CSR is due to report its Fiscal 2017 result on May 10, 2017. We forecast underlying NPAT of AUD 183 million, up 10%, which is consistent with guidance at the top end of analysts’ forecasts of AUD 154 million-AUD 184 million. We expect building products (65% of earnings) to deliver a good result due to strong housing completions, although falling approvals (down 15.5% for the year to January 2017) points to a weaker 2018 with NPAT forecast to decline 6% to AUD 172 million. We forecast negative 3% CAGR in adjusted NPAT for fiscal 2017-21.
With CSR securities trading at about a 35% premium to fair value, the stock appears overvalued. We believe investors are overly optimistic on the strength and duration of the housing Cycle and are underestimating the downside risks from falling completions. We maintain our no-moat and high fair value uncertainty ratings. The building products business has a high fixed-cost base and competition is intense, exacerbated by imports and the need to maintain plant utilisation levels.
Analyst: Tim Mann
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