Inflation sees construction materials provider Big River post bumper profit; shares jump 31%

Who benefits from inflation? Big River Industries (ASX:BRI) sure does, as the company reports a climb in revenue to $409.3m, a rise of 45% over its FY21 results. 

One could be forgiven for raising an eyebrow, here, given Big River’s role as a construction player. The construction industry has not been having a particularly good run this year as small builders collapse left right and centre, both at home and overseas.

The big difference: Big River supplies building materials to the construction sector, as opposed to making revenue off the execution of construction contracts—and Big River has had to raise its prices.

It is this difference with Big River on the supply side of the market underscoring the strong performance of the company across FY22. 

The cost of construction materials has been hit particularly hard by inflation trends driven in a warrish post-covid period of economic history. The company’s key indicators are broken down below: 

• Revenue up 45% to $409.3m ($281.4m in FY21) 

• Earnings up 113% to $48m ($22.5m in FY21) 

• Profit up 191% to $22.7m ($7.8m in FY21)

• Earnings per share up 989% to 26.03cps (2.58cps in FY21) 

• Dividend per share up 176% to 15.5cps (5.6cps in FY21) 

The company pays a 10c dividend in early October. 

Covid caused record lumber futures volatility 

The price of lumber futures, traded on the Chicago Mercantile Exchange, hit the second highest price on record in February 2022, hitting just over USD$1300-per-thousand-board-feet. 

This came after the benchmark clocked USD$1,369 in April of 2021. 

While prices have since receded back to USD$520 in Chicago, the dramatic volatility in the lumber market is a strong indicator underscoring how inflation and demand dynamics slammed construction material purchasers through FY22. 

“Organic growth”

Despite an intuitive leaning towards viewing the impact of inflation as an artificial driver on prices, Big River is happy to file performance driven by higher materials prices under organic growth. 

“FY22 was a period of substantial growth forr the company, with both a positive improvement in the businesses’ addressable market, combined with considerable inflationary impacts across most product ranges, driving organic revenue growth to 20%,” the company notes.

The company provides a regional breakdown of growth in Australia and in NZ: 

• South Australia growth up 58.9% 

• Western Australia up 26.2% 

• Queensland up 21.4% 

• Victoria up 15% 

• New South Wales and ACT up 7.1% 

• New Zealand up 20.3% 

Supply chain challenges 

The company also notes the impact of supply chain disruption borne from covid (and then a war in Europe), noting its decision to increase its direct imports of materials from elsewhere, allowing it to grow its solid gross margin. 

Perhaps the company banked too hard on forecast demand: inventory levels are elevated 23.1% compared to levels at the end of FY21. 

All the same, the company continues to edge down its debt, with closing net bank debt of $21.3m framed by a decline in gearing from 18.7% (FY21) to 15.9% (FY22). 

The impact of today's results on the company's share price is evident at the far-right of the three month chart