Why I think Boral Limited (ASX:BLD) will surge towards $9

Boral Limited (ASX:BLD) is the best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this morning and its outperformance looks set to continue.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The share price of Boral Limited (ASX: BLD) surged higher today after the release of its full year profit results that showed its US business is performing better than investors had feared.

The stock jumped 8.4% to $6.96 at the opening bell – making it the best performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

This looks like a $9 stock to me and there are several revelations in the building materials supplier's full year results that are getting the market excited.

Some of the highlights include:

  • A 34% increase in FY18 revenue to $5.9 billion and a 47% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.1 billion.
  • EBITDA margins expanded to 18% from 16.4% in the last financial year.
  • Revenue is a little below consensus but its adjusted earnings per share (EPS) were a little ahead.
  • Better than expected performance from the recently acquired US-based Headwaters business with synergies of US$39 million in year one – US$4 million ahead of target.
  • Management declared a final dividend of 14 cents per share franked at 50% to take its full year dividend to 26.5 cents, or up 10% from last year.

The two key standouts in my view are the lack of margin pressure as rising costs are a big feature during this reporting season, and the strong performance of Headwaters which many naysayers thought could bring down the group's performance.

What's more, management is expecting further growth in its US business. EBITDA is forecast to jump 20% or more in FY19 as the company extracts a further US$25 million in synergies and as Boral continues to benefit from operational improvements and market growth (as long as the weather behaves).

The company is also expecting Boral Australia to grow its EBITDA by at least high single-digits this financial year if property sales were excluded. The results from the local division were inflated by $63 million from property sales in FY18.

Reassuringly, management said that the impact from the residential property slowdown will be more than offset by an expected rise in commercial, infrastructure and major projects activity.

Its 50% owned joint venture USG Boral business, which supplies gypsum-based lining systems and other building products, is expected to contribute to growth too with EBITDA expanding around 10% in FY19 from improvements in China, India, Indonesia, Thailand and Vietnam.

The US business contributes around 35% to group EBITDA and Boral Australia makes up about 60%.

The stock looks cheap in light of the guidance. The stock is trading on a FY19 price-earnings multiple of around 15 times when a peer like James Hardie Industries plc (ASX: JHX) is on a P/E of 28 times, and Adelaide Brighton Ltd. (ASX: ABC) is on 19 times.

I think Boral will be heading towards the $9 mark by year end.

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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »