Window of opportunity puts CSR on the radar

Analysis of CSR’s building products division indicates its value is $2.3bn, including debt.

The $2.49bn listed building products provider CSR could be increasingly attractive to a suitor following the sale of Jeld-Wen’s Australian and New Zealand operations.

The US-based Jeld-Wen on Tuesday announced that it had offloaded its local division, which sells doors and windows under the Corinthian, Stegbar and Breezway brands, to private equity firm Platinum for $US450m ($688m).

Analysts at Barrenjoey have crunched numbers on the transaction, and say on average, the Australia and New Zealand unit generated $US67m of annual earnings before interest, tax, depreciation and amortisation over the past three years.

This suggests that the business sold at a multiple of about 6.7 times EBITDA.

When the same multiple was applied to CSR’s building products division, it indicates that its value is $2.3bn, including debt.

CSR currently has a market value of $2.49bn, and has valued the land it owns at about $1.5bn.

It could suggest that any buyer would be gaining CSR’s land for nothing.

The two most logical buyers for CSR are considered to be Fletcher Building and French building materials company Saint-Gobain.

However, Saint-Gobain weighed an acquisition of Boral in the past, but walked away, and some believe Fletcher Building is an unlikely buyer after its entry into the Australia market through the acquisition of Crane turned out to be an unpopular investment.

Some market experts say that the Jeld-Wen sale included real estate worth about $200m, which is likely to be placed on the market by the company’s new owner, Platinum.

Based on this, it is not an entirely accurate comparison to CSR’s unit.

But they agree that the transaction does indicate its full value is not being reflected in its share price.

Another market observer, though, says that windows and doors are more challenging because cost efficiencies are harder to generate than with other building products.

CSR has been spending on share buybacks and some believe that it has significant capital investment costs looming.

It generates about half of its earnings from Gyprock plasterboard and the remainder from bricks, insulation and the concrete product Hebel.

The company has already signalled it expects lower returns in the upcoming years, with lower volumes amid a slowing economy and high fixed costs.

Headwinds are expected for at least a year in the building industry, which could make any group in the space less attractive to a buyer hoping to enjoy upside from a recovery in the housing cycle.

Asbestos liabilities also remain an issue for the group.

But for those prepared to look through those problems, it may be worth it.