Boral delivered a robust first-half FY17 result, with earnings before interest and tax exceeding Ord Minnett’s forecast of $211 million forecast by 6%, while a fully franked interim dividend of 12.0 cents per share was declared, above our forecast of 11.0 cents.
The strength of the result was shared across all divisions, and for the FY17 outlook, management struck an upbeat tone for each of its major business units.
In particular, Boral Australia is now less reliant on a strong second half skew to achieve full-year guidance. After falling behind in the first quarter of FY17 due to adverse weather, Boral Australia managed to catch up on lost work in the second quarter, a dynamic that has been a rare occurrence in years gone by.
With respect to the Headwaters transaction, management remains confident it can achieve “at least” the US$100 million synergy target within four years of completion.
We have now incorporated the Headwaters acquisition into our forecasts (including full synergies), and believe it will be a key driver of growth. The company's legacy US business and its recently formed brick joint venture with Forterra should also contribute to meaningful earnings growth.
After research restriction, we have resumed coverage on Boral with a Hold recommendation and a target price of $6.50. Boral’s earnings trajectory is strong, but we consider the share price to be fairly valued around current levels.