Boral calls end with construction boom in Australia and shares slide

SYDNEY (Reuters) – Boral Ltd, Australia's largest construction materials supplier, has changed its domestic outlook and said delays in major projects would weigh on half-year profits, dropping shares as investors were desisted.

The company, which sells asphalt and cement as well as home building materials, said it was no longer expecting growth in its profits in Australia this year and that the adverse weather conditions in these regions, as well as in South Korea and the United States, weighed on sales.

Boral's warning follows the decline in profits of rival James Hardie Industries, builders LendLease Group and AV Jennings Ltd, and a collapse in building permits, as hesitation hits one of the most dynamic sectors economy.

Boral's shares fell from 8% to a five-year low on Monday, while the market in general rose 0.3%.

"It's not just Boral, it's all the sector we've seen depreciated … they've all communicated a little slowdown," said Danial Moradi, Lonsec Research's equity strategist.

"It could be one of the few downgrades (…) There is always a potential danger for this orientation if the conditions do not improve in the second half."

The Australian construction industry has been booming for years, sparked by a wave of residential buildings in the sparkling Sydney, Melbourne and Brisbane property markets and by extensive highway and railroad projects. along the east coast of the continent.

Australia is Boral's largest market and its sales of concrete and asphalt have enabled the company to record a record profit for the 2018 fiscal year ended in June.

This seems to be diminishing now, as infrastructure projects are stagnating and real estate values ​​are recording their largest declines in a generation. Fears of oversupply pushed building approvals to a minimum of five years in December, according to figures released Monday.

"We expect, in the next two years, a continuation of moderation in the housing sector and, in this case, the Australian business will gradually withdraw," said Boral's general manager, Mike Kane, at the time. a conference call with investors and journalists.

"We are not looking for a significant and pronounced decline in housing numbers in the long-term trend," he added.

In a statement, Boral said that Australia's profits for 2019, to the exclusion of his real estate division, would be similar to those of 2018, where he had declared last August that he was expecting on high single-digit earnings.

Construction delays and rains also slowed the demand for road building materials in Australia, while a typhoon and a slowdown in Korea, as well as rain in the United States hampered the demand for road building materials. construction, the statement said.

For the six months ended December 31, net income after tax would be approximately A $ 200 million ($ 145 million) compared to A $ 237 million for the same period last year, which was also what Morgan Stanley badysts expected for the first half of the year. year.

Earnings before interest, taxes, depreciation and amortization (EBITDA), excluding significant items, would fall by about 3% to about $ 485 million, Boral said. Boral publishes its half-year results on February 25th.