Morningstar

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

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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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Mathew Hodge, CFA

Regional Director
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Mathew Hodge, CFA, is a regional director, ANZ, for Morningstar*. His primary responsibility is to help the team to perform and efficiently communicate fundamental equity research with our clients in mind. His responsibilities include setting priorities for the team, hiring, people management, providing feedback, career development and promoting our research to the business and clients. Fundamental to the role is creating and maintaining an inclusive environment where the team can do its best work. He also helps develop and implement research methodologies on an ad-hoc basis.

Prior to mid-2021, Hodge was a director on the team and covered the metals and mining sector, including the large-cap global majors. Prior mid-2019, he was a senior resources analyst covering the metals and mining sector. Hodge joined Morningstar equity research via the acquisition of Aspect Huntley in 2006. In addition, Hodge has sat on Morningstar's economic moat committee since 2014. More recently, he led the refresh of our capital allocation methodology in 2020 and was the inaugural chair of the subsequently formed capital allocation committee.

Prior to joining Aspect Huntley in 2001 previously worked in mining, principally as a mining engineer in underground coal. Hodge studied mining engineering at the University of New South Wales and worked as a mining engineer in underground coal. He holds the Chartered Financial Analyst® designation.

* Morningstar Australasia Pty Ltd (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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