Morningstar | BLD Updated Star Rating from 03 Jun 2019
We maintain our fiscal 2019 estimates for no-moat Boral after it reaffirmed its flat guidance for its largest segment, Boral Australia. We continue to forecast group EBITDA of AUD 1,060 million in fiscal 2019. At its Australian investor day, Boral confirmed our view that the shift in demand within its Australian construction materials business toward demand from infrastructure and away from residential construction is underway. While a delay in this transition was experienced in the first half, demand from the ramp up of infrastructure projects has been better in the second half. Our fair value estimate of AUD 5.80 per share is unchanged. Following recent share price strength, Boral’s discount to fair value has narrowed to just 6%. While Boral screens as slightly undervalued, margin of safety is currently lacking.While infrastructure projects have now begun to provide the necessary offset to cooling Australian residential construction, Boral concedes concrete volumes will likely be softer than the year prior. But Boral expects growth in asphalt volumes over the fiscal years 2019-2021, providing some offset. Nonetheless, softer construction material volumes in fiscal 2019 tracks our unchanged expectations for volumes to decline 1.3% before returning to modest growth in fiscal 2020. Our full-year fiscal 2019 Australia segment EBITDA forecast is unchanged at AUD 611 million.
Boral provided little new detail on its negotiations with Knauf for the future of the USG Boral joint venture, or JV. As outlined in February 2019, Boral’s preferred option remains to again become the 100% owner of the USG Boral Australasian plasterboard business, while expanding the Asia plasterboard JV with USG’s new owner, Knauf. We await further detail on valuation of the Australasian business, the extended Asia JV, and potential synergies before considering the valuation impact that any deal may have. Our fiscal 2019 EBITDA forecast for USG Boral of AUD 67 million is unchanged.
Boral manufactures and supplies building and construction materials in Australia, the U.S. and Asia. Co.'s segments are: Construction Materials & Cement, consisting of quarries, concrete, asphalt, transport, landfill, property, cement and concrete placing; Building Products, consisting of Australian bricks, roofing and masonry, and timber products; Boral Gypsum Joint Venture, which manufactures and sells plasterboard and associated products; and Boral USA, consisting of bricks, cultured stone, roof tiles, fly ash, concrete and quarries. The primary end use markets for Co.'s products include residential and non-residential construction and the engineering and infrastructure markets.
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