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CSR to return $100m to shareholders on back of strong financial position

Thu 30 Jun 22, 2:06pm (AEST)
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Key Points

  • $100m share buyback will be in addition to the company’s existing dividend policy
  • The group is in a position to pay dividends at the top end of its 60-80% range
  • CSR is actively building a presence in the wider housing and construction segments

CSR (ASX: CSR) was trading lower today despite the building products business company announcing plans to return $100m to shareholders.

As a prelude to the group’s AGM earlier this week, management noted that due to a robust balance sheet and strong operational performance, CSR is in a position to both invest in growth while also increasing returns to shareholders via on-market share buyback.

The group’s CEO Julie Coates reminded shareholders that the share buyback will be in addition to the company’s existing dividend policy. The timing and the number of shares will depend on price, cash flow generation and capital requirements.

Due to the group’s strong financial position, supported by operational performance and cash flows, the company is in a position to pay dividends at the top end of its range of 60-80% of net profit after tax (NPAT).

Recent performance

Driven by a 24% increase in building products earnings, and cost disciplines, NPAT for the financial year ended 31 March 2022 was up 20%.

Following improved pricing, aluminium earnings were up 70% to $40m, while the group’s property business delivered earnings of $47m, due to the successful management of complex long-term development projects.

CSR has also reaffirmed guidance for FY23 provided along with its results back in May.

Total full franked dividends for the financial year were $153m, compared to total dividends of $177m in the year prior due to two special dividends.

Outlook

Despite the strong FY22 result and the overall advances implementing CSR’s strategic agenda, management reminded shareholders at yesterday’s AGM that the share price has been under pressure to a greater extent than the recent market-wide decline.

The share price is down -28.82% over 12 months, and since late May has fallen from by around a third from $6.10 to $4.11.

Despite differing views on the outlook for the construction market as well as the broader Australian economy, CSR chair John Gillam remained upbeat on CSR’s prospects due to:

  • The strength of underlying demand for building products

  • The strong progress made within the business to increase earnings diversification

  • The strength of contracted earnings from CSR’s property business

Diversification into other construction sectors

While the size of the current pipeline for detached housing is 50% higher today than the pre-covid average, a key part of the group’s strategic agenda, notes Gillam is to build on a strong position in the detached housing market and diversify into other construction sectors.

“At present, over 45% of our earnings are from non-detached housing segments and we are actively building our presence in the wider housing and construction segments,” Gillam noted.

"CSR has a strong balance sheet, which supports continued investment in the growth and performance strategy for our Building Products business. We are also progressing major property development projects that will deliver short and long-term earnings, alongside the hedged aluminium position."

"This highlights CSR’s strength and prospects for the coming years.”

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CSR share price over three months.

 

What brokers think

Consensus on CSR is Moderate buy.

Based on Morningstar’s fair value of $5.41 the stock appears to be undervalued.

Based on the six brokers that cover CSR (as reported on by FN Arena) the stock is currently trading with 46.7% upside to the target price of $6.01.

With housing at a global inflection point as rates rise, Ord Minnett expects CSR’s earnings to peak and today downgraded the group to Hold from Accumulate, with the target price falling to $4.65 from $6.30.

Mid-May Macquarie also downgraded CSR to Neutral from Outperform and based on house activity forecasts has revised earnings per share (EPS) forecasts down -7%, -5% and -4% through to FY25.

Target price decreases to $6.05 from $6.80.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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