SVW offered to purchase the remaining Shares of BLD it does not own

End of the road for BLD

Not overly ecstatic at being forced to trade the direct BLD exposure to infrastructure and construction for the more diverse SVW Group, particularly with the non-performing Seven West Media and Beach Energy, but have a lot of faith in the ability of the Stokes to continue to generate value from hereon.

The investment thesis in May 2021 was predicated on the Stokes ability turn BLD around and extract value post the exit of the US businesses, and a "what is good for the Stokes, should be good for me" approach. These outcomes have been delivered. A 60% return over 3 years, with the promise of more to come under SVW is not a bad outcome-cum-moving forward plan, all said.

Discl: Hold BLD and SVW IRL

Summary of results and notes from the BLD investor call

A very strong result, nothing to not like! Business turnaround has been impressive thus far, but is still in early stages with the promise of a lot more to come.

The dynamics between expected flat market-driven-volume, Jan 2024 price increases, operational leverage and the impact on a seasonally softer 2H, will be interesting to observe in 2HFY24

• 9.4% revenue increase from increased volume and price realisation 
• 51.8% increase in EBITDA, 110.9% in EBIT; and 4.7% increase in EBITDA margin and 5.2% increase in EBIT margin HoH driven by (1) price realisation (2) productivity improvement (3) cost discipline offsetting cost pressures - operational leverage has kicked in
• Price increase announced in Jan 2024 - impact of this will manifest in 2HFY24
• Changing market segmentation of volume as a result of changing market dynamics - slowing down of residential construction and delayed infrastructure projects
• Healthy pipeline but customers are taking a long time to get through the system to commence projects, changes in state governments etc
• Market segmentation is still within long-term trends
• Strong cash generation - cash from operations $348.6m, up from $232.1m HoH, cash balance increased $230.6m to $888.7m from 30 June 2023, a significant increase
• Net debt of $84.5m, down from $338.2m at 30 June 2023, gearing has dropped from 14.3% to 3.8%
• Return of seasonal trend of stronger 1HFY in FY24
• 2HFY23 strength was an anomaly due to impact of strategy changes
• Less working days in 2H vs 1H - expect volume to remain flat in 2HFY24
• Upgraded EBIT for FY2024 to $330m-350m from previous Nov 2023 guidance of $300-330m
• Making good progress towards the objective of a double-digit-margin business but still a long way to go to get to good where good = where the company, its systems, processes etc are geared to consistently produce double digits margins”
• Property segment is not contributing to results - needs more work to optimise
• Continued to focus on decarbonisation as a business priority and sales effectiveness
• Resumption of dividends are on the radar - shortage of franking credits is being worked through

A very happy shareholder!

Discl: Held IRL

Always nice to wake up on a Monday morning to a decent ~6% price pop!

• 10% increase from previous FY24 EBIT guidance, which in itself, was a 23% increase from FY2023
• Continues favourable update during the AGM in mid-Oct - it is now clear that they were waiting for the October 2023 monthly results to confirm the 1QFY24 trend before formally upping the guidance
• Continues very good turnaround momentum, pricing and operational cost discipline
• Have a lot of confidence in Vik Bansal righting the ship, provided he continues to behave and does not do anything stupid on the people front - an ongoing risk, that's for sure ...

Discl: Held IRL

Does not appear to be anything new from quick scan of the AGM Presentation and Speaker notes other than a positive pricing update on 1QFY24 Trading performance.

No change to FY24 guidance for underlying EBIT range.

Discl: Held IRL

One of my thesis breakers is a SVW selldown of BLD, so this is something I monitor. Really scratching my head with this move, in terms of the rationale other than possibly to raise cash for SVW dividend payouts, given BLD declared no dividends.

It is a cool $22.2m gain no doubt, but (1) it is small change in SVW's world (2) half of it is gone to CGT as it is a <12 month holding (3) moves absolutely nothing in SVW and BLD, financially.

• Seven Group Holdings (SGH) has successfully completed the sale of a 1% stake in Boral (ASX:BLD) through an aftermarket block trade, transacting 11.1 million shares at an average price of $4.90 per share. 
• SGH acquired 3% of Boral in October 2022 at $2.90 per share, increasing it ’s holding to 72.6%. 
• Following the sale, SGH retains 71.6% of the business.

“We are pleased to see the strong recovery in Boral’s share price. Consistent with our disciplined approach to capital management, SGH has elected to sell 1% of Boral to capture the market valuation, while retaining control of the business. SGH remains committed to Boral and its performance journey and will continue to support its management team as they work to restore appropriate profitability to one of Australia’s great industrial businesses.” 

Doesnt change my BLD thesis though.

Disc: Hold SVW and BLD IRL

Have held BLD for over a year now. Revisiting my investment thesis notes from February 2023, written after reviewing the 1HFY2023 results.

Discl: Held IRL

Geographical Spread, Type of Assets and Location

• Concrete plants, co-located with Quarries and Asphalt plants
• 100% Aust operations after divestment of US-based operations - clear Australian construction materials company focus
• Size is about that of WesTrac, SGH Holdings other cash cow operations
• Some synergy in the use of Cat equipment across the operations

• Good slide which describes the BLD network and the integration between the upstream and downstream operations
• Watch the recycling volume growth as the recycled products are (1) a new source of revenue (2) used in base operations (3) ESG credentials

INVESTMENT THESIS

• Betting on Stokes Family/SGH’s ability to turn the business around to gain long-term return from their 70% acquisition - turnaround started with the SGH acquisition
• Fully exposed to Australian construction and infrastructure sector
• Confidence in Vik Bansal’s ability to aggressively drive change and create value from the Cleanaway stint
• Balance sheet strength
• Owner alignment as SGH controls 70%+ of the business and are long-term value creating investors - they will execute the turnaround aggressively
• Significant moat around upstream and downstream assets and integration between them
• Ability to make operational difference to 3 value levers - Price (moat, shortage of materials, pricing power), Volume (operational moat) and Cost (SGH’s intensity in taking cost out of business) - target is double-digit margins from current 5.2%
• Property segment is untapped as yet - nothing has been baked in, revenue-wise, ~$3b present value, ~3,800ha

NEAR TERM RISKS

• Operational volatility - increasing costs that cannot be passed on in terms of higher price, impacting revenue - direct costs have been, and continue to, rise
• Organisational change fatique from velocity and pressure of need to turnaround

RISKS THAT WILL PROMPT SELLING

• SGH sells out or significantly reduces stake
• No sustainable traction to revenue and margins from actions in 3 value levers, no progress towards double-digit margins
• Deteriorating balance sheet
• Turnaround stalls and starts to impact the books

My summary of the BLD FY2023 results - a really good result which the market clearly liked.

Discl: Held IRL

THE GOOD

• All key financial metrics have improved despite the challenging operating environment - sharp recovery from FY20-FY22 decline

• Significant improvement in safety TRIFR

• YoY volume growth in all segments

• Have been able to increase prices and pricing increases have gained traction, mitigating cost increase headwinds

• Capex has been kept in check, is ~100% of depreciation & amortisation, 6.4% of revenue

• Operating cash flow from continuing operations of $358.7 million, an increase of $142.0 million primarily driven by improved EBITperformance and lower interest and tax receipts
• Healthy balance sheet - repayment of $629m of debt in FY2023
• Updated FY25 targets to establish an achievable, yet ambitious, short-term decarbonisation target of 12% to 14% reduction in emissions from FY19 baseline.
• FY24 outlook, assuming no significant shift in market demand or price environment, we expect to deliver an underlying EBIT in the range of $270 -$300m for FY24, about 20% YoY

NOT SO GOOD

• BLD’s property portfolio of 30 properties, ~3,800 ha, ~$1b, present value, not optimal in terms of value extraction - more work to be done
• No dividend for FY23 due to insufficient franking credits

WHAT TO WATCH OUT FOR 

• Volumes in FY2024 against overall macro low growth expectations - some volume softening observed in Q4FY23, but no cancelled customer contracts and customers are saying their order books are full
• Ability to raise prices to mitigate and pass through ongoing headwinds of rising costs
• Progress towards extracting value from the BLD property portfolio
• Dividends in FY24

OVERALL SUMMARY

• Significant YoY improvement - Vik Bansal coming onboard has made a significant impact in turning BLD around
• Riding on the strong pipeline of infrastructure projects - BLD expects this to pivot towards social infrastructure in FY24, underpinning volume demand for its products
• Integrated assets across the value chain is a strong moat, still not optimal operationally, which provides good opportunity for ongoing, sustained growth under aggressive Vik Bansal leadership and SGH ownership