Across client accounts, we have bought CSR, the company behind some of Australia and New Zealand’s most trusted and recognised building products for construction of homes and commercial buildings. It is also a joint venture participant in the Tomago aluminium smelter located near Newcastle and generates additional earnings from its Property division which focuses on maximising financial returns by developing surplus former manufacturing sites and industrial land for sale.
We are positive on the medium-term outlook for CSR for the following reasons:
- The longer-term drivers of housing demand remain positive;
- The backlog of work already approved is likely to sustain activity levels over the next 12 months;
- CSR is well positioned to invest in further growth initiatives and/or ongoing capital management
- Earnings volatility from the aluminium business is partially mitigated by hedging;
- The property pipeline offers the potential to realise a number of valuable opportunities; and
- Valuation support and an attractive dividend yield should limit downside from here
As long-term investors we are prepared to tolerate the cyclicality of the company’s earnings, and accept that the stock may struggle to outperform materially over the next few months in the face of weaker residential macro data. Should credit conditions tighten substantially and/or house prices decline more than forecast, there is however the risk that CSR’s earnings profile proves less resilient than expected resulting in further share price weakness.
If you have any queries, please contact SBB Wealth
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EP Financial Services Pty Ltd
ABN 52 130 772 495 AFSL 325 252 (“ELSTON”)
GPO Box 2220
Brisbane Q 4001