Boral cops $1.3bn body blow to profits could signal impending cap raise

The Boral Limited (ASX: BLD) share price is under the spotlight this morning with its new chief executive taking a broom to its balance sheet.

The building materials supplier announced it will take a pre-tax impairment charge of $1.3 billion against its full year results.

Most of this relates to Boral’s disastrous US expansion under its former CEO Mike King.

3 key takeaways from the billion-plus impairment

The new head honcho, Zlatko Todorcevski, is wasting no time in clearing some very big cobwebs as his feet has only been under the deck for less than two months.

More than 90% of the impairment amount relates to assets within Boral North America including goodwill, intangible assets and Boral’s investment in the Meridian Brick joint venture.

The move is noteworthy for three reasons (outside the obvious impact to Boral’s bottom line). First, I have to wonder if Boral is setting the scene for a capital raising when it officially releases its full year profit results on 28 August (more on its results below).

Cap raise on the cards?

This downgrade stands in contrast to a surprising recent surge in US housing activity and the upbeat quarterly update from its peer James Hardie Industries plc (ASX: JHX).

Write-down casts long shadow over sector

Boral’s billion-plus impairment included a $123 million charge relating to it Australian operations. Management justified the decision by pointing to the significant decline in housing construction, particularly in New South Wales.

It also highlighted the slower pace of infrastructure construction than previously expected and weak construction activity in Western Australia and the Northern Territory.

This dour assessment could weigh on sentiment towards other stocks exposed to these markets. These includes the CSR Limited (ASX: CSR) share price, Lendlease Group (ASX: LLC) share price and GWA Group Ltd (ASX: GWA) share price, just to name a few.

Boral’s FY20 results early release

Boral also effectively pre-released its FY20 results, which will officially be announced this Friday. Management said that underlying FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) will range between $820 million and $825 million.

Underlying net profit will come be at $175 million to $180 million and both figures exclude significant items like the write-down.

While the impairment is non-cash, don’t expect the group to pay a dividend. Management canned the idea of a final dividend payment after it paid an interim dividend of 9.5 cents in April.

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Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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