There's nothing quite like making a big acquisition to take the focus off a company's challenging operating outlook and Boral Limited (ASX: BLD) could be next up to announce such a deal.
This speculation following the building materials supplier's investors day presentation on Friday has done little to help the stock. The Boral share price tumbled 2.1% to $5.31 ahead of the market close when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down by less than half that.
But Boral isn't the only having an off-day. The James Hardie Industries plc (ASX: JHX) share price has lost 2.2% to $17.93 while the CSR Limited (ASX: CSR) share price fell 1.3% to $3.94.
Broker downgrades stock to "sell"
It doesn't help Boral's cause that Credit Suisse has downgraded its recommendation on the stock to "underperform" from "neutral" today even though the market was relieved that management didn't issue a profit downgrade at its investor meeting last week.
"For the first time, management conceded that growth in infrastructure and non-residential activity would not offset the decline in residential for FY20 (this reality in 1H19 was considered temporary)," said the broker, who lowered its price target on the stock to $4.40 from $4.80 a share.
"Weakness is expected to be particularly acute in NSW, which is both Boral's largest revenue region (45% of BLD Aus) and its highest margin. Nor was the company confident on April price increases sticking."
A bigger share price driver
But the attention seems to be trained on Boral's attempt to take full control of its Australian plasterboard joint venture with USG following the takeover of USG by Knauf and form a new Asian plasterboard JV with Knauf.
Analysts are trying to work out how much Boral can cough up through debt and asset sales to fund the two transactions. JP Morgan thinks that number is $816 million, according to the Australian Financial Review.
The analysts at Macquarie Group Ltd (ASX: MQG) also believes the deals could be funded through debt and asset sales – but it could require Boral to walk a tightrope!
The broker believes that Boral's debt levels could be pushed up to slightly uncomfortable levels before it's paid down in FY20.
Macquarie estimates that Boral could pay up to 10 times earnings before interest, tax, depreciation and amortisation (EBITDA) for Knauf ASEAN assets and about 8 times EBITDA to buy back the local JV business.
Let's just hope Boral can stick to its full year guidance regardless of what happens on the M&A front.
