COMPANY NEWS & UPDATES
Boral Limited ( BLD )
Reduce Valuation $ 5.10
Earnings Forecast
Yr to June |
2020A |
2021F |
2022F |
|
Sales Revenue
($ M )
|
5,671.4 5,247.3 |
5,525.6 |
|
Reported
Profit ($ M )
|
177.4 |
189.5 |
251.6 |
EPS ( c ) |
15.1 |
15.7 |
21.9 |
Div ( c ) |
9.5 |
5.5 |
15.5 |
P / E ( x ) |
28.2 |
38.4 |
27.5 |
Yield (%) |
2.2 |
0.9 |
2.6 |
Franking (%) |
50 |
50 |
50 |
|
EPS Growth
(%)
|
-59.4 |
3.8 |
39.8 |
* Profit & EPS adjusted for options , goodwill , notional earnings and nonrecurring items .
Balance Sheet Health Restored
The first act of capital allocation by Boral ' s new CEO Zlatko Todorcevski--the divestment of USG Boral , its Australasian plasterboard joint venture--has completed . The sale forms part of Todorcevski ' s efforts to reduce the complexity of the building and construction materials player . Boral vended its 50 % equity stake in the business to Knauf , its JV partner , for a previously announced price tag of USD 1.015 billion . With Boral expecting to book an after tax $ 450 million gain on the sale , we estimate after tax proceeds of circa 1.25 billion , based on an AUD / USD cross-rate of 0.76 .
With divestment delivering much needed balance sheet relief , investors ' focus is now likely to shift to Boral ' s delivery against its aspiration to increase the group ' s operating income by a sizable $ 300 million medium-term . In its attempt to realise this ambition , Boral will seek a permanent reduction in the group ' s cost base and explore new earnings streams . On that basis , we ' d like to see further divestment of non-core businesses including the North American building products businesses . Shares in Boral screen as overvalued , last trading at a material premium to our unchanged $ 5.10 per share valuation .
Sale proceeds will be utilised in part to reduce debt , restoring the health of Boral ' s previously stretched balance sheet , and for reinvestment in the business . Nonetheless , with surplus capital relative to Boral ' s reinvestment requirements identified , an on-market share buyback has been announced . With Boral to repurchase up to 10 % of its outstanding shares over the coming 12 months , we estimate an approximate $ 660 million in capital will be returned to shareholders in late FY21 and FY22 .
Following completion of the buyback , we expect leverage-- defined as net debt / EBITDA inclusive of IFRS16 lease liabilities-- of 2.0 times at FY22 year-end , down from 2.9 times at FY20 year-end and comfortably within Boral ' s longterm , through-the-cycle leverage target of 2.0-2.5 times . Furthermore , Boral ' s medium-term upper net debt limit of $ 1.5 billion , which it has committed to while it delivers against its targeted $ 300 million uplift in group EBIT , remains achievable set against the size of the proposed buyback . With balance sheet metrics vastly improved , we expect the resumption of dividends in late FY21 . We forecast a 0.055 per share final dividend in FY21 , reflecting a dividend payout of 35 % net income . We anticipate a return to a normalised dividend payout ratio of 70 % of income from FY22 onward .
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