Industrial and Material Sector Stocks Amid Testing Times - ASB, BIN, BLD, JHX

Summary

• Austal USA delivered 12^th Independence-class Littoral Combat Ship (LCS) to the U.S. Navy, demonstrating its commitment and capability to deliver in a challenging operating environment amid COVID-19. It has also signed a USD 50 million Defense Production agreement with US DoD.
• Waste management solutions provider, BINGO Industries to benefit from fast-tracked fiscal stimulus on infrastructure projects with 25%-30% of pre-COVID-19 Group revenue weighted towards infrastructure volumes.
• Materials sector giant, Boral Limited appointed new CEO and Managing Director Zlatko Todorcevski, with three-decade experience in steel building products, oil & gas, and logistics.
• Largest global manufacturer of fibre cement products, James Hardie has announced increased guidance for the first quarter of FY21 and reported a 17% increase in total adjusted net operating profit for both Q4 FY20 and FY20.

S&P/ASX 200 Industrials Index was trading downward by 2.8% to 5,576.4 and S&P/ASX 200 Materials Index was inching downward by 1.68% to 13,055.2 on 29 June 2020 (AEST 01:42 PM). Discussed below are four stocks from the Australian industrials/ materials sector and their recent developments amid a challenging operating landscape caused by COVID-19.

Austal Limited (ASX: ASB)

Globally renowned and reputed shipbuilder and defence prime contractor, Austal Limited designs, builds, and sustains some of the most cutting-edge commercial and defence vessels. Austal is not only the largest defence exporter in Australia but it is also the only foreign-owned prime contractor that is designing, constructing, and sustaining ships for the US Navy.

Delivery of 12^th LCS to the US Navy: On 29 June 2020, the Company announced the successful delivery of a 127-metre high-speed trimaran hull warship, Independence-class Littoral Combat Ship (LCS) by Austal USA to the U.S. Navy. The latest LCS delivery brings the total number of ships delivered to the U.S. Navy to 12, reflecting Austal USA’s commitment and capability to deliver in a challenging operating environment amid COVID-19.

The future USS Oakland (LCS 24) is the 2^nd ship delivered by Austal USA to the U.S. Navy in 2020.

Austal USA and DoD Agreement: On 22 June 2020, the Company announced that the U.S. Government’s Department of Defense (DoD) and Austal USA have executed a USD 50 million Defense Production Act Title III Agreement (DPA Agreement) in support of the US Navy Shipbuilding Industrial Base.

The agreement has been signed under the US national response to COVID-19 to maintain, protect, and expand critical domestic shipbuilding and maintenance capacity in the US.

The scope of the agreement includes Austal’s plans to invest in the development of additional capacity for steel naval vessel construction at the Mobile shipyard. Most likely, this investment would match the DPA Agreement funding, and take the total invested amount to ~USD 100 million. The investments are expected to create long-term benefits for the U.S. Navy shipbuilding and expedite COVID-19 recovery in the Gulf Coast region.

Stock Information: With a market capitalisation of around $1.15 billion, the ASB stock was trading on 29 June 2020 (AEST 01:45 PM) at $ 3.150, down 2.477%. Over the last one month, the stock has delivered a return of 8.39% and 13.33% in the last three months.

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BINGO Industries Limited (ASX: BIN)

BINGO Industries Limited, incorporated in 2017 and headquartered in Auburn, Australia, together with its subsidiaries, provides waste management solutions for domestic and commercial businesses in Australia.

Investor Presentation May 2020: On 6 May 2020, BINGO Industries released an Investor Presentation, highlighting that the business has been strongly positioned with good fundamentals in an industry characterised by favourable long-term structural and regulatory foundations amid challenging times caused by COVID-19.

Waste has been recognised as an essential public service and business continuity has been maintained since the COVID-19 restrictions were imposed in late-March 2020. The Company’s financial performance for Q3 FY20 remained on track to deliver stated market guidance pre-COVID-19 pandemic. Besides, the Group’s scale and vertical integration would enable BINGO to remain in a solid position as a low-cost operator despite the potential for near-term cyclical headwinds.

BINGO continues to focus on having a strong balance sheet, backed by significant property, plant and equipment assets of approximately $700 million, providing operating flexibility. Furthermore, BINGO is all set to benefit from fast-tracked fiscal stimulus on infrastructure projects with 25%-30% of (pre-COVID-19) Group revenue weighted towards infrastructure volumes.

Stock Information: With a market capitalisation of ~ $ 1.46 billion, the BIN stock was trading at $2.140 on 29 June 2020 (AEST 01:49 PM), down 4.036%. BIN has generated a three-month positive return of 18.93%.

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Boral Limited (ASX: BLD)

Australia-based Boral Limited (ASX: BLD), established in 1946, manufactures and sells building and construction materials in the US, Australia, and Asia, for residential and non-residential construction, as well as engineering and infrastructure markets.

During mid-June 2020, the Company announced the appointment of Zlatko Todorcevski as the Chief Executive Officer (CEO) & Managing Director of Boral Limited, effective 1 July 2020, which would allow for a transition period with Boral’s current CEO & Managing Director, Mike Kane, who is retiring in September 2020.

Debt Facilities Update: As announced on 15 May 2020, Boral successfully completed its new US Private Placement (USPP) note issue of USD 200 million, consisting of two tranches with five and seven-year bullet maturities with an average coupon of 4.49%. The terms and conditions for the issue are in accord with the Company’s existing USPP notes.

At the same time, Boral also successfully executed its new bilateral 2-year bank loan facilities totalling ~$365 million and completed its new bilateral loan facilities totalling USD 740 million, maturing June 2024. These would replace Boral’s USD 750 million debt facility that was due to mature July 2021.

In response to the impacts of COVID-19, the Company has aligned production and cost structures with demand while access to the US debt capital markets and strong support of banks has bolstered Boral’s liquidity.

Stock Information: With a market cap of $ 4.62 billion, on 29 June 2020 (AEST 01:55 PM), the BLD stock was trading downward by 3.183% to $ 3.650. BLD has generated positive returns of 77.83% in the last three months and 30.45% in the last one month.

Good Read: 3 Leading indicators for Australian Building Products’ Stocks: CSR, BLD, JHX

James Hardie Industries Plc (ASX: JHX)

Global building materials company and the largest global manufacturer of fibre cement products, James Hardie Industries plc serves home construction and remodelling markets with its vast portfolio of building and industrials products.

Increased Guidance for Q1 FY21: Recently on 22 June 2020, James Hardie announced raised guidance for the first quarter of fiscal year 2021 with:

• Q1 FY21 North America Exteriors volume to be in a range of flat to +2% growth compared to the pcp and adjusted EBIT margin increased and narrowed from 22% - 27%, to 27% - 29%.
• Higher liquidity guidance from >USD 600 million at 30 June 2020, to > USD 640 million at 30 June 2020
• Guidance for Q1 FY21 Australia volume to be flat compared to pcp and for Q1 FY21 Europe, volume to be in a range of down 14% to down 11% compared to pcp.

Q4FY20 & Full-Year Results: As per the Group’s financial results for the fourth quarter of fiscal year 2020 (Q4 FY20) and the full-year ended 31 March 2020 (FY20), total adjusted net operating profit was up 17% to USD 86.6 million for Q4 and up 17% to USD 352.8 million for FY20, relative to pcp.

Besides, the Group Adjusted EBIT was up 21% to USD 121.0 million for Q4 and up 20% to USD 486.8 million for FY20, on pcp.

Net sales increased 8% to USD 673.2 million for Q4 and up 4% to USD 2,606.8 million for the full year, on pcp.

Stock Information: The JHX stock was trading downward by 1.857% to $ 25.890 on 29 June 2020 (AEST 02:11 PM), with a market cap of $ 11.78 billion. The last three-month return of the stock was noted at 46.56%.

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