Shares in building products manufacturer CSR Limited (ASX: CSR) are inching higher in early afternoon trading to now change hands at $6.30 apiece.
CSR shares have come off an intraday high of $6.36 before retreating back to the current price following the release of the company’s quarterly activities report.
Here we cover the central points from CSR’s performance in the quarter ending 30 September 2021.
CSR share price spike on 30% net profit growth
CSR outlined several investment highlights from the quarter, including:
- Trading revenue of $1.1 billion was up 6% from the same time last year
- Earnings before interest and tax (EBIT) of $132.6 million, up 41% year on year
- Building products EBIT growth of 25% year on year to $120.6 million
- Aluminium EBIT grew to $18.3 million, up from $6.2 million the year prior
- Property EBIT also grew following Moss Vale site sale to $6.6 million
- Statutory net profit after tax (NPAT) of $156.6 million up from $58.7 million year on year
- NPAT before significant items growth of 30% year on year at $86.6 million
- Final transaction at Horsley park secured in July, expected to generate $408 million by March 2025.
- Fully franked interim dividend of 13.5 cents per share.
What happened this quarter for CSR?
The construction materials giant recognised a solid quarter of growth, underscored by strengths in the building market and pricing in the aluminium markets.
Revenue of $1.1 billion was a 6% year on year gain for the name behind the famous Gyprock brand.
Whereas it also recognised EBIT of almost $133 million – a 41% gain over the year.
This was subcategorised into a 25% growth in its building products EBIT, driven by “positive conditions in the detached market, strong operational execution, manufacturing performance and good cost control” throughout the pandemic.
Furthermore, CSR also grew its property EBIT to $6.6 million from $1.7 million compared to the same time last year, following the sale of a Moss Vale site it owned.
Its property arm is also expected to generate an additional $408 million in the year ending 31 March 2025 following the staged sale of land at the company’s Horsley Park site.
Underlying strengths in the aluminium spot markets also helped drive earnings this quarter for CSR, with its Aluminium division scoring a 195% year on year gain to $18.3 million.
This was thanks to its equity stake in the Tomago aluminium smelter in Australia.
Note that whilst aluminium pricing spiked 15% during the quarter, and then took off once more afterwards, it is now trading back at its early September ranges of US$2,687/tonne – falling 15% in around 2 weeks.
This strength in operating income carried through CSR’s income statement, with statutory NPAT including significant items coming in at almost $157 million for the quarter.
CSR notes the ‘significant item’ in question relates to “recognition of $71.2 million in carry forward capital tax losses” from a prior period.
Backing this out of the equation, CSR still recognised a 30% jump in NPAT to $86.6 million, enabling shareholders to relish in a fully franked 13.5 cents per share interim dividend – up from 4 cents per share last year.
What did CSR management say?
Speaking on the announcement, CSR’s managing director and CEO Julie Coates said:
CSR’s businesses have performed very well despite the ongoing impacts of COVID on our operations. In Building Products, we made the most of the positive conditions in the detached market. The team executed well to deliver a strong result underpinned by good manufacturing performance and ongoing cost discipline.
We have also made good progress across a number of key strategic initiatives. We continue to develop our customer solutions and supply chain opportunities in Building Products. And we are unlocking further value from our property assets and development capabilities, securing the final tranche at Horsley Park with expected proceeds in excess of $400 million from the 52 hectare site over a six year period.
Regarding the company’s dividend, Coates concluded:
CSR continues to deliver strong cash generation to invest in growth opportunities in the business as well as returns for shareholders with the interim dividend at the top end of our dividend policy.
What’s next for the CSR share price?
CSR gave guidance on its property and aluminium divisions but was hesitant to provide further colour on its building segment.
This is due to uncertainties in the market going forward given supply constraints and reduced local demand, per the release.
In its property arm, the company forecasts EBIT for the year ending March 2022 (YEM22) to come in at around $34 million.
The company also improved its hedge book for its aluminium exposure this quarter. It is now hedged out to a term of 4 years from large price swings in the price of aluminium, per the release.
As such, it expects EBIT for YEM22 in a range of $35 million to $41 million in its aluminium segment in YEM22.
It makes this assumption on the basis that “all other revenue and cost areas (including coal costs) are unchanged”.
CSR also asserts that “Group earnings will be supported over coming years by contracted transactions from property and a strong hedge position in aluminium”.
CSR and its share price have fared well this past 12 months, having gained 25% in that time after rallying another 19% this year to date.