Australia | Nov 10 2021
Renovations and sturdy housing markets have kept momentum going for James Hardie which continues to deliver on its its high-value product strategy.
-Competition likely to remain constrained for several quarters
-Highly favourable operating environment should allow for a higher multiple for James Hardie shares
-Adjacent products appear yet to gain desired traction
By Eva Brocklehurst
James Hardie Industries ((JHX)) continues to benefit from strong housing markets, particularly renovations, across Europe, Asia-Pacific and the US, where the company provides wallboards and exterior cladding.
Citi assesses, ultimately, the success of the company's strategy will not be known until the building environment normalises, although strong demand and shortages of materials are keeping momentum heading in the right direction.
Moreover, competition in the US should remain constrained over the next three quarters, at least, and Citi points to supply chain initiatives which have enabled the company's transformation. Louisiana Pacific over the next quarter will have to reduce capacity for maintenance, so the broker expects a strong result from James Hardie in what is usually a quiet period.
Supply chain constraints have persisted across the US for new building but it appears to Macquarie James Hardie has been more successful than its competitors, and there are fewer constraints in the renovations segment.
In the September quarter, lower volumes in North America were offset by better prices while there was momentum across Asia Pacific, with earnings (EBIT) margins of 30.8%, ahead of the guidance range. Around 40% volume growth occurred in European fibre cement, which Citi points out has positive implications for the future business in this region.
Credit Suisse too, was impressed with the first quarter which revealed margins grew despite cost inflation. Net profit guidance has been raised to US$580-600m for FY22 as margins prove resilient.
James Hardie has also retained its cost inflation guidance and reported a 70 basis points expansion in the EBIT margin, absorbing a 480 basis points increase in North American costs.