Shares in major building products company James Hardie Industries Plc (ASX: JHX) are languishing near 12-month lows, but at least one broker says this presents a good buying opportunity.
The company's stock fell off a cliff in August when it released its results for the first quarter. Net sales fell 9% to US$899.9 million, and net income fell 60% to US$62.6 million for the period.
Investors also didn't react well to the company's release of its notice of meeting this week, which indicated it would increase the pool of fees for the board from US$3.8 million to US$4.8 million and set out the share-based payments to be made to directors and Chief Executive Officer Aaron Erter.
James Hardie shares are currently trading for $27.52, which is not far off the 12-month low of $27.41 and well below the peak for the year of $58.82.
But at these levels, analysts at broking house Jarden argue that James Hardie, which acquired US-based competitor AZEK over the past year, represents good buying.
They do point out however that the pay for management and directors appears generous.
Under the proposed resolutions, Hardie would have arguably one of the most remunerated CEO and boards on the ASX. Market focus is likely on CEO pay, board elections, and fees, though concerns remain over accountability for the AZEK acquisition, which raised leverage and complexity.
Jarden said Mr Erter's total remuneration including long-term incentives came in at US$8.7 million.
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Good buying at these levels
Despite the concerns around executive remuneration, Jarden analysts argue the shares are still trading well below their valuation.
They have a price target of $38 on James Hardie shares, which would generate a 35% return from current levels if achieved.
Given the underlying quality of Hardie and AZEK's operations, potential builder incentives, expected rate cuts improving affordability, and ageing US housing stock, the combined business looks well positioned to accelerate growth as US construction markets recover.
James Hardie is not expected to pay dividends this year. Jarden analysts also said that while the board had authorised an additional share buyback, "given a further deterioration in market conditions, and Hardie's now increased leverage and subsequent lower earnings rebase, the probability of occurrence near to medium term is low''.
The company's annual general meeting will be held in Dublin, Ireland, on October 29.
