CSR lifts profits/dividend and reaffirms strong outlook

CSR (ASX: CRS) was up around 6% at the open after the building products S&P/ASX200 company posted a robust first half set of numbers.

For the six months to September 30 the group’s net profit after tax (NPAT), before significant items, was up 27% to $110m on trading revenue of $1.3bn which was up 14% on the previous period.

After including a $71m benefit of carry forward capital tax losses, statutory net profit after tax was down -34% to $104m from $157m in first half FY21.

The group will pay a fully franked interim dividend of 16.5 cents per share (CPS), up from 13.5 cps on 9 December.

Good momentum

With the business having entered the second half with good momentum, CEO Julie Coates reassured investors that strong underlying demand for building products and good pipeline visibility will see the company deliver a strong group result for the full year.

"Cost, supply chain and labour pressures are supporting adoption of CSR systems like Hebel lightweight aerated autoclaved concrete as faster build times and reduced labour requirements are becoming increasingly valuable to builders," Coates noted.

“Our upgraded Hebel manufacturing facility has significant capacity to deliver into this growing demand.”

Property assets

Coates also reminded investors that investing in property assets and development capability is a core part of the group’s strategy.

Future earnings are expected to be supported by the independent valuation of CSR’s Property assets with development potential, which has increased in value on an “as is” basis to $1.5bn.

Highlights at the half year included:

• Core business revenue came in at $910m, up 11% compared to the prior corresponding period.

• Earnings (EBIT before significant items) was up 29% to $171m.

• Building products, which contributed 76% to the group's total earnings, were up 29%.

• Property earnings (EBIT) of $28m which included completion of the next tranche at Horsley Park, NSW, compared to $7m in the previous half year due to the timing of transactions.

• Aluminum earnings (EBIT) of $17m, were down from $18m, with higher aluminum pricing offset by higher raw material and input costs.

• The group purchased $22m shares in the $100m on-market share buyback.

Outlook for full year ending 31 March 2023 (YEM23)

Based on the underlying strength of the group’s balance sheet, management noted the capacity for ongoing investment, and strong dividend payments.

The group remains confident in managing the inflationary environment across product categories.

While the diversified nature of building products across product, build cycle, geography and end markets positions the business well for the second half and into FY24, the group has flagged contracted property earnings (EBIT) for YEM23 of around $68m.

While the ongoing cost volatility makes forecasting aluminum challenging, the group’s best estimate for YEM23 earnings (EBIT) is currently in the range of $8m to $24m.

What brokers think

CSR’s share price is down around -28% over 12 months and experienced a notable selloff early May, before bouncing higher following a low of $4.00 late June.

Consensus on CSR is Moderate Buy.

Based on Morningstar’s fair value of $5.79 the stock appears to be undervalued.

Goldman Sachs is Neutral rated on CSR with a target price of $5.15.

Based on the six brokers that cover CSR (as reported on by FN Arena) the stock is currently trading with 18.6% upside to the target price of $5.53.

UBS’s target price of $6.50 and Buy rating are unchanged after today’s interim financials were a positive beat against the broker’s expectations.

While costs inflation is leading to (significant) downward guidance for aluminum in FY23, the broker notes stand-out development potential for property assets.

CSR share price over 12 months.