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Boral Ltd – Down 10% On Disappointing HY20 Results

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Boral Ltd (ASX: BLD) is an international building products and construction materials company. Boral has three main divisions:

  1. the materials business of Boral Australia (USG Boral);
  2. the plasterboard joint venture in Asia, Australia and the middle East; 
  3. Boral North America products and fly ash business. Boral has a market capitalisation of A$5.7 billion.


Boral down 10


What are the key features of Boral’s HY20 results?

  • Revenue for the HY20 is US$2,962 million, up 2% from the corresponding period.
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) for the HY20 (excluding impact of new lease standard) is US$440, down 6% from the previous period.

The main announcement of the result is Boral’s update on their North American Window business. On 5 December 2019, Boral announced financial irregularities in Boral’s North American Window business involving misreporting including in relation to inventory levels, raw materials and labour costs at Boral’s window plants. Boral announced today that the investigation into the financial irregularities has been completed.

The investigation found that pre-tax earnings were overstated by a total of US$24.4 million between March 2018 and October 2019. This is in line with Boral’s preliminary estimated impact on earnings before interest, tax, depreciation and amortisation (EBITDA) of US$20 million to US$30 million.

Boral’s management notes:

The investigation determined that finance personnel within the Windows business manipulated accounts and financial statements primarily to artificially inflate the overall profitability and health of the Windows business. The investigation found no evidence that the manipulations were to hide systematic theft of raw materials or finished goods inventory. The misconduct occurred over an approximately 20-month period to the end of October 2019.

One positive from the investigation was that Boral can confirm that the financial misreporting is limited to the Windows business and not other business within the company.


What is the outlook of Boral?

  • FY20 EBITDA to be down relative to FY19, with lower reported EBITDA in all three divisions of Boral.
  • FY20 Net profit after tax (NPAT) is expected to be in the range of US$320 million – US$340 million (FY19 NPAT: US$420 million after adjusting for Windows business misreporting).

The expected NPAT for FY20 represents a downgrade relative to previous guidance and the markets expectations. Today’s downgrade in profitability follows several downgrades over the past 20 months or so.

Reflecting the problems in Boral’s windows business and several earnings downgrades, Boral also announced today that Boral CEO and Managing Director, Mike Kane intends to retire after delivering Boral’s FY20 full year results. The Board is currently searching for a new CEO and Managing Director to replace Mike Kane.

Regarding the outlook for Boral Australia, it is important to note that total gross fixed capital formation (or investment expenditure) fell 0.2% (seasonally adjusted) in the September quarter 2019 and fell 3.8% annually (according to the national accounts). This fall in private investment was partially offset by an increase in public investment of 1.9% (seasonally adjusted) for the September quarter and 0.2% (seasonally adjusted) annually. With the Australian and state governments ramping up public investment in infrastructure projects, this could offset the losses in Boral’s revenue streams for a lack of private investment in construction beyond FY20.


What is the market reaction?

The market reaction to Boral’s announcement is negative. Boral is down around 10% and is currently trading at A$4.60. Boral has a forward P/E ratio in mid-teens and an annual dividend yield of around 4.5%.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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