Boral Earnings: Turnaround Gathers Momentum With Volume and Margins Stronger Than Expected

We raise our fair value estimate for no-moat Boral BLD by 22% to AUD 4.40 per share after fiscal 2023 results and a transfer of coverage to a new analyst. Our material upgrade reflects a number of changes, including a more optimistic view on the construction cycle. We previously factored in a significant medium-term construction downturn, but that now looks unlikely, particularly given Boral’s exposure to the resilient nonresidential and infrastructure markets. Solid population and GDP growth, supported by immigration, should underpin longer-term demand for the infrastructure, nonresidential, and housing markets. Nearly 70% of revenue is tied to infrastructure, engineering, and nonresidential projects, with the remainder nearly all driven by housing demand, both new and renovations.

The more positive outlook for revenue is the primary driver of the upgrade. Boral’s cost-control and pricing efforts means we are also more optimistic on the near-term outlook for margins. We now forecast an 8% EBIT margin for fiscal 2024, up from 7% previously; margins were materially better than we expected in fiscal 2023. We maintain our long-term view of EBIT margins in the low double digits. The shares trade at a modest premium to our new fair value estimate, which we think reflects the strength of progress in the turnaround to date.

Fiscal 2023 adjusted net income of AUD 143 million, or AUD 0.13 per share, was 5% lower than fiscal 2022 but beat our expectations due to better margins. EBIT margin of 7% was flat on fiscal 2022 and bested our 6% forecast, which is commendable, given inflation headwinds. Management says major input cost inflation—cartage, maintenance, labour, and energy—is slowing but unlikely to abate for 12-18 months. Strong, low-double-digit price growth in fiscal 2023 is encouraging and supportive of margins. We now forecast EBIT of AUD 290 million in fiscal 2024, up from AUD 270 million previously, versus management’s guidance for AUD 270 million-AUD 300 million.