The Boral Limited (ASX: BLD) share price has risen by 46.7% since the turn of the market on 22 May. It remains down year to date but could be heading higher with sales likely to benefit from the government’s ‘HomeBuilder‘ stimulus package. Boral shares are selling at a current price to earnings ratio (P/E) of 25.59, 3 points higher than their 10-year average.
The construction materials manufacturer has seen poor performance in recent times and the sudden jump in the Boral share price has caught many investors unaware.
What’s driving the Boral share price?
With more than a 45% leap in only a couple of weeks, the Boral share price is appreciating faster than many of its S&P/ASX 200 Index (INDEXASX: XJO) peers. There are a number of factors at play here.
Firstly, the company won a legal battle against Wagners Holding Company Ltd (ASX: WGN) in Queensland last week. Boral is Wagners’ largest cement customer and was accused of trying to force down cement contract prices. As a result of the ruling, Boral will continue to purchase cement from Wagners until 2031 at lower rates, reflecting competition in the marketplace.
This followed a snap investment by Kerry Stokes’ company Seven Group Holdings Ltd (ASX: SVW), purchasing 10% of the company. Seven Group capitalised on a shake up in the MSCI index last week, buying the Boral shares as investors off loaded them prior to the company being moved out of the index.
I believe Seven Group is likely to push for a seat on the Boral board. It may also increase its shareholding in a bid to bolster its influence.
What are the issues for Boral?
Boral posted a reduction in interim profit of 39% in February amidst a weak outlook for Australian sales. The Boral share price has also had a generally lacklustre performance over the past couple of years. The company is, however, currently undertaking a strategic review with Macquarie Capital and Flagstaff Partners. It is also searching for a replacement for current CEO Mike Kane.
Furthermore, talk of asset sales are swirling around the company. Some industry analysts are suggesting the US-based stone business would be easiest to divest, with Boral’s light building products being substantially harder to move. In September 2019, however, investment banker John Wylie approached Boral’s chairman suggesting a company break-up. Boral chose to reject this recommendation.
I believe the Seven Group position in Boral, combined with a strategic review underway, bodes well for the Boral share price. With positive market sentiment likely to continue in the short term, and action afoot to correct lagging performance, I believe we will continue to see rises in the Boral share price.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
Motley Fool contributor Daryl Mather 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.
- Afterpay (ASX:APT) share price under heavy fire from industry giants – November 30, 2020 9:22am
- IOOF (ASX:IFL) accused of butchering its share price – November 25, 2020 1:58pm
- The Objective Corp (ASX:OCL) share price is up ahead of AGM – November 25, 2020 10:58am