What: Shares in leading building materials supplier Boral Limited (ASX: BLD) have rallied around 4.5% by lunchtime today after releasing a set of full year operating results that beat analysts' consensus expectations for revenue. It's certainly been a good 12-month period to be an investor in Boral with the share price gaining around 37%, compared with a gain of just under 10% from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).
So what: The results highlight the significant leverage within the business and the benefits of management's cost-out program. Boral's 'Fix, Execute, Transform' cost-out program appears to have been a success with the group achieving annualised cost reductions of $130 million via a number of measures. These include headcount reduction and improved procurement spend.
Revenue from continuing operations gained 7% to $4.45 billion and adjusted net profit after tax soared 64% to $171 million; adjusted profits on a per share basis equated to 22 cents per share (cps).
Another key feature of Boral's result was the high levels of cash generation which has been applied to debt reduction. Over the year the company managed to halve its net debt from $1.45 billion to $718 million, primarily thanks to an asset sale but also due to strong cash flows.
A final dividend of 8 cps has been declared; coupled with the interim dividend of 7 cps this brings the total FY 2014 payout to 15 cps fully franked.
Now what: Boral offers exposure to the ongoing housing recovery in the USA, the strengthening new home building market in Australia and continued growth in Boral's Asian business.
The outlook provided by management for FY 2015 stated that the Construction Materials and Cement division should continue to deliver a strong result. The Building Products division is forecast to approximately double its earnings to $16 million. The Boral Gypsum division is expected to continue its strong performance and Boral USA is forecast to reach breakeven point after a number of below average years for housing starts.
Despite the strong share price performance and the heady looking price-to-earnings multiple of 25.6x, arguably Boral is still a stock worth considering even at these levels. With the potential for a number of up years left in the building cycle, coupled with the benefits of a full year of annualised cost savings and the fixed cost leverage inherent within the business, Boral's earnings could still increase meaningfully in coming years.
