Boral beats profit expectations despite slow down in residential construction and high inflation

Almost a year into the job, Boral boss Vik Bansal appears to be delivering on the billionaire Stokes family’s turnaround strategy.

Boral chief executive Vik Bansal has wasted no time turning the screws on costs and driving through price rises at the nation’s biggest building and construction materials supplier, leading to higher-than-expected earnings in a challenging market environment.

On Thursday, Boral pushed off difficult conditions in construction to produce earnings before interest and tax from continuing operations 10 per cent ahead of market expectations, to $231.5m, and forecast growth to $270-$300m in the current year.

Tribeca Funds manager Jun Bei Liu said that even though Boral shares have risen – some 90 per cent since Mr Bansal was appointed – including 8.5 per cent on Thursday, the company is still a “good investment” and has further earnings growth to come.

“They managed to achieve price growth, volume growth, they beat on expectations in almost every metric and even the guidance for next year is five per cent above,” said Ms Liu. Mr Bansal also “hinted that there are more cost outs, so a lot of opportunities for further upside to earnings.”

While Boral’s earnings forecast beat expectations, the company lowered its carbon reduction targets for full year 2025 citing “the impact of delays in regulatory approval processes and third party project delivery.”

The Albanese government’s safeguard mechanism requires large greenhouse gases emitters to reduce carbon output over the remainder of the decade.

Last month, Rio Tinto cut $US1.2bn from the value of its Australian aluminium assets as a result of new regulations.

Mr Bansal is just 10 months into his role at Boral, having been appointed by the billionaire Stokes family, who grabbed control of the company through its Seven Group Holdings in 2021 after a lengthy $8bn takeover battle.

His appointment was mired in controversy. After successfully turning around industrial firm Cleanaway he left after bullying allegations.

Mr Bansal “has been a very strong manager that has a lot of investor support,” according to Ms Liu, who holds about $10m worth of Boral shares for Tribeca.

“He is exactly the right person to run Boral. You need a tough manager who knows how to manage people, to manage rosters, to know where to look in a cost conscious environment and knows how to push through price increases.”

Boral is targeting double-digit EBIT margin growth in the medium term and improved the rate this year to 6.7 per cent from 3.8 per cent last year.

Chief executive Vik Bansal said volume growth is likely to be flat in the current year but prices, which started rising in October last year, will continue to rise this year in line with increased costs, albeit at a slower rate. This will allow the company to achieve its growth targets, he said.

“There will be price increases because there are cost increases,” said Mr Bansal. “You need volume, price, and cost … a permutation of the three will get us to double-digit. Every time you reduce your costs and get an extra cubic metre of volume, that gives you operating leverage.”

Mr Bansal said he sees social infrastructure spending on schools, hospitals and eventually the Olympics in Queensland will make up for the slowdown in residential builds and expects infrastructure and commercial spending to come back.

Boral had been a perennial underperformer before Stokes bought in, installed new management, divest about $4bn of assets including a failed foray into fly ash in the US, and shifted the focus back to Australia.

Now, under new leadership, it is starting to deliver a turnaround that may take another three to four years, particularly in the difficult construction market.

These efforts are undoubtedly being slowed by the Reserve Bank’s 12 interest rate rises since May last year and the rising cost of labour and other expenses.

These factors have contributed to the demise of many construction companies in the past 12 months, and Mr Bansal is an outspoken advocate of moving away from fixed pricing – as his firm is – because it has seen many companies unable to deliver projects on budget due to rising costs.

UBS said in a research note that it would be looking for further price rises from Boral as more legacy fixed contracts roll off, to offset cost increases.

“We continue to look for upside risk from additional price increases (and the level of pricing required to offset cost increases, including labour, which we think are still in the early stages of cost inflation),” UBS analyst Lee Power wrote in his note.

In the year just finished, Boral announced revenue of $3.46bn from continued operations and adjusted earnings per share of 12.9 cents, just beating market predictions of revenue of $3.34bn and earnings per share of 11c.

In the company’s cement business, revenue fell short of expectations, at $362m compared with consensus of $379.9m, but was still up 14 per cent on the previous year as higher prices more than offset lower volumes.

It was the same story for quarry products, which missed forecasts but was still 19 per cent above the previous year to $507m.

Revenue from the concrete business surged 20 per cent on the previous year to $1.46m. In the Quarry unit, revenue rose 19 per cent to $507m, which was below market consensus of $548m.

Mr Bansal said all units made a profit for the full year. Boral did not announce a widely-expected dividend, with Mr Bansal noting it had no franking credits available due to losses in the previous year.

Boral shares closed 8.5 per cent higher at $4.74 in a slightly higher market on Thursday.

Billionaire businessman Kerry Stokes. Picture: Daniel Wilkins

Originally published as Boral beats profit expectations despite slow down in residential construction and high inflation