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Boral Ltd - Significantly Impacted By COVID-19 With Revenue Down Across The Board

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge 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; and (3) Boral North America products and fly ash business. Boral has a market capitalisation of A$3.3 billion.

 

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What are the key points of Boral’s report?

Boral today (15 May 2020) announced a trading update for HY20 (January 2020 – 20 April 2020). COVID-19 has had a significant impact on Boral’s operations. Boral Australia revenue is down 6% and concrete volume is down 16%. Boral North America revenue is down 5%, production volumes of roofing is down 14% and production volume in stone is down 29%. USG Boral revenue is down 20% and board volume is down 17% in Asia and 4% in Australia.

From the report, it can be observed that Boral’s North America and USG Boral have been significantly impacted by COVID-19. Boral North America have seen 70% of building products plants affected by temporary closures, retooling for social distancing, slowdowns, absenteeism. USG Boral has seen 2 board lines not operating and 1 board line at reduced capacity.

Boral has undertaken actions to improve the company’s balance sheet to ensure enough liquid in this troubling economic environment. Boral has successfully priced a US$200 million US Private Placement (USPP) senior, unsecured note issue. The note issue comprises two tranches with five and seven-year bullet maturities with an average coupon of 4.49% and terms and conditions in line with existing USPP notes.

In addition, Boral has secured approvals for several new bilateral bank loan facilities totaling A$365m, which will be the next tranche of undrawn debt to mature in May 2022. These new facilities are in addition to Boral securing approvals to extend US$665m of the Company’s existing US$750 million debt facility, which will extend the maturity of this debt from FY2022 to FY2024.


What is the outlook?

Boral has faced several challengers over FY20. The major challenge Boral has faced in FY20 was regarding Boral’s 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. The investigation found that pre-tax earnings were overstated by a total of US$24.4 million between March 2018 and October 2019.

In respect of Boral’s US operations, the recent depreciation of the Australian dollar will be of benefit to Boral’s US earnings in Australian dollar terms.

Investors that want exposure to the construction and materials industry could closely follow Boral in the coming months. Currently, Boral is very cheap and is trading at more than a 10 year low.


What is the market reaction?

The market reaction to Boral’s announcement is negative. Boral’s share price is down around 3.5% and is currently trading at A$2.48. Boral has a forward P/E ratio of around 10x.

 


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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