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CSR Responds to Structural Changes taking place in Australian Residential Construction

CSR acknowledges and is responding to the structural change taking place in Australian residential construction. Cost of construction is increasing, while detached housing lot sizes decrease and a greater share of total dwellings are multifamily. Higher energy prices are making lightweight building alternatives such as fibre cement and AAC more attractive, while energy-intensive materials like brick are losing their appeal. To this end, CSR has acted to pivot toward lightweight building materials and executed a number of acquisitions to strengthen its positioning.These investments in lightweight building material businesses, including fibre cement and AAC, are part of CSR’s strategy to drive future growth as lightweight building materials, which reduce total building cost, gain greater favour.

Capacity reductions, industry consolidation, and buoyant construction markets have underpinned earnings growth, while high aluminium prices also have been a strong tailwind. This has enabled CSR to earn good but unsustainable returns on invested capital in recent years. Despite strong brands and scale, CSR exhibits sufficient pricing power or cost advantage to yield an economic moat. The balance sheet carries no debt, providing flexibility should acquisition opportunities arise.

Financial Strength 

CSR’s balance sheet remains in a position of undeniable strength, with net cash of AUD 251 million at fiscal 2021 year-end. With dividends reinstated, we forecast full-year ordinary dividends of AUD 0.24 per share in fiscal 2022-a 60% payout of forecast adjusted net profit.Substantial balance sheet flexibility remains in place for CSR. We continue to forecast ample liquidity to fund the businesses operations and with the capacity to fund the retirement of maturing debt facilities through to fiscal 2024. Absent capital management or M&A activity, we forecast a net cash position for CSR through the forecast period.

Bulls Say 

  • Rationalisation of the brick operations has improved profitability in recent years. 
  • Continued strong demand in China could see aluminium prices hold in at current levels. 
  • The balance sheet is in excellent shape, providing flexibility for share buybacks or opportunistic acquisitions amid the COVID-19 downturn.

Company Profile

CSR is one of Australia’s leading building materials companies; it produces plasterboard, bricks, roof tiles, insulation, glass, fibre cement, and aerated autoclaved concrete. Founded as Colonial Sugar Refining Co. in 1855, CSR started producing building materials in 1942 and is behind recognised brands such as Gyprock plasterboard. CSR sold the last of its sugar assets in 2010 to focus primarily on building products. CSR retains a 25% effective interest in the Tomago aluminium smelter and periodically advances surplus industrial land to property developers.

 (Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.