James Hardie Industries (JHX) News Update

Submitted by Jim Thesiger on 23 May, 2008 - 14:06

James Hardie Industries (JHX) reduced their target price to A$8.30 from A$9.50 to reflect the revised earnings profile from market analyst Macquarie Research Equities.

James Hardie Industries NV: Resetting Again?

FY08 Weaker Than Expected — NPAT of US$169.7m disappointed against our expectation of US$180m. Adding to the disappointment was a cut in the

final dividend of 8US¢ compared to 15US¢ in FY07.

Earnings and Valuation suffer — We have cut our earnings by 28% in FY09E and 25% in FY10E, driven primarily by lower margin assumptions and lower housing starts. We have also reduced our target price to A$8.30 from A$9.50 to reflect the revised earnings profile.

Renovations and Remodeling to Slow Primary Growth — With the recent quarterly results from Lowe's and Home Depot, we expect primary growth to slow aggressively in relation to JHX's exposure to the R&R market. We see R&R projects being deferred as household budgets adjust to rising energy costs and food costs.

Margins — With higher energy costs, weaker pricing power and management resetting of the business to 800k starts, we have trimmed US margins to 22% from 25% in FY09E and 23% from 27% in FY10E.

Outlook & Guidance — Management did not give any guidance for FY09; however, management reiterated that high levels of new homes inventory, increased foreclosure rates and tighter lending standards support the thesis of further weakness in US housing activity.

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