CSR Limited
Recommendation
Over 80% of revenue will come from the US, where the company has a strong position in fast-growing states like Florida and Arizona.
Offshore earnings
It's conservatively financed with interest cover forecast to be around eight times. The stock will be marketed as a fast-growth company well placed to take advantage of consolidation opportunities in the US. Due to capital required for growth, the dividend payout ratio will only be about 20-30% of earnings and the franking rate will be low thanks to the offshore earnings.
Rinker is responsible for about 70% of the current group's revenue. David Clarke will be the MD while the other divisions will continue to trade as CSR under the control of Alec Brennan.
This company will consist of three parts – building products, aluminium and sugar. As a lower growth stock it'll pay out about 60-70% of earnings as dividends and be conservatively financed with interest cover of around 15 times. Current group MD Peter Kirby will resign after the demerger.
The stocks will start trading as separate entities from 31 March, subject to shareholder approval. Given the 7% increase in the stock since the announcement, the market seems to be buying the argument that the parts are worth more than the whole.
We're not so sure just yet. And, given the stock is up 8% since issue 117/Nov 02 (Long Term Buy - $1.59), we're downgrading to HOLD FOR THE UPSIDE.