Australia's biggest construction suppliers are being squeezed with higher prices and lower demand for their products.
CSR (ASX: CSR) is the latest construction supplier to release a profit downgrade. Yesterday, it reported a net loss of $146.9 million for the year ended 31 March. Included in the result was a significant charge of $256.6 million pre-tax, largely from restructuring costs and non-cash impairment charges to reduce the carrying value of Viridian glass operations.
Revenues were also down 7% year on year but the biggest hit is in the dividend department. Last year, CSR paid 13.0 cents per share but it has been reduced to 5.1 cents for the full year. The company credited the poor figures to a weak domestic construction industry with reduced demand for its core building supplies and cement businesses but it's not alone.
Boral (ASX: BLD) downgraded its profit early last week citing weak demand in housing markets throughout the country. The international building and construction materials company dropped from $5.00 at the beginning of May to open today at $4.55. Now, with a P/E ratio of 34 and a 2.3% dividend, investors should be cautious about taking the plunge into this company.
Two building supply companies' share prices that have soared this past year are Fletcher Building (ASX: FBU) and James Hardie Industries (ASX: JHX), both up over 50%. Perhaps, it was their slightly higher dividends that appealed to investors, paying 4.3% and 3.7% respectively.
Foolish takeaway
The industry continues to take a beating, even Reece Australia (ASX: REH) has been cut to neutral from buy, further highlighting that the industry is under immense pressure. Perhaps there are still bargains to be had, maybe GWA Group (ASX: GWA). With a 5.9% fully franked dividend it might be appealing, but if it was my money I would wait until there was either a sign of a recovery or until the price drops.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.
