Boral Limited (ASX: BLD) is holding its annual general meeting (AGM). It gave a trading update and announced the sale of its 50% stake of USG Boral.
Asset sale
Boral announced today that it’s going to sell its half of USG Boral to Gebr Knauf for US$1.015 billion, which is equivalent to AU$1.43 billion at the current exchange rate.
The sale is binding and only subject to typical conditions like regulatory matters.
This sale price represents a multiple of 15.1x FY20’s normalised EBITDA (click here to learn what EBITDA means) and 11.3x FY19’s EBITDA (based on the 50% share of underlying EBITDA for the joint venture).
Boral expects to recognise a profit on the sale (before tax) of $540 million, subject to working capital adjustments and foreign exchange.
The transaction is expected to close in FY21. If the transaction hasn’t closed by 30 September 2021 where Knauf has not completed certain divestments required by regulators, then if either party terminates then Knauf must pay Boral a US$50 million termination fee.
Before the transaction closes, Boral will receive a normal dividend of US$32 million from USG Boral.
The company has also been looking at the rest of its portfolio of businesses. It said its Boral Australia business is strong with “outstanding assets and positions”. The North American building products business has strong brands and good positions, though it hasn’t yet unlocked the full value of this – it’s going to take steps to improve its operations. Boral is going to explore third party interest in its North American businesses to see if there are any value creation opportunities beyond what Boral can do to improve the business.
Trading update
In the first quarter of FY21, Boral said it’s still not business as usual. There’s ongoing uncertainty and challenges remain, but there are fewer disruptions.
First quarter revenue was down 9% and EBIT was down 5% compared to the first quarter of FY19. The EBIT margin of 9.5% was better than the 9% EBIT margin last year. The September quarter is typically a seasonally stronger period.
Whilst conditions aren’t perfect for Boral, it’s still doing fairly well. However, I don’t think a pure building products business can deliver strong long term returns, though a shorter term bounce may occur. I’d rather put my money towards Brickworks Limited (ASX: BKW) which I wrote about here, or other ASX dividend shares.
