$5m to -$15m in FY24f which is well below current consensus forecasts.

The Federal Government’s net migration Budget forecasts contain some punchy numbers that could flow into the housing construction market. Up to 1.5m net migration over the next five years is anticipated, but this is partly making up for the loss of net migration during COVID-19 when Australia’s borders were closed.

We retain our Hold recommendation based on the uncertainty of how long the backlog of housing construction can sustain the Building Products division’s strong earnings run.

Figure 1: CSR FY23 RESULT