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Boral (ASX:BLD) share price surges after announcing a US$1bn transaction

bricks and mortar

The Boral Limited (ASX: BLD) share price is one of the best performing stocks on this dismal trading day thanks to a billion-dollar transaction.

Shares in the building materials supplier surged 4% to $4.92 in morning trade, making it the second best performer on the S&P/ASX 200 Index (Index:^AXJO).

In case you are wondering, the Blackmores Limited (ASX: BKL) share price is in pole position with a 6.8% rally.

But Boral shareholders won’t be complaining. The top 200 stock index tumbled 1.4% due to an aggressive resurgence of global COVID‐19 cases.

The billion-dollar Boral share price catalyst

Management excited the market after it announced a deal to sell 50% of USG Boral to Gebr Knauf KG for US$1.015 billion (~A$1.43 billion).

What may be more pleasing to investors is news that Boral has received multiple offers for its troubled US assets, reported the Australian Financial Review.

US asset sales in the pipeline?

Boral’s expansion into the US is a key reason why the stock has been underperforming and led to the ouster of the former chief executive Mike King.

But new boss Zlatko Todorcevski promised there will be no “fire sale” of its US assets even after the group took a $1.2 billion write-down of its Meridian Brick business.

Boral’s major shareholder Seven Group Holdings Ltd (ASX: SVW) would be pleased as it’s been agitating for the sale of the underperforming businesses.

Boral share price a target for takeover

It’s probably a little self-serving though as it’s an open secret that Seven Group would like to acquire Boral’s Australian assets. Any takeover would be easier without the deadweight from Boral’s US divisions.

However, any divestments in that market will have to wait till 2021. Management isn’t willing to enter into any serious negotiations while Todorcevski is still reviewing his restructuring plan for the group.

Expanding margins

Boral also provided a pleasing September quarter trading update. While group revenue fell 9% over the same period last year, earnings before interest and tax margins expanded to 9.5% from around 9%.

This meant group EBIT declined a more modest 5% over the first quarter of FY19.

This trend was consistent through all Boral’s divisions. Boral Australia reported 1QFY20 EBIT that was steady despite a drop in concrete, quarry and asphalt volumes.

Boral North America and USG Boral recorded slight increases in EBIT margins too.

Shareholders will be hoping this marks a turning point for the underperformer. Even with today’s jump, the stock is trading flat over the past year when the James Hardie Industries plc (ASX: JHX) share price and CSR Limited (ASX: CSR) share price are up 40% and 16%, respectively.

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Returns As of 6th October 2020

Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc and Seven Group Holdings Limited. Connect with me on Twitter @brenlau.

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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