Here’s why the Boral (ASX:BLD) share price is storming 5% higher

The Boral Limited (ASX:BLD) share price is on the move on Thursday after selling its share of the USG Boral joint venture…

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The Boral Limited (ASX: BLD) share price is on the move on Thursday morning.

At the time of writing, the building products company’s shares are up 5.5% to $5.79.

This latest gain means the Boral share price is now up 16% since the start of the year.

Why is the Boral share price pushing higher?

Investors have been buying Boral shares this morning after it announced the completion of the sale of its 50% share in the USG Boral joint venture to Gebr Knauf KG for US$1.015 billion (A$1.33 billion).

According to the release, subject to finalisation of standard completion adjustments, Boral expects to report a profit on sale after tax of approximately A$450 million.

The company advised that in line with its financial framework, the final sale proceeds of A$1.33 billion will be used to reduce its net debt position from ~A$1.9 billion to its targeted net debt of $1.5 billion.

This will leave Boral with a surplus of approximately $1 billion, which it intends to reinvest in the business and return to shareholders.

On-market buy-back

After taking into account Boral’s future expected operating and cash flow requirements, management has decided to undertake an on-market share buy-back.

The release explains that, subject to prevailing share price and market conditions, Boral intends to buy back up to 10% of shares on issue, or approximately 122 million shares, over the next 12 months. This will be fully funded from the aforementioned sale proceeds.

Boral’s CEO and Managing Director, Zlatko Todorcevski, commented: “The sale of our 50% interest in USG Boral to Knauf for an attractive premium creates substantial value for Boral’s shareholders. The sale enables Boral to reduce net debt to our current target of A$1.5 billion, and create surplus capital available for return to shareholders, which is consistent with Boral’s financial framework. We believe that an on-market buy-back is the most effective method of returning this surplus capital to our shareholders.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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