BUILDING products group Boral’s earnings before interest and tax could increase by between $60 million and $70m if it pushes ahead with a concrete price increase of $10-$12 per cubic metre, according to Goldman Sachs. Concrete is the biggest revenue generator for Boral, bringing in up to $1 billion a year. With industry expectations for concrete price increases of $10-$12 per cubic metre, Goldman Sachs analyst Matthew McNee estimated NSW concrete prices would be “somewhat higher, while Queensland and South Australia would be marginally lower”.
For Adelaide Brighton a similar price increase in concrete would mean an increase in EBIT of $10m-$12m. “We estimate a 5 per cent increase in concrete prices has a 19.6 per cent impact on our financial forecast for Boral and a 3.6 per cent impact on Adelaide Brighton,” Mr McNee said. “Boral is a key beneficiary of construction material price increases.
“However, with the share price already discounting a significant earnings recovery and ongoing concerns over the likely quality of potential acquisition and investment opportunities, we maintain a neutral view on the stock.
“Regarding Adelaide Brighton, with the domestic cycle likely to remain subdued, we see little to drive the stock higher in the short term.” Goldman Sachs has a hold rating on both stocks.
Mr McNee said big concrete producers including Hanson, Holcim and Boral, ware committed to price increases. “Some uncertainty surrounds the level to which smaller independent players will follow,” he said. But when the big firms committed to higher prices, “the likelihood of success is improved”.
Boral’s share price fell 15c to $4.97, while Adelaide Brighton’s share price fell 8c to $3.18.