CSR’s stock dropped dramatically over 2008 into 2009 as the company suffered from two angles: a poor sugar industry and a dire building sector. It was previously considered among the market’s blue chip stocks.
Investors were unsure of the combined effect of its exposure to two completely different industries.
On the one hand was a subdued housing market whilst on the other was a less cyclical, fairly defensive sugar industry.
Due to problems with the two businesses, CSR went through a demerger. CSR established a sugar and renewable energy company – Sucrogen. This was later sold to Wilmar International for $1.75 billion.
This left CSR as a traditional manufacturing group, supplying building products in Australia and New Zealand. The group also has an interest in aluminium smelting and property.
The business is currently facing some challenges, particularly a challenging building and housing sector.
Over the past two years, CSR has been actively divesting some of its assets.
In a bid to stage a recovery, CSR made the decision to demerge its business into two new separately listed companies: one for sugar and renewable energy, and another for its building products, property and aluminium businesses.
Last year, CSR agreed to sell its insulation panels and trading businesses in the Asian region to Rockwool group for $128 million.
CSR stated that the sale will allow it to better focus on the Australia/New Zealand building products market.
The decision followed on from the sale of CSR’s Sucrogen division to Wilmar International.
At the time, CSR said it would consider a range of capital management initiatives to utilise these funds efficiently, which the market took as implying it may consider an acquisition.
A sweet result
In May, CSR reported a 13% on-year increase in FY11 underlying profit to $90.2 million.
Including the one-off gains related to its sale of Sucrogen and its Asian insulation business, CSR’s net profit totalled $503.4 million (compared to a $111.7 million loss in FY10).
CSR saw earnings growth across all of its businesses (ex-insulation), despite the impact of wet weather in eastern Australia.
A final dividend of 5.3 cents was declared. Adding this to a special dividend and a capital return from the Sucrogen proceeds takes the total amount distributed to shareholders for the year to $1.72 a share.
The company returned $800 million to shareholders from sales of Sucrogen and Asian Insulation businesses.
The demerger and divestment helped CSR’s shares to hold up for a while but a bloomy outlook for the sector has since hurt CSR.
The building sector faces tight credit conditions and the prospects of higher interest rates.
CSR feels leading indicators such as finance and housing approvals point to a moderation in housing activity over the coming year.
We feel CSR has a lack of catalysts at the moment to drive value. The outlook across its businesses is dismal and its share price weakness reflects that.
Parts of its business are also being negatively affected by a strong Aussie dollar.
With plenty of macroeconomic issues surrounding CSR and its peers, we feel CSR is likely to be one of the shares to sell in the near term.
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