Small Caps | Feb 01 2023
By Tim Boreham, Editor, The New Criterion
The varied performance of the ASX building materials sector shows that a rising – or falling – tide does not necessarily move all boats.
At face value, conditions look crook for the providers of quotidian but essential materials such as bricks, concrete, panels, taps and toilets.
Thanks to the Reserve Bank’s ongoing stiff monetary medicine, the housing sector looks more vulnerable than it has in years, while the suppliers are suffering from elevated labour and input costs (notably for gas).
As usual, it’s worth looking closely at what sectors a particular company is exposed to, rather than following the (admittedly gloomy) macro theme of a pending recession and fully-fledged housing meltdown.
Outside of housing, broader construction conditions look far more positive – if only because of the slew of government-funded ‘big build’ projects.
The listed sector is dominated by the likes of the $13bn, Irish-domiciled James Hardie Industries ((JHX)), the $3.5bn Brickworks ((BKW)), cement maker Adbri ((ABC)), CSR ((CSR)) and the Kerry Stokes controlled Boral ((BLD)).
Performance has varied, but broadly speaking the sector has done a Coles and is ‘down down’. The US centric James Hardie has lost one-third of its value over the last year, while Adbri and Boral are down 37% and 40% respectively. However, shares in CSR – which also has interests in property and aluminium - are only 5% off the pace.
Then there’s a cluster of much smaller, little known stocks that have done consistently well by focusing on specific – albeit obscure – sectors.
Take the Sydney-based Acrow Formwork and Construction Services ((ACF)), which was previously owned by Boral and private equity before reverse listing in April 2018.
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