AUSTRALIA - Boral eyes extended infrastructure boom, builds full-year profit

Boral expects the infrastructure boom underway on the east coast of Australia to be longer and stronger than even the boom in dwelling starts that has moderated but remains above historical peaks.

Unveiling a solid 16% increase in annual net profit this morning, chief executive Mike Kane said he expected the infrastructure boom to last a decade, as continuing federal funding is supercharged by record state expenditure.

“The infrastructure boom is on us right now,” Mr Kane said.

The building materials giant (BLD) is bidding on a growing number of projects around the country with states in a the middle of major expansions and upgrades of road, rail, tunnels and bridges to service fast growing populations in Sydney and Melbourne.

That has added another leg to growth in the Australian building materials operations that have seen record dwelling starts, which at 212,000 by the financial year end, remain well above historical peaks and norms, despite repeated predictions of a slow down.

“The housing market is nowhere near receding to anywhere near the norm,” Mr Kane said.

He said the strong demand was providing some opportunity for margin expansion with less competition in the market, but the long term nature of supply contracts meant it was harder to push through price increases.

Boral is targeting a big lift in earnings for 2017-18 from the first full year of ownership of the Headwaters business it agreed to buy in November. But it is waiting for floodwaters from Hurricane Harvey to recede in Houston before assessing its impact on business in that state, which accounts for 25% of US revenue.

Mr Kane said that as a “sand state,’ the waters were likely to recede quickly and he expected the business to suffer only slight disruption to its light manufacturing operations there.

Boral posted a 28% increase in underlying profit after tax before significant items to $343m and a net profit after tax of $297mn, up 16%.

That was ahead of the average $314.9m forecast of analysts surveyed by Bloomberg.

The bottom line included a $46m net loss for significant items including the transaction costs for the Headwaters purchase, impairments for its West Australian bricks business and a net gain on the sale in the first half of the financial year of its 40% stake in the CSR bricks joint venture and the formation of the Meridian Brick JV in the USA.

Sales revenue of $4.4 billion was up 2%, including eight weeks of revenue from Headwaters.

Boral will pay a final dividend of 12c on a capital base expanded by the $2bn rights issue and a placement to fund the Headwaters deal, making 24c for the full year, up 7% on 2015-16.

Shares in Boral traded as low as $6.62, down 21c., with analysts noting that the “beat” of estimates was only due to a better than expected tax outcome as Boral brought to account previously unrecognised tax losses. At 11.55am (AEST), shares were down 9 cents, or 1.3%, to $6.74.

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