Solid full year result from James Hardie

A measure of the underlying strength of the result was the fact that sales from ongoing businesses increased 28%. As expected, an abnormal loss of $41.7 million was booked due to the sale of the pipelines division and the resolution of the Firmandale litigation. The net debt to equity ratio decreased slightly to 101% - it's still high but manageable in the current environment. Housing construction in Australia has finally improved with housing starts growing 14% and renovation activity increasing by 6%, an upward trend that should continue, at least in the near term.

Solid result with room for improvement

In the US, both earnings and sales of fibre cement rose 22% but gypsum is the real growth driver with wallboard sales up 98% and earnings up 122%. The US economy continues to grow strongly and as a result, housing construction activity remains at high levels. As part of the ongoing expansion of the fibre cement, gypsum and systems businesses, $85 million is being spent to double the capacity of the gypsum plant in Arkansas. The group should then have three of the largest and lowest cost gypsum plants in the US.

The focus on core businesses now seems to be paying off and while the US and Australian economies remain solid, earnings growth should be maintained while ongoing capex should further reduce costs. As per our recommendation in the 8th May issue, ACCUMULATE around $5.00 for exposure to US expansion and possible corporate action through the sale of Brierley Investments 28% shareholding.