James Hardie’s successful and embedded strategy has allowed the company to set an encouraging FY23 guidance range ahead of consensus. The search for a new CEO is a distraction but should not derail the momentum.
Divisional revenues were in line for JHX’s 3Q22 result but margins were softer, particularly in European Building Products due to some hyperinflation.
The real feature of the result commentary was the fourth upgrade to FY22 guidance and the accompanying release of initial FY23 guidance. JHX’s original FY22 guidance of US$520-570 million has evolved into US$620-630 million (+15% at the mid-point). A portion of the latest upgrade related to the recent CEO termination benefit but the remainder is based on the better operational strength heading into the rest of the year.
The result discussion centred on the North American Fibre Cement division for FY23f where price/mix benefits are set at 7-10% and volumes are expected to lift by 9-13%. As a result, revenue growth is targeted at 16-20% while EBIT margins should reach 30-33%. In short, NAFC is poised for a big year.
That clearly forms the basis for JHX’s FY23 net profit guidance range of US$740-820 million. Confidence is high that this can be achieved given the visibility of the order book, and improved communication with customers on the demand outlook.
The company has also provided some guidance on capex which will total US$1.6-1.8 billion over the four years of FY23-26, implying an annual spend of US$400-450 million. This is higher than the recent FY22-24 guidance of US$250-350 million pa and is being driven by revisions to the headline spend for each growth project and inflation.
Investment view
The recent CEO departure has clearly not caused any earnings damage and in fact, may have lifted morale amongst the senior executive ranks. The confidence on earnings is manifested in the FY23 guidance now on the table and that should encourage shareholders. The modest share price decline since the CEO event suggests investors are looking past this and are swayed more by the positive tone of the earnings discussion. We think this is valid and continue to recommend JHX as a Buy.
