Quarries and concrete boost Boral’s bullish outlook for construction

Building materials boss Vik Bansal is bullish about the outlook for Australia’s construction sector once it gets through an “air pocket” this year – and the upward trajectory of revenues from Boral’s quarries, cement and concrete support his view.

Boral, the country’s biggest building materials maker, supplies Australia’s largest building and infrastructure firms with highway and home building materials and, consequently, is a bellwether for where the economy is heading.

Boral boss Vik Bansal said prices for quarried products, cement (the fine powder used to make concrete), recycling, asphalt-spray and concrete all rose between 3 and 9 per cent.
Boral boss Vik Bansal said prices for quarried products, cement (the fine powder used to make concrete), recycling, asphalt-spray and concrete all rose between 3 and 9 per cent.Credit: Louie Douvis

“When we talk to our big customers who are involved in the infrastructure space, they all have a pipeline which looks healthy,” Bansal said, as he informed investors Boral’s revenue rose a robust 9 per cent and net profit more than doubled in the half-year to December.

The building material supplier also upgraded its underlying full-year earnings forecast to between $330 million and 350 million, a shift that pleased investors who pushed its share price up nearly 9 per cent to $5.90 on the ASX during trade on Friday.

The company’s outlook contrasts with the collapse this week of Sydney builder St Hilliers’ construction business, which plunged into administration last weekend amid concerns that rising labour costs are an ongoing threat to builders.

While the inflation in materials that has plagued the building industry appears to be settling, costs remain high and are clearly a drag on Australia’s home-building, pipeline which is at its weakest in more than a decade.

“We saw the growth of inflation slowing down, but we don’t see deflation. Inflationary pressures from recent days have continued and inflated cost is the new reality. It is very volatile out there, look at diesel prices,” Bansal said.

Prices for Boral’s quarried products, cement (the fine powder used to make concrete), recycling, asphalt-spray and concrete all rose between 3 and 9 per cent from the prior half-year, only the price of asphalt laid on roads stayed steady.

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On the flip side, its input costs for haulage and materials rose between 2 and 7 per cent. Surprisingly, it kept labour and energy costs flat, and reduced its overheads by 6 per cent.

“[It was a] high-quality result, with a guidance upgrade delivered,” analysts at Jarden’s investment bank commented. Another trading house, UBS, said the positive result was driven by Boral raising prices and keeping costs under control.

“While conditions are good, we are still surprised how rapidly management have been able to control costs while still participating in industry pricing,” UBS said.

Bansal is seeing better times ahead, but they won’t come without some turbulence.

“I am bullish about the volume coming in the medium to long term. There’s a shortage of social infrastructure, there’s a shortage in the resi [residential] market, there’s an infrastructure pipeline … [which] has been approved, but it’s taking a long time,” he said.

“I’ve always said 2024 will be an air pocket. How long does this air pocket last? I can’t tell you, but all macro signs are that this [volume of work] is coming.”

“The problem we are facing is they’re just taking a long time to get through the system. Everybody knows they’re coming … but it’s just frustratingly slow.”

When it does come, Boral will be exposed to all the different segments, he said.

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Source: Thanks smh.com