Basic Materials

Tough love for James Hardie following strong 4Q result

Tue 17 May 22, 7:42pm (AEST)
image

Stocks in article

jhx
MktCap:
-

Share article

Key Points

  • The building products giant closed -3.47% lower today
  • There was a 20% lift in quarterly global net sales to US$968m
  • Management reaffirms fiscal year 2023 adjusted net income guidance range of US$740m and US$820m

After watching the company’s the share price tank by around -30% over the list six months, James Hardie should have received some support from the market this morning following the release of what was a strong fourth quarter result.

However, not even news of above market growth and reaffirmation of guidance could stop the building products giant from being -3.47% lower at the close.

At face value the result was good

There was a 20% lift in quarterly global net sales to US$968m, which underpinned a 24% year-on-year increase in James Hardie’s global net sales to US$3.6bn FY22.

The globally adjusted EBIT margin of 23.3% was achieved through “operational improvements and the delivery of a high value product mix, partially offset by high inflation and our ongoing reinvestment in growth initiatives," the company noted.

Strong execution of global strategy

However, the market appears have been somewhat touchy about the group’s near-miss on consensus estimates.

What’s also likely to have played on the minds of investors’ today is the number of senior management exits since the sacking of CEO Jack Truong in January.

It’s understood that Truong had created a "hostile" work environment.

Commenting on today’s result, James Hardie interim CEO Harold Wiens notes the team "has continued to deliver strong execution of our global strategy".

This is reflected in strong price/mix growth in all three regions, including North America price/mix growth of 12%-plus, Asia Pacific price/mix growth of 11%-plus and Europe price/mix growth of 14%-plus.

“Our EBIT margin expanded 220 basis points to 29.7%, an exceptional result underpinned by delivery of a high value product mix that helped to offset high inflation and ongoing reinvestment in growth initiatives,” Wiens noted.

Highlights of the fourth quarter results included:

  • Globally adjusted EBIT increased 30% on the previous period to $US225.3m

  • Global adjusted net income increased 42 to US$177.5m

  • Net income for the year to $US620.7m

  • Net profit of $US459.1m for fiscal year 2022, up 75% on the prior year.

  • US30¢ second half dividend declared

Outlook

Based on the continued, strong execution of the global strategy across all three regions – and largely underpinned by another strong performance in North America - management reaffirms fiscal year 2023 adjusted net income guidance range of US$740m and US$820m.

The comparable prior year adjusted net income for fiscal year 2022 was US$620.7m.

image

James Hardie share price over six months.

What brokers think

Consensus on James Hardie is Moderate Buy.

Based on Morningstar’s fair value of $42.48, the stock appears to be undervalued.

Based on the brokers that cover James Hardie (as reported on by FN Arena) the stock is currently trading with 45.2% upside to the target price of $54.44.

While the company appears to be firing on all cylinders, a possible cloud mooted by Intelligent Investor is what inflation and higher interest rates might mean for margins and the demand for housing products.

Given that the stock is has almost tripled since Intelligent Investor upgraded two years ago, the fund manager remains comfortable with Hold.

UBS believes the company's guidance is achievable and retains the Buy rating and $58 target price.

Ord Minnett foresees no slowdown in building demand and retains an Accumulate rating and $54.50 target price.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. 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.

Get the latest news and media direct to your inbox

Sign up FREE