The current report is based on understanding the financial performance of the Boral Ltd and investigating into the possibility of making investment in the company. The study would be opening up with brief description of the company by outlining the core activities of the organizations the market in which the company operates and the factors that contributes to the history of the company. The report would be taking into the consideration the ownership governance structure of the company and the main substantial shareholders that are involved in the business. Based on the proportion of the shareholdings of the company an argument would be presented to distinguish between the family and the non-family indulgence on the firm’s governance.
To better understand the financial position of the company a computation of the financial ratios would be performed that would be assessing the areas of short term and long term financial standings of the company. Additionally the report would be considering the efficiency, profitability and market value ratios to better gain an understanding of the firm’s financial position.
A comparative analysis of the share price movement against the all ordinary index would be performed to understand whether the share price are above or below volatility range. The report would be considering the major factors that contributes to the share price movement of the organization. The tools of capital asset pricing model will be employed to understand the require rate of return for the company along with the conservative nature of making an investment in Boral Ltd. The debt structure and the dividend structure would be also gauged to understand whether the company is appropriately maintained the capital structure. A letter of recommendations would be accompanied with valuable recommendations relating to the possibility of making investment in the company.
Boral Ltd is an international building products and construction material company that has three strong division. It is regarded as one of the Australia’s fast growing company with ventures across the Asia, Australia, Middle East and northern America (Boral 2018). The company was founded in the year 1946 and has it’s headquarter in Sydney. The company exclusively deals in manufacturing, supply of construction building materials.
|
Name of the Shareholders |
Total Number of Shares |
|
Black Rock In and Subsidiaries |
58,821,314 |
|
Capital Group of Companies |
61,918,012 |
As evident from the above stated representation that the substantial shareholders for the company stood Black Rock Inc and Subsidiaries that held 58,821,314. While the other substantial shareholders for the company stood Capital Group of Companies that held 61,918,012 of the total number of ordinary shares that were issued by the company (Boral 2018). As understood none of the substantial shareholders of the company held more than 20% of the shareholders nor any of the substantial shareholder of Boral Ltd held greater than 5% of the total share holdings.
Apart from the above stated substantial shareholders there are other largest shareholders of Boral Ltd is stated below;
|
Name of the Shareholders |
Total Ordinary Shares |
Percentage of Ordinary Shares |
|
HSBC CUSTODY NOMINEES |
339,668,286 |
28.96% |
|
CITICORP NOMINEES PTY LTD |
263,107,753 |
22.44% |
|
J P MORGAN NOMINEES AUSTRALIA LTD |
128,772,299 |
10.98% |
|
NATIONAL NOMINEES LTD |
92,810,758 |
7.92% |
|
BNP PARIBAS NOMS PTY LTD |
69,315,230 |
5.91% |
The major shareholders for the company stood HSBC Custody Nominees as it held 333,668,286 that sums up 28.97% of the total shareholdings for Boral Ltd. The other shareholders that held more than 20% is the J P Morgan Nominees Australia Pty Ltd with 263,107,753 of total ordinary shares with 22.44% of the ordinary shares (Boral 2018). Among the other shares holders for the Boral Ltd were the Citi Corp Nominees Pty Ltd, National Nominees Ltd and BNP Paribas Nominees Pty that held 10.98%, 7.92% and 5.91% each.
|
Name |
Position Held |
Number of Shares Held |
|
Catherine Brenner |
Independent Director |
48,405 |
|
Brian Clark |
Non-Executive Director |
109,595 |
|
Elleen Doyle |
Independent Director |
39,948 |
|
Kathryn Fagg |
Independent Director |
38,582 |
|
Mike Kane |
Independent Director |
946,043 |
|
John Marlay |
Independent Director |
39,310 |
|
Karen Moses |
Independent Director |
21,757 |
|
Paul Rayner |
Non-Executive Director |
100,555 |
As evident from the above stated tabular representation it can be stated that none of the Independent Directors and the Non-Executive directors held greater than 20% of the total shareholdings for Boral Ltd (Boral 2018). Additionally, none of the Independent Directors and the Non-Executive directors held greater than 5% of the total shareholdings that were issued by the company. An argument can be bought in this regard by stating that there is no such existence of the family members in the governance of the organization.
|
Particulars` |
2017 |
2016 |
|
|
(Amount $m) |
(Amount $m) |
||
|
Current Assets |
A |
1763.7 |
1684.2 |
|
Current Liabilities |
B |
1468.3 |
1181.7 |
|
Inventory |
C |
606.6 |
556.9 |
|
Other Assets |
D |
41.9 |
32.4 |
|
Cash & Cash equivalents |
E |
237.8 |
452.1 |
|
Current Ratio |
F=A/B |
1.20 |
1.43 |
|
Quick Ratio |
G=(A-C-D)/B |
0.76 |
0.93 |
|
Cash Ratio |
H=E/B |
0.16 |
0.38 |
Long Term Solvency Ratios:
|
Particulars` |
2017 |
2016 |
|
|
(Amount $m) |
(Amount $m) |
||
|
Total Assets |
A |
9313.6 |
5800.5 |
|
Total Equity |
B |
5440.5 |
3506.3 |
|
Total Liabilities |
C |
3873.1 |
2294.2 |
|
Debt-to-Equity Ratio |
D=C/B |
0.71 |
0.65 |
|
Debt Ratio |
E=C/A |
0.42 |
0.40 |
|
Equity Ratio |
F=B/A |
0.58 |
0.60 |
Asset Utilization Ratios:
|
Particulars` |
2017 |
2016 |
|
|
(Amount $m) |
(Amount $m) |
||
|
Total Assets |
A |
9313.6 |
5800.5 |
|
Fixed Assets |
B |
2755.7 |
2517.7 |
|
Sales |
C |
4257.8 |
3945.2 |
|
Trade Receivables |
D |
873.6 |
623.9 |
|
Total Asset Turnover Ratio |
E=C/A |
0.46 |
0.68 |
|
Fixed Asset Turnover Ratio |
F=C/B |
1.55 |
1.57 |
|
Receivables Turnover Ratio |
G=C/D |
0.21 |
0.16 |
Profitability Ratios:
|
Particulars` |
2017 |
2016 |
|
|
$m |
$m |
||
|
Profit |
A |
296.9 |
256.0 |
|
Sales |
B |
4257.8 |
3945.2 |
|
Total Assets |
C |
9313.6 |
5800.5 |
|
Total Equity |
D |
5440.5 |
3506.3 |
|
Net Profit Margin |
E= A/B |
6.97% |
6.49% |
|
Return on Equity (ROE) |
F=A/D |
5.46% |
7.30% |
|
Return on Assets |
G=A/C |
3.19% |
4.41% |
Market Value Ratios:
|
Particulars` |
2017 |
2016 |
|
|
(Amount $m) |
(Amount $m) |
||
|
Earnings per Share |
A |
29.000 |
31.500 |
|
Dividend per Share |
B |
0.24 |
0.22 |
|
Market Value per Share |
C |
6.64 |
5.76 |
|
Dividend Pay-out Ratio |
D=B/A |
0.83% |
0.70% |
|
Dividend Yield Rate |
E=B/C |
3.61% |
3.82% |
|
Price-to-Earnings Ratio |
F=C/A |
0.23 |
0.18 |
As evident from the graphical representation of the share price movement of the Boral Ltd it can be stated that the share prices have been moderately volatile against the figures reported by the all ordinary index (Au.finance.yahoo.com 2018). The share price for the quarter opening January 2016 stood negatively at -4.06 however in the subsequent month the share price of the Boral Ltd reflected a gain from the previously recorded negative figures. The share price of Boral Ltd in the February 2016 stood positively at 2.29 though the all the ordinary index stood relatively higher at 4.12%. Boral Ltd ended the quarter of 2016 on the positive note despite recording negative share price movement the company share prices against the all ordinary index stood 3.19%.
The subsequent quarter though started on the positive note as unlike the previous quarter the share prices of Boral Ltd opened positively at 5.75% against the lowly all ordinary index of 2.48% (Chadha 2018). In the subsequent month of May, the second quarter of 2016 reported a lower share prices but stood positively against the negatively standing all ordinary index of -2.52. The quarter ending month of June recorded a much volatile share price movement as the shares of Boral Ltd stood negatively at 6.98% against the positive all ordinary index of 6.28%. The third quarter of 2016 stood relatively tentative with share price of Boral Ltd climbing a mountain high of 9.74% highest then the any previous month against negatively standing all ordinary index of -2.03 while in the subsequent month of August reported a negatively standing share prices of 4.66%. Gauging into the share price movement of Boral Ltd it can be stated that there are certain accusations where the share prices have reflected volatility.
Greater amount of volatility was recorded during the final quarter of 2016 where the share prices of Boral Ltd dipped as low as -14.15% against the positively standing all ordinary index of 3.94% (Editorial 2018). However the company reported a positive share price movement in the final quarter ending of December 2016 where the share prices of Boral Ltd stood second highest of 8.20% after recording a previous highest of 9.74% in the opening third quarter of July.
Moving fast forward to the following year of 2017 the share prices of Boral Ltd stood relatively less volatile except on certain occasion’s primary due to the market forces (Finance.yahoo.com 2018). The share price of Boral Ltd for the opening month of January 2017 stood positively at 5.73% against the lowly standing all ordinary index of 1.52%. Though first quarter of 2017 began strongly but the share prices of Boral Ltd dipped to stand negatively at -1.02 against the lowly standing all ordinary index of 0.74% (Squartini et al. 2017). The company reported a strong second quarter of 2017 as the share prices represented a strong trend in growth.
During the opening second quarter of April 2017 the share prices of Boral Ltd stood strong at 6.01% against the negatively standing all ordinary index of -3.13%. The share prices increased too strongly in the following month to stand at 9.53% which was the highest over the span of 12 months (Newberry 2018). Though an instances of negative growth was witnessed in the penultimate quarter of 2017 where the share price dipped to a low of -2.61 however in the final quarter of 2017 the share prices gained to close positively at 5.56% against the low all ordinary index of 2.39%. Based on the above stated analysis it can be stated the share price of Boral Ltd is moderately volatile.
One of the significant that impacted the share price movement of the price is the “change in the management focus” of acquisition of the US buildings products for an amount of US $2.6. This resulted the shareholders to dump the shares based on the uncertainty surrounding the acquisition (Simply Wall St 2018). An acquisition of such kind results in creation of uncertainty among the shareholders that explains the probable reason for influencing the share price of Boral Ltd.
Another factor that creates an influence on the share price movement of the Boral Ltd is the “Management earnings forecast” the company recently announced the good news to the shareholders with an increase in the half-yearly profits (Deegan 2013). This provides the possible reason for a certain rise in the share price of Boral Ltd and might be forecasted increase in the profits of the company in future may result in significant reaction among the shareholders (McKay and Haque 2016).
The “macroeconomic factors” that contributed to the share price movement is the slowing housing market (Zabarankin, Pavlikov and Uryasev 2014). With slowing amount of housing market the share price declined on certain occasions however the infrastructure boom in the US markets have steadied the ship but the share prices of Boral Ltd continue to underperform against the other market players.
The “changes in the analyst forecast” is another factor that contributed to the share price movement of the Boral Ltd (Scott 2015). In the report published analyst suggested Boral as the crème of the large building and construction stocks with forecast share price of $7.20 in the upcoming twelve months and earnings growth of 31% in the year 2017-18.
The factors suggest that Boral Ltd is a high growth stocks but the lower closing stock price may some investors wondering whether to make investment in the shares of Boral Ltd (Schaltegger and Burritt 2017). The investors may be attracted to the high growth potential in the upcoming future that could be considered as one the viable reason for making an investment in the shares of Boral Ltd.
The calculated beta for the Boral Ltd stood 1.18.
|
Particulars |
Amount |
|
|
Beta of the company |
A |
1.18 |
|
Risk Free Rate |
B |
4% |
|
Market Risk Premium |
C |
6% |
|
Required Rate of Return |
D=B+[AxC] |
11.08% |
The conservative for making an investment in the shares of the Boral Ltd is that the share prices of the Boral Ltd is lower than the future cash discount value and trades at the moderate discount of greater than 20 (Williams 2014). Additionally, the share prices of the the Boral Ltd is that the share prices of the Boral Ltd is lower than the future cash discount value and trades at the substantial discount of greater than 40 (Macve 2015). Though the critics have stated that the Boral Ltd share prices is overvalued in respect of its earnings as compared Australian basic material industry average. The market analyst have rated the shares of the Boral Ltd as the overvalued based on the earnings in comparison to the Australian market average (Barberis et al. 2015). However, the shares of the Boral Ltd is considered as the good value depending on the future cash flow of the company in comparison to the Australian basic materials industry average.
The rationale for investment in the shares of the Boral Ltd is that the company’s earnings growth rate is anticipated to go past the lower risk savings of 2.8% (Williams 2014). Additionally, the growth in the earnings of the Boral Ltd is anticipated to exceed beyond the Australian market average (Evstigneev et al. 2015). The rationale for making a conservative in the shares of the company is the growth in the revenue of the company. The growth in the revenues of Boral Ltd is anticipated to go beyond the Australian market average market.
The year on year average growth in the earnings of the Boral Ltd has been positive over the period of five years and this could be considered as primary rationale behind making a conservative investment in the shares of the company (Martin and Roychowdhury 2015). Boral Ltd has been successful in meeting the short term debt obligations over the period of one year and have reported a growth in the short term assets (Henderson et al. 2015). The dividends of the company are anticipated to be covered by the net profit and hence this could be viewed as the main reason for a making an investment in the shares of the company.
|
Particulars |
Amount |
Weightage |
Cost |
Return Rate |
Tax Rate |
WACC |
|
Total Long Term Debt |
2163.70 |
28.45% |
48.1 |
2.22% |
30.00% |
0.44% |
|
Total Equity |
5440.5 |
71.55% |
11.08% |
7.93% |
||
|
TOTAL |
7604.2 |
100% |
8.37% |
A higher weighted average cost of capital is viewed as the signal of higher risk that might be associated with the operations of the organization (Dudin et al. 2015). Investors unusually requires an additional amount return so that they can assume the additional amount risk. There are valued investors that may express their concern regarding the higher cost of capital. A WACC of an organization is viewed as the anticipated cost that is involved in the financing of the business operations (Jones 2015). This generally comprises of the obligations related to debt or the cost associated to the financing of the debt and the required rate of return that is demanded in terms of the ownership. If there is an indication that the WACC of an organization is higher than the actual return then it could be assumed that the company is losing values and there are probably better returns in the market (Christensen et al. 2016).
Considering the debt ratio of the company over the period of two years it can be stated that the debt ratio for the company in 2016 stood 0.40% while in the following year of 2017 the debt ratio increased to stand at 0.42%. It can be stated that the level of debt for the Boral Ltd in comparison to the net worth is higher since the company has more than 40% of the debt in respect of the net worth. Therefore, it can be stated that the company has not managed its debt since the debt is not covered by the operating cash flow. The operating cash flow represented 18.8% lower than the 20% of the total debt. Additionally the management has not sufficiently managed the debt of the company as the debt is not covered by the short term assets.
The dividend policy states that the company has declared a final dividend of 12.0 cents per share and a full year dividend per share for the company stood 24.0 cents. The dividends of the company are anticipated to rise and it is covered by its net profit.
To ABC Company
Advisory Consulting Team
Dear Sir
We would like to draw your kind attention towards our letter of recommendations that the stock of the Boral Ltd is considered as the high level stocks however the recent lower closing price recorded by the company may leave the investors wondering their decision of making investment in the shares of the company. A recommendations in this respect can be provided that the Boral Ltd has higher potential for growth in the future.
The anticipation from the analyst suggest that currently it is an extremely bullish environment with earnings growth forecasted in the next three years. The final dividend of 24 cents per share makes an valuable investment options despite the shares of the company have underperformed recently. The share prices of the Boral Ltd is lower than the future cash discount value and trades at the moderate discount of greater than 20. Additionally, the share prices of the Boral is lower than the future cash discount value and trades at the substantial discount of greater than 40. Hence, making an investment the shares of the company is a viable options.
Thank You
Conclusion:
On a conclusive note it can be stated that the shares of the Boral Ltd is considered as the good value depending on the future cash flow of the company in comparison to the Australian basic materials industry average. Boral Ltd has recently announced the good news to the shareholders with an increase in the half-yearly profits. Conclusively, the anticipation from the analyst suggest that currently it is an extremely bullish environment with incomes growth forecasted in the next three years.
References
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