Google Chrome and Microsoft Edge are in the process of rolling out a version update which is impacting some nabtrade functionality, including buy/sell buttons and certain page loads. If you are a Chrome or Edge user and are experiencing these problems, please visit the following FAQ to review the steps that need to be taken to prevent this issue from occurring.
Australia has swung into an infrastructure boom, with spending accelerating on big-ticket public infrastructure – roads, railways, runways, tunnels, dams and electricity generation and distribution facilities. The infrastructure boom is taking over from mining construction, and as broker CommSec points out, the centre of construction activity is no longer Western Australia, Northern Territory and northern Queensland, but rather the growing population centres of south-east Australia.
Australia is spending more on infrastructure now than at any time in the past 30 years – almost $100 billion in the last financial year alone, according to the Reserve Bank of Australia (RBA). And the next few years are likely to be even bigger. Nationwide, the Australian Infrastructure Budget Monitor shows that almost $130 billion dollars is being invested in infrastructure on the eastern seaboard alone.
In Victoria, more than $100 billion worth of new roads, rail lines, hospitals, skyscrapers, prisons, wind farms and other infrastructure is being built or planned, Queensland has about $20 billion worth of work being done in Brisbane alone, and Western Australia has a $60 billion pipeline of infrastructure projects, according to CBRE, with $13 billion earmarked for projects in the Perth metropolitan area.
It’s a good time to be involved in supplying the infrastructure boom. Here are five players:
Market capitalisation: $8 billion
Consensus estimated FY19 yield: 4.1%, 50% franked
Analysts’ consensus target price: $7.90 (Thomson Reuters), $7.55 (FN Arena)
Building products heavyweight Boral has been riding high recently on the back of the FY18 result released last month, which saw a 47% lift in net profit after tax (before amortization and significant items) and a very rosy outlook for the company’s Australian business, with the company predicting an “extraordinary next decade” in infrastructure, with what chief executive Mike Kane describe as an “amazing” amount of work on roads, highways, bridges, tunnels and airports. The stock market appears to believe that work in commercial, infrastructure and major projects activity should well and truly offset any impact from the residential property slowdown.
The major concern for analysts remains the company’s 2017 acquisition of US building supplies group Headwaters, which specialises in fly ash, a by-product of coal power stations that is used in concrete and other road making and building materials. Some analysts see Headwaters as a worryingly big bet at a crucial time in the US housing cycle, but Boral went a long way toward assuaging those doubts in the FY18 result by achieving US$39 million worth of synergies in year one, bettering its target of US$35 million.
Boral will be a major beneficiary of the Australian infrastructure boom, which could well be swelled by election promises: there is a New South Wales state election in March, and Federal elections must happen before November 2019. Analysts see plenty of scope for Boral’s share price to rise.
Market capitalisation: $4 billion
Consensus estimated FY19 yield: 4.7%, fully franked
Analysts’ consensus target price: $6.02 (Thomson Reuters), $6.04 (FN Arena)
Australia’s biggest cement maker, Adelaide Brighton, is also very well-placed to ride the tailwind of booming infrastructure spending by governments on projects including roads, tunnels, bridges and freeways. Adelaide Brighton has been able to lift its prices in recent years – as indeed has Boral – and thus boost its margins, and it should be able to continue that trend as infrastructure spending surges.
Adelaide Brighton has said that the infrastructure boom on the eastern states is taking over from a slowing housing sector as the prime driver of the company’s profits, and that momentum is building in its business. The residential housing sector makes up 31% of Adelaide Brighton’s revenues, while engineering and infrastructure makes up 34%: commercial building represents 24%, while the mining industry is at 11%.
However, the company’s recent half-year result (ABC uses the calendar year as its financial year) was treated by the market as a touch disappointing: first-half profit met expectations, but despite the company’s bullishness on market conditions, the guidance for full-year net profit was weaker than expected, at $200 million–$210 million – a contradiction that saw brokers lowering profit estimates and price targets, thus hurting the share price. The market was also concerned by the fact that both the chief executive officer and chief financial officer are leaving the company. Adelaide Brighton is a decent yield-payer, but is not seen as being as attractive on price grounds as Boral.
Market capitalisation: $144 million
Consensus estimated FY19 yield: 7.4%, fully franked
Analysts’ consensus target price 88 cents (Thomson Reuters)
The Western Australian-based Global Construction Services is about to change its name to SRG Global, having merged with fellow Perth company SRG to create an engineering, construction and maintenance business. GCS is a supplier of integrated on-site products and services to the engineering, construction and maintenance industries. It is involved through the entire lifecycle of a project and provides the onsite workforce and site accommodation, scaffolding and access, plant and equipment, formwork and concrete, and specialised site services.
GCS has successfully expanded into the east coast market, particularly Victoria, where it has several major customers, including Multiplex, BGC Contracting and Lendlease. Last month the company secured $24.6 million worth of concrete structure works with Watpac Construction on two major building projects in Victoria – the construction of Deakin University’s new Law Building and the four-storey Melbourne Data Centre. GCS has timed this transition particularly well. Since entering Australia’s east coast construction market in mid-2017, the company has won more than $63 million worth of work and has more than $600 million worth of work in the contract tender pipeline. CGS has a particularly strong business in cladding rectification work, which has recently received a lot of attention
GCS is coming off a buoyant FY18, in which it lifted revenue by 33% to $247.5 million, boosted net profit by 25% to $13.6 million, and more than doubled its fully franked dividend, to 4.5 cents. The order book is healthy and the balance sheet is also strong, with a net cash position. On consensus, Thomson Reuters has analysts expecting 6.9 cents in earnings per share (EPS) in the current financial year, and a fully franked dividend of 4.8 cents. That prices GCS at 9.4 times expected earnings, which analysts see as cheap – hence the 26% discount to the consensus target price.
Market capitalisation: $162 million
Consensus estimated FY19 yield: no dividend expected
Analysts’ consensus target price: $1.21 (Thomson Reuters), $1.12 (FN Arena)
Engineering and construction company Decmil has struggled in recent years, with a very disappointing result in FY17, but that could be to the benefit of investors looking at the company now. DCG is well-placed to tap into the increased infrastructure spending in Victoria and the expected boost to mining construction expenditure.
In FY18, Decmil’s Victorian business unit won more than $100 million worth of new transport infrastructure construction work. The company has also expanded its business in New Zealand, where last year it won more than NZ$185 million in work in the corrections end education sectors of government spending.
Decmil is also well-positioned to pick up resources work in its speciality of non-process infrastructure (NPI) construction projects. At the FY18 result, the company said it expected FY19 revenue to exceed $500 million, based on order book and tender pipeline. That is against the $342 million in revenue for FY18. Since the result, Decmil has won a $150 million coal-seam-gas work contract in Queensland and an $86 million road contract in Victoria.
Decmil is not expected to pay a dividend this year, but dividends are expected to resume in FY20 and analysts see a healthy outlook for medium-term capital growth in the stock.
Market capitalisation: $88 million
Consensus estimated FY19 yield: 4.1%, unfranked
Analysts’ consensus target price: 50 cents (Thomson Reuters), 52 cents (FN Arena)
Spun off by Boral to private equity owners in 2010, and returned to the stock market through a backdoor listing in April this year, Acrow provides hire equipment to the Australian civil infrastructure and construction sectors. Once mainly a scaffolding provider, the company has moved more into providing formwork (the moulds into which concrete or plastic materials are poured) and falsework (the temporary framework structures used to support a building during construction), which are much higher-margin products. And given that its products are mainly used in building motorways, bridges and tunnels, ACF is nicely positioned to benefit from the increased infrastructure spending on the eastern seaboard.
Coming to the stock market in April at 20 cents, Acrow has been a big success, moving to 54 cents. The company announced record revenue of $65.3 million for FY18, and a net profit of $10.5 million. In August, the company announced the acquisition of Natform, which it describes as the country’s leading designer and hirer of screen-based formwork systems for commercial and residential high-rise buildings and civil infrastructure.
Acrow says its outlook for FY19 is strong, with a growing order book and new business wins in the east coast infrastructure market. At a FY18 balance date the company had nil debt, with a net cash position of $4.9 million. Although only a micro-cap company at present, Acrow knows its niche business very well, and has a high return on equity – above 20%. It is an unfranked dividend payer, with a relatively low (about 30%) payout ratio, being more concerned at present with reinvestment for growth. Analysts believe that the strong share price performance since listing has taken it past fair value, but Acrow could surprise on the upside over the medium term as the company becomes better known.