Shares in James Hardie Industries Plc (ASX: JHX) fell earlier this week when the company reported its full year results, and on the face of it it's not hard to see why.
While net sales came in at US$4.84 billion, net profit attributable to shareholders was down 75% to US$104 million.
However, the analyst teams at Macqaurie and Morgans have had a closer look at the results, and like what they see.
We'll get to what they are saying later. Firstly let's have a closer look at the James Hardie result.
Image source: Getty Images
Underlying results solid
Chief Executive Aaron Erter made the point that the company exceeded expectations in terms of underlying earnings.
As he said:
We delivered Adjusted EBITDA above our guidance range in the fourth quarter, reflecting disciplined execution and the strength of our business model in a challenging operating environment. Despite unfavourable weather in February and early March that impacted reported results and disrupted construction activity across key regions, the business delivered underlying performance that exceeded expectations.
Mr Erter said it was a transformational year for the company, including as it did the finalisation of the acquisition of AZEK.
He said the company was continuing to see progress in terms of cost and commercial synergies from that deal, "further strengthening our belief in the long-term value creation opportunity from the combination''.
He added that the company was forecasting another step up in earnings this year.
We also expect a meaningful step-up in Free Cash Flow to greater than $500 million in FY27. This will be driven by higher Adjusted EBITDA as we realize both cost and commercial synergies, a reduction in one-time integration and transaction-related costs, and continued discipline around capital spending and working capital. As these factors come together, cash conversion will improve, giving us greater flexibility to reduce leverage over time.
Shares looking like good value
The analyst team at Macquarie said the company's results beat expectations at an EBITDA level, and James Hardie's cost and operational execution was "solid".
Macquarie said James Hardie was expecting soft, but stabilising conditions in the US which was a negative, and downgraded their price target on the company from $41.10 to $39.60, still well above the current price of $28.43.
The team at Morgans has a price target on James Hardie shares of $39, reduced from $45.75 following the results announcement.
They note that while there is persistent softness across key markets, the company is fundamentally sound.
They said:
We continue to view JHX as the highest-quality building products exposure on the ASX with structural advantages in fibre cement and an enhanced footprint in exteriors through AZEK. FY27 should mark an inflection year as organic growth returns, pricing holds, synergies accelerate and leverage normalises. At the current valuation, JHX screens attractively relative to quality and medium-term growth.
