MARKETS SPECTATOR: Affirming the building blues

Boral has delivered a gloomy assessment of the Australian housing market, with the only upside being that it may cause policymakers to act.

If there were any doubts as to Australia’s weak housing sector, Boral today put paid to them.

Boral, which garners 80 per cent of revenues from Australia, says “there is continued weakness in the Australian housing sector”. The company’s construction materials and cement unit’s third quarter earnings were $19 million below forecast. Boral’s Australian building products and timber units are making less money than expected. Demand for brick and masonry is down from forecasts.

All this has contributed to Boral saying its 2013 net profit will now be between $90 million and $105 million, inclusive of extraordinary gains. At 12:50pm AEST the stock was down 8 cents, or 1.7 per cent, to $4.59. In contrast, the S&P/ASX 200 Index was up 44.10, or 0.9 per cent, to 5173.6. Boral’s stock is up 20 per cent in the last 12 months compared to the 18 per cent gain in the index.

Boral’s focus is now cost cutting. But the company can do little to immediately improve its cost-to-income ratio. It has fired 1000 people. It is trying to sell as much as $300 million worth of assets including land by the end of the next financial year, in 2014. The company is delaying or reducing its capital expenditure.

The silver lining for investors is that Boral’s statement today gives further ammunition to the Reserve Bank to cut its benchmark cash rate. That may help underpin the market. 

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