Why the share price of CSR Limited has surged to a more than 8-year high

CSR Limited (ASX: CSR) has defied sceptics once again to deliver a decent result in spite of a sharp rise in input costs.

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The share price of CSR Limited (ASX: CSR) jumped to its highest level in more than eight years after management unveiled an increase in full-year revenue and profit despite soaring energy and aluminium prices.

The value of the building materials supplier added 0.9% to $5.71 in early trade while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) inched up 0.3% on the news.

Management reported a 6% increase in revenue to $2.61 billion for the year ended 31 March, 2018, while normalised net profit made a more impressive 16% gain to $212.7 million.

Revenue came in slightly ahead of consensus forecasts but net profit was a little below. This implies that margins underperformed expectations with CSR complaining that the recent surge in aluminium prices due to US sanctions against Russian producer Rusal and higher electricity and gas prices are dragging on profitability.

But that wasn't enough to deter CSR from increasing its full year dividend by 4% to 27 cents a share that is 75% franked. This gives the stock a pretty decent gross yield of 6.2%.

The standout divisions were building supplies and property with CSR benefiting from the robust residential housing construction market. While that market looks like it may be peaking, management is increasingly turning to commercial property developments to offset any slowdown.

CSR's troublesome glass business continues to deteriorate while its aluminium products business reported a $13.6 million drop in earnings before interest and tax (EBIT) to $79.5 million, but investors had been prepared for that.

The prospect that energy prices will retreat due to the efforts by the federal government could provide some margin relief for the group, but the high aluminium price and the weakening outlook for the Australian dollar is likely to remain a drag on costs.

I prefer Boral Limited (ASX: BLD) for its US market exposure and its better growth profile, although CSR's yield and consensus FY19 price-earnings (P/E) multiple of around 15 times does compare well to other stocks in the sector like James Hardie Industries plc (ASX: JHX) and Adelaide Brighton Ltd. (ASX: ABC).

The experts at the Motley Fool also think you should be looking at another sector for 2018. They believe this niche sector is set to make a big impact on markets over the medium to longer term.

Click on the link below to get your free report on this sector and to find out the stocks that are best placed to ride this unfolding boom.

Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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