The Boral stock price is trading up a massive 86% in the 1 year to date. This seems to be fuelled by a COVID initiated infrastructure boom and a series of capital management measures taken by the Boral board to boost their share price. So given the massive run-up already we take a look, should I buy Boral shares?
As of the 2020 Annual Report Boral operates across three separate divisions, USG Boral, Boral North America and Boral Australia. This is interesting, as we will get into later, this year Boral seems to have divested a significant portion of their assets and focussed on their Australian Business.
Boral Australia is the largest integrated construction materials company in Australia, with a leading position underpinned by strategically located quarry reserves and a network of 379 operating sites. Boral also manufactures and supply a focused range of building products. Boral serve customers nationally in the infrastructure, commercial and residential construction markets
Boral North America has industry-leading positions in fly ash processing and distribution. They also manufacture and supply stone veneer, roof tiles, windows and light building products, including trim, siding and shutters, for residential and commercial markets, and have a 50% share of the Meridian Brick joint venture
USG Boral, a 50:50 joint venture with Knauf/USG Corporation, is a leading manufacturer and supplier of wall and ceiling solutions. With a presence in 14 countries across the Asia Pacific and the Middle East, USG Boral produces plasterboard-based wall and ceiling lining systems, mineral fibre ceiling systems, metal framing, joint compounds, high-performance panels and accessories
Sale of Boral’s 50% share of their USG Boral Joint Venture
On the 1st April 2020, Boral (ASX:BLD) announced to the market that they have successfully entered into an agreement to sell their 50% stake in the USG Boral Joint Venture to Knuaf for a valuation of US$1.015billion. In line with Boral’s financial framework, they will utilise proceed of this sale to reduce their net debt position. Boral expects to report a net profit after tax of $450 million on the sale of their 50% share of the USG Boral JV.
Boral(ASX:BLD) flagged in this announcement that they wish to return this excess capital to shareholders via an on-market buyback of shares.
Boral to sell their North American Building Products Division
On the 21st of June 2021, Boral (ASX:BLD) announced to the market that they are intending to sell their North American Building Products division. A subsidiary of NYSE listed Westlake Chemical Corporation (NYSE:WSLK) has agreed to purchase the division for a total of US$2.05 billion. The transaction is expected to be completed in the first half of FY2022, with the profits to be disclosed in the company’s annual report for FY2021.
Following the sale, Boral’s net debt target will reduce from ~A$1.5 billion to ~A$1.3 billion. This is in line with Boral’s financial framework which targets an optimal net debt range of 2-2.5 times EBITDA where ROFE equals WACC.
This deal is expected to produce excess capital for the business in the order of A$3.2 billion, on which equates to a $3.02 share price. In the announcement dated 22nd June, Boral also go on to mention they will seek ways to return this to shareholders.
The above two items are extremely substantial as this greatly impacts the environment in which Boral will operate going forwards. This only leaves the North American Fly Ash Business, however Boral in the same announcement flag they wish to explore opportunities for divestment of this business also.
Opportunistic Deal by Seven Group Holdings (ASX:SGH)
On the 10th May 2021, SGH announced a $6.501 cash per share off-market takeover for all of the ordinary shares it does not own in Boral. SGH currently has an interest in approximately 23.18%2 of Boral. Given that its interest exceeds 20% and that it has recently utilised its “creep” capacity by acquiring an additional 3% interest, SGH is currently restricted from acquiring further Boral stock on market at this time. As a result, SGH is making a takeover offer to all shareholders. In making the offer, SGH is seeking to increase its interest in Boral and would be satisfied for the Offer to result in it holding a total interest of around 30% of Boral
The deal represents a large premium to the current share price. However, the board of Boral (ASX:BLD) came out urging shareholders to reject the offer on the 11th May by taking no action. This is on the grounds of the offer representing a nil premium to the closing price on the 10th May. However, it’s worth keeping in mind that the large uplift in share price on the 10th was potentially due to the uplift from investor sentiment due to the offer.
So If SGH is buying Boral Stock it really begs the question, should I buy Boral Shares?
Ongoing Daily Share Buy Backs
On the 1st April 2021, Boral announced to the market they intended to conduct a share buy-back of up to 10% of the shares on issue, to return excess capital to investors from the sale of their share of the USG-Boral JV and the sale of their North American Building Products division.
Boral (ASX:BLD) is permitted to buy back up to 10% of the issued capital in any 12-month period without shareholder approval. Boral (ASX:BLD) will continue to assess options to distribute any additional surplus capital having regard to the size of the surplus and the most efficient method for distribution at the relevant time. This may include seeking shareholder approval at the Annual General Meeting to extend the buy-back
The timing of the buy-back and the opportunistic deal buy SGH seem to be placed for the perfect run up for shareholders. The buy-back is driving up the price of the shares whilst the bid by SGH Is also performing much the same function.
Given the fact that the share price has been substantially inflated by very intensive capital measures such as the share buy backs and offers by SGH it seems fitting that the share price is up a massive 86% this year. However, we are worried that the capital measures aimed to raise the share price may not stack up should Boral not substantially increase their operating position.
With a massive $3.02/share deal with Westlake chemicals, at $7.02 a share currently, this leaves the remaining business to be valued at around $4 per share, or approximately a market cap of A$5 billion.
Boral (ASX:BLD) has not typically been growing earnings or revenue each year for at-least the past 3 years. It is expected that Boral will produce a significantly better result in FY2021, based on the TTM for the period.
BLD Shares ASX: Insider Ownership And Trading
Boral (ASX:BLD) has no significant insider ownership, accounting for only 0.3%. The general public and institutions are the major shareholders owning 45% and 30% respectively. Public companies own 24.14%, with SGH looking to acquire up to 30%.
In 2021 there has been substantial trading activity in BLD Stock (ASX:BLD). There have been increased levels of Buying. Interestingly by company executives before significant deals were struck.
|16 Jun 21||Buy AU$3,633,136||Seven Group Holdings Limited||Company||558,944||AU$6.50|
|08 Apr 21||Sell AU$38,675,000||Perpetual Limited||Company||6,500,000||AU$5.95|
|31 Mar 21||Buy AU$0||Perpetual Limited||Company||1,258,747||AU$5.51|
|24 Mar 21||Buy AU$65,563,844||Perpetual Limited||Company||12,582,871||AU$5.60|
|16 Mar 21||Sell AU$18,784,167||Perpetual Limited||Company||3,655,311||AU$5.61|
|19 Feb 21||Buy AU$76,350||Deborah O’Toole||Individual||15,000||AU$5.09|
|17 Feb 21||Buy AU$50,800||Peter Alexander||Individual||10,000||AU$5.08|
|11 Feb 21||Buy AU$125,000||Alan Robert Sindel||Individual||25,000||AU$5.00|
|11 Feb 21||Buy AU$100,398||Kathryn Fagg||Individual||20,000||AU$5.02|
|10 Feb 21||Buy AU$507,890||Zlatko Todorcevski||Individual||100,000||AU$5.08|
Boral Stock (ASX:BLD) Review: Prophet’s Take
The business is poised to grow and respond rapidly on the back of the pandemic, given the recent infrastrucure boom as a result of the COVID recovery efforts from governments. They have sound fundamentals and are taking steps to pay down their high debt levels.
BLD continues to grow its portfolio, however has recently divested a number of key businesses in order to strengthen their balance sheet and debt position. The group has recently conducted a number of capital return measures to shareholders, potentially to shield of SGH from making a opportunistic run for the company.
However, we struggle to see where the long term future growth and think shares do not believe the shares currently offer massive upside for very little risk. We see the company growing at medium to high percentages for the medium term.
The run up and capital returns measures may persist for some time, which should deliver an uplift in shareholder value, however, we will be sitting on the sidelines for this one.
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