I'm always interested in new shares that list onto the ASX, they could be the next blue chip. One of the newest shares to the ASX is Wagners Holding Company Limited (ASX:WGN), it had a great debut, closing around 25% higher than the listing price.
What is Wagners?
Wagners is a diversified Australian construction materials provider and produces new generation materials with its composite fibre technologies and earth friendly concrete businesses.
It's the largest independently owned cement manufacturer and supplier in South East Queensland, supplying approximately one third of the market's cement requirements.
It also provides customers with concrete batching, quarrying, precast concrete products, reinforcing steel, contract crushing and haulage services.
Why did it list?
Wagners prospectus states two main reasons for the initial public offering:
- There are a number of growth opportunities and initiatives available to Wagners across its Construction Materials and Services (CMS) and New Generation Building Materials (NGBM) business segments.
- Most of the proceeds will be used to reduce debt and increase Wagners' financial flexibility to pursue a range of growth opportunities including new product development, the expansion of Wagners' market presence in cement and concrete, and potential future market consolidation (including acquisitions).
Using the money to pay down debt is a very good use of capital and should provide the business with a stable foundation for future growth.
Is the cement industry growing?
Wagners believe that demand for construction materials in Australia is expected to grow strongly in the medium-term, supported by a large pipeline of civil construction projects. Infrastructure expenditure in Australia is forecast to exceed $215 billion over the next four years to 2021, including $50 billion in Queensland.
Queensland is expected to be the fastest growing market for engineering and infrastructure construction in Australia.
Construction expenditure on roads, bridges, railways and harbours in Queensland is forecast to grow at a compound annual growth rate (CAGR) of 8.3% between 2017 and 2021.
Cement product prices in Brisbane have increased by a CAGR of 1.9% from 2011 to 2017, compared to the national average of 1.8%.
I think the focus on infrastructure spending is a smart move by Wagners if it can sweep up a lot of the spending on cement. The infrastructure spending is almost a certainty because most of it will be spent by the government.
Will Wagners pay a dividend?
Wagners has a policy of targeting a dividend payout ratio of 50% to 70% of net profit after tax, subject to the usual business factors of generating profit, positive cash flow and financial condition.
Management expect that the first dividend will be paid in April 2018. The annualised pro forma FY18 forecast dividend yield on an offer price of $2.71 was 3.2% according to the prospectus.
Foolish takeaway
On the offer price of $2.71 the shares were offered at 19x pro forma FY18 forecast net profit after tax per share. This didn't seem overly expensive, but with the share price growing to $3.40 on the first day it's a fair bit more expensive now.
I'll be very interested to see how Wagners does over the next few years with a potential property downturn but an increase of infrastructure. Wagners isn't the type of business I normally invest in but it could be a market-beater over the coming years.
