The Housing Industry Association (HIA) recently released its summary on the full-year figures for Building Approvals. The results showed 2013 to be a strong year for the sector with residential approvals up 15.7% over the year. Importantly the HIA sees a promising outlook for 2014.
All eyes will be on Boral Limited (ASX: BLD) come 12 February when the building materials company reports its half-year results. With approximately 72% of Boral's revenues coming from Australia, the company has significant leverage to the domestic housing and construction markets.
After reporting revenue of $5.29 billion and net profit after tax (NPAT) of $104 million for the 2013 financial year, management updated the market in late January stating that Boral was on track to report a NPAT of $90 million for the half-year ending 31 December 2013. While the company also advised that it expects a "significant skew in earnings to the first half," with first-half profit just 13.5% shy of the profit for the 2013 financial year, Boral would appear to be benefiting from improved industry conditions.
It appears it might be a similarly positive outlook for fellow building materials company CSR Limited (ASX: CSR). While investors will have to wait a little longer to review how CSR is tracking due to its financial-year end date of 31 March, with 58.5% of its revenue attributable to the Building Products division (at the recent half year), CSR has significant exposure to any improvement in home building too.
Current guidance for the full year from CSR's management is for earnings before interest and tax from the Building Products division to be higher than FY 2013. Meanwhile group wide profits are expected to be towards the upper end of analyst forecasts of between $51 million and $70 million.
Foolish takeaway
The building materials sector received a boost this week when the Australian Financial Review reported comments by CSR's CEO that the sector "is now facing its time in the sun as the housing recovery charges on."
While investors still need to consider the underlying value of any business before investing, the tailwind of a cyclical upswing in the housing sector is an appealing theme to consider riding.
