Boral (ASX: BLD) was widely expected to deliver bumper earnings in FY24-25, amid a strong earnings upgrade cycle for the building materials and construction industry.
Not only did Boral top first-half FY24 earnings expectations but the company also upgraded its full-year guidance on the back of strong price traction and cost management.
The below refers to first-half FY24 results.
Revenue of $1.84 billion, up 9.4% year-on-year and largely in-line with analyst expectations
Underlying EBITDA of $313.6 million, up 51.8% year-on-year and beat consensus expectations of $275 million (14% beat)
Underlying EBITDA margin of 17.0%, up 470 bps
Underlying net profit after tax of $138.6 million, up 143.9% and beat consensus expectations of $108.1 million (28% beat)
Free cash flow of $259.6 million
The quote: “Our volumes were flat to slightly up on pcp, with an increase in quarry and recycling materials. We achieved good price realisation across all product lines, and this supported growth in net revenue. We also continued to reduce costs and instil operational efficiencies to offset input cost inflation," said Chief Executive Vik Bansal.
Boral upgraded its full-year EBIT guidance to $330-350 million, up from its November 2023 guidance of $300-330 million (up 7.9% at the midpoint).
Boral shares opened 7.2% higher at $5.80 as the market opened and hit a brief session high of 12.8% or $6.10 within the first few minutes of trade. By around 10:15 am, Boral was up just 5.2% to $5.41. The volatile price action can be explained by valuation concerns and sky-high expectations for the full year.
"We sit modestly above FY24 guidance and see earnings upside risk in the near term. Despite this, valuation remains unsustainably high, requiring earnings materially above historical peaks," Morgan Stanley analysts said in a note dated February 1.
The analysts expect Boral to deliver FY24 EBIT of $343.2 million. That's a 0.9% miss against today's upgraded midpoint of $340 million.
"We expect pricing traction to remain a benefit through FY24. In our view, this will support earnings in a relatively benign demand environment. However, we continue to hold our more bearish view on residential construction which sees us expect a difficult demand backdrop in FY25," says Morgan Stanley.
From a valuation perspective, Boral's currently trading at a price-to-earnings ratio of around 27x forward earnings. "We think this looks unsustainably high, especially in the context of a ~18x long-run average," the analysts said.
An Underweight rating was retained with a $3.90 target price (33% downside from today's open).
Putting it all together: Boral delivered a strong first-half FY24 result that smashed analyst expectations. Momentum is expected to continue into the second half, but that's largely penciled into Morgan Stanley expectations. The stock is still enjoying some solid gains today but we'll have to wait till this afternoon/tomorrow to see if it will warrant any analyst upgrades/downgrades.
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