The CSR Limited (ASX: CSR) share price has lifted 10% today after the building materials supplier reported a 61% surge in profits. In its results for the year ended 31 March 2020, CSR revealed statutory net profit after tax of $125.3 million, up from $78 million for the year ended March 2019. 

What does CSR do?

CSR is a leading building products brand in Australia and New Zealand. Its products are used in both residential and commercial construction and include Gyprock plasterboard and Bradford insulation.

CSR is a participant in a joint venture aluminium smelter and also generates earnings from a property division that develops surplus former manufacturing sites and industrial land for sale.

CSR’s results 

CSR reported solid full-year results despite an expected decline in residential construction markets. Aluminium division earnings increased 63% to $60 million following a decline in the Australian dollar and lower input costs. 

Revenue was down 6% in building products to $1.6 billion reflecting lower residential construction activity. No material transactions were recorded in the property division during the year. Group earnings were down 18% reflecting the lower building products result and timing of property transactions. 

Statutory net profit after tax (NPAT) from continuing operations declined 10% to $125 million. Total statutory NPAT increased 61% to $125.3 million from $78 million the previous year. The prior year’s figure included impairment charges from the Viridian glass business which was sold in 2019. 

Financial position 

CSR ended the March quarter with net cash of $95 million and total debt facilities of $520 million. It has paused its on-market share buyback, having purchased $69 million of the $100 million planned. No final dividend will be paid for the year ended March 2020. Total dividends of 14 cents were paid during the year, down from 26 cents in the year ended March 2019.

Significant capital expenditure was incurred in the year due to the $75 million expansion of Hebel, CSR’s autoclaved aerated concrete (AAC) business. Hebel is the only manufacturer of AAC panels in Australia and New Zealand. 

Outlook

CSR is managing its liquidity and optimising profitability via cost controls. A prudent approach to cost management is being taken – working hours are being reduced where appropriate and non-essential expenditure ceased or deferred. 

A high degree of uncertainty in the current economic environment means plans have been implemented to adjust to demand changes across the network. CSR is monitoring a range of lead indicators to allow for an adjustment in production and cost profile as early as possible. 

More reading

• ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
• Why CSR, Kogan, Premier Investments, & ResMed shares are storming higher
• Brokers may be upgrading this ASX stock even as it delivered a plunge in profits
• The latest ASX shares to be downgraded by top brokers
• Why you should buy this ASX 200 stock even after it suspended its dividend today

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. 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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Is it time to buy ASX small caps for your portfolio?

Most Aussie investors have a lot of exposure to the large blue chips on the ASX like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS). Whether that’s direct holding, an exchange-traded fund (ETF), a listed investment company (LIC) or in your super fund.

Sadly these businesses have fairly limited growth prospects and don’t look like they’re going to make strong total returns from here.

But ASX small caps offer a different opportunity. It’s much easier for a business to double its revenue from $25 million to $50 million than it is for a business to double revenue from $250 million to $500 million. The law of numbers makes it hard for businesses to keep compounding strongly unless they’re growing globally or have multiple product lines.

Another benefit of ASX small caps is the lower valuation. Not many investors are looking at small businesses. They don’t make the headlines and people may see them as too risky. A lower valuation is obviously attractive for returns, particularly if it’s growing at a good pace.

Once you leave the ASX 200, there’s a large group of small businesses that you wouldn’t ever invest in like the speculative mining shares. But there’s a group of ASX small caps that could be on their way to being the next ASX mid-caps. These are the ones that could make us great returns.

Which ASX small caps are worth buying?

I used to like National Veterinary Care a lot, until it was taken over. I reckon that Pushpay Holdings Ltd (ASX: PPH) and Bubs Australia Ltd (ASX: BUB) are on their way to becoming good success stories. Shares like MNF Group Ltd (ASX: MNF) are seeing a surge in demand due to the coronavirus. Duxton Water Ltd (ASX: D2O) could be another to look into for differentiated returns, a growing dividend and the large discount to net assets. 

Finding those ASX small caps where you can see the profit margins and operating leverage rising over time is very attractive.

You have to do a lot of work to be a proficient small cap investor, but it can be very rewarding. If you’re not sure you have the time or skill then you could perhaps choose quality fund managers to do the ASX small cap investing for you like WAM Microcap Limited (ASX: WMI). In normal times the WAM team can generate impressive returns.

More reading

• Why high yield dividend shares can be detrimental to your wealth
• The Pushpay share price is up 70% in 2020: Why I would still invest
• Top ASX Dividend Stock Picks for May 2020
• 3 ASX growth shares to buy immediately with $3,000
• 3 high quality ASX shares for a retirement portfolio

Tristan Harrison owns shares of DUXTON FPO and WAM MICRO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MNF Group Limited. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO, PUSHPAY FPO NZX, and Telstra Limited. The Motley Fool Australia has recommended DUXTON FPO and MNF Group Limited. 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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It certainly is a difficult time to be an income investor. Not only are interest rates at record lows, but many popular dividend shares are deferring or cancelling their payouts due to the pandemic.

While this is disappointing, I believe the selloff of traditional dividend favourites has created an opportunity for income investors that can afford to be patient.

Two top dividend shares which I think will offer generous dividend yields in FY 2021 and beyond are listed below:

Sydney Airport Holdings Pty Ltd (ASX: SYD)

There’s no doubt that Sydney Airport’s terminals are going to be quiet for the next few months. But domestic tourism will pick up in due course and international tourism will follow thereafter. It may take time before its earnings rebound to the same levels as FY 2019, but it will happen gradually.

I expect Sydney Airport to be in a position to pay a 29 cents per share distribution in FY 2021, before lifting it to a more normal 37 cents per share in FY 2022. This represents forward yields of 5.15% and 6.6%, respectively, over the two years. In light of this and the potential capital returns, I think it could prove to be a top long term option for investors.

Transurban Group (ASX: TCL)

Another option for income investors to consider buying is Transurban. Due to the sharp reduction in traffic volumes on its roads during the pandemic, I suspect that it might decide against paying a final distribution in FY 2020. Or if it does pay one, it is likely to be reduced materially from a year earlier.

But I wouldn’t let that put you off investing. I expect its toll roads to start their recovery in the coming months and for traffic volumes to slowly return to relatively normal levels by mid to late 2021. In light of this, I estimate that its shares offer forward distribution yields of 3.4% and 4.5% for FY 2021 and FY 2022, respectively. Once again, I think this makes it well worth being patient with its shares.

More reading

• In a post-COVID world, could Australia be the next superpower?
• Top ASX Dividend Stock Picks for May 2020
• Is this ASX 200 share market recovery “fool’s gold”? This ASX fundie thinks so
• 3 ASX 200 pandemic winners and 3 losers
• Are there any safe havens in ASX aviation shares?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. 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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