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Is the Boral share price a buy after falling 10% in 2019?

The Boral Limited (ASX: BLD) share price is down 10% in 2019 so far and I think it’s time buy.

Background on Boral

Boral is a supplier of building and construction materials with headquarters in Sydney. Boral produces cement, plasterboard, bricks and roof tiles. It operates in Australia, Asia and the United States. The company has a market capitalisation of $5.03 billion.

Why I think it’s a buy

Boral has a price-to-earnings (P/E) ratio of 11.25x, this is low compared to the ASX 200, which trades on a P/E ratio of 19.24x at the time of writing. Boral recorded slightly lower earnings for the 2019 financial year, mainly due to a weak Australian housing market. However, it still managed to post sales growth of 4%, suggesting that the business continues to grow.

Boral has a grossed-up dividend yield of 7.5%. This is a great return in a low interest rate environment. Additionally, Boral has maintained and grown dividends over the last several years. A payout ratio of 69% suggests that its management are happy to pay profits back to shareholders and are also reinvesting for the company’s growth.

Boral trades on a price-to-book ratio of 0.86. Considering that the group has maintained a return on equity above 6.5% and up to 8.5% in recent years, this is a low valuation and suggests that good returns are on offer.

The company has a debt-to-equity ratio of 41%. This is reasonable and suggests that its management are maintaining a moderate risk profile. While the housing market in Australia saw a drop in prices recently, Boral should be able to hold its own if this continues.

Additionally, Boral’s cash flow has been above its earnings every year in recent memory. This suggests that the company is producing real profits and that these are not inflated by accounting methods. Further, it also suggests that real earnings may be higher than those reported after depreciation is taken into account.

As identified, Boral may face risks if the housing market continues its decline. However earnings from abroad should help to hedge against this. It appears that a further downward trend in house prices has already been factored into Boral’s share price. If house prices recover, then Boral should see a significant rerating to its share price.

Foolish takeaway

Boral trades on a low price-to-earnings ratio and a discount to its book value. It has a solid track record and offers a good dividend with manageable debt. I think it’s a buy.

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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. 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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