Seven Group expected ‘to push for changes’ at Boral

Seven Group, controlled by billionaire businessman Kerry Stokes, emerged as a major shareholder in Boral in early June.

Kerry Stokes. Picture: John Feder/The Australian.

Kerry Stokes’ Seven Group has indicated it will push for changes at Boral after describing the construction materials giant as facing challenges around leadership, strategy, litigation and execution.

Seven Group, controlled by the billionaire businessman, emerged as a major shareholder in Boral in early June after pouncing on its weak share price over the last few months to build up a 10 per cent stake.

The move was seen as potentially strengthening a push by investors for a strategic overhaul at the company after a string of profit downgrades and the looming departure of long-serving chief executive Mike Kane.

A “screening process” identified Boral as a leading industrial business, with “challenges around leadership, strategy, litigation and execution”, Seven Group said in an investor presentation, noting recent price dislocation had been the trigger for its move.

Mr Kane is due to depart in August after Boral’s annual results are delivered and investors are concerned over its US strategy three years after its $US2.6bn Headwaters deal. It’s also dealing with a $US450m lawsuit filed by the former boss of a US windows business it acquired and face shareholder unrest over failing to grab a bigger slice of Australia’s booming infrastructure sector.

Boral’s US business remains under review, Seven Group noted, as part of a broader strategic process instigated by chairman Kathryn Fagg with the advice of Macquarie. Boral’s US exposure holds less appeal for Seven than its Australian unit with the conglomerate thought to be open to a potential divestment to unlock value for investors.

Core divisions in focus

Morgan Stanley estimated this week that Boral could be worth between 35-38 per cent more if it focused on its core divisions with a change in strategy possible either through Mr Kane’s successor or in a takeover scenario.

It noted driving efficiencies in Boral’s Australian business “will be key” with a cost cutting process underway with residential products potentially receiving a boost from federal government stimulus post COVID-19.

Seven Group, which owns the Coates and WesTrac businesses, said the Boral stake would hand it additional exposure to infrastructure investment in Australia with a focus on robust east coast markets.

Seven’s success in gradually building up a 30 per cent stake in Beach Energy, where it holds two board seats, may prove a blueprint for its strategy on Boral. There are expectations it will creep up the Boral register to gain both influence on strategy and expected growth from an Australian infrastructure boom

It also signalled tough conditions continue in the media sector where it holds a 40 per cent stake in Seven West Media. The metropolitan free to air television market plummeted 30.7 per cent in April and is down 9.3 per cent in the year to date.

Seven West will aim to cut $90m in costs by June 30 and a further $110m in the 2021 financial year, Seven Group noted.

Chief executive Ryan Stokes told The Australian this week that COVID-19 has tested all media companies because of the speed with which revenues have declined.