Discl: Held IRL 2.90%

SUMMARY

1. Flatish 1HFY26 YoY result, in both Revenue and EBIT, but both improved HoH, both of which is the normal seasonal trend

2. Boral’s performance stood out - it is firing on all cyclinders, WesTrac was flat driven by a sharp drop in capital equipment sales, Coates remains in recovery mode

3. Operating Cash flow spike of 32%, driven primarily by WesTrac, was a standout

4. FY2026 guidance of “low to mid single-digit EBIT growth”, previously downgraded from FY25, was maintained - EBIT was flat this half, should not take too much to push EBIT into low single digit EBIT growth, but is otherwise somewhat subduied

5. 1H26 Dividend was up 2c to 32c to match 2HFY25

Steady-as-she-goes solid performance, but not spectacular - this is absolutely not a bad thing for the portfolio given the increase in volatility everywhere else in the market.

REVENUE

• Revenue improved HoH, but was marginally lower vs pcp
• Boral’s above trend revenue made up for WesTrac’s below trend revenue, Coates was flat

GROUP PROFIT & EBIT

• Group EBIT: Flat change vs 1HFY25, but sharply higher 21.0% HoH as has been, seasonally, resulting in an on-trend increase
• Group Profit: Back to trend increase, 2.1% increase YoY, a sharper 24.6% rise HoH, a better seasonal recovery given 2HFY25’s drop

SEGMENT EBIT

WesTrac and Coates EBIT grew more than trend, Coates, Energy and Media remain on trend/flat

WESTRAC

• Sharp hit to revenue due to normalising of capital sales - this was previously flagged
• EBIT margin improved 0.6% v pcp, normal seasonal jump HoH
• Operating cashflow was impressive - a huge 92% jump YoY
• Following last years big capital sales, equipment population has increased, but ageing has flattened, still some years away from battery-driven fleet replacement

BORAL

• Looks like its on a tear - Revenue up 7%, EBIT, EBITDA and EBIT Margin up > Revenue %, operating leverage appears to be kicking in
• Margins continue to grow, up another 41bp, continuing uptrend - Commentary on margin gains being structurally embedded is encouraging - will be interesting to see if this stabilises or continues to grow in the coming halfs or if there is more to come
• Cash flow is steady, as is pricing
• Lots to look forward to - increased volumes, sustained pricing, with customer activity on the rise

COATES

• Still subdued and in recovery mode
• Cost takeouts are not doing too much to offset the revenue dip

FINANCIALS

Stronger cash flows is bringing net debt down

FY2026 GUIDANCE REITERATED

Discl: Held IRL

SUMMARY

Flatish 2HFY25 HoH result, in both Revenue and EBIT, which is the normal seasonal trend, but YoY was also flat which the market did not like.

Guidance was FY2026 was also downgraded to “low-mid single-digit EBIT growth” from the usual “high-single digit EBIT growth”, which did not help.

2H25 Dividend was up 2c to 32c - when SGH raises the dividend amidst flattish results, you know, they know, it wasn't great ...

Notwithstanding this, it is never wise to bet against the Stokes family, but FY26 will be interesting amidst the cautious outlook and ongoing uncertainty.

Revenue - WesTrac on trend growth, Boral flat, Coates fell 9%

EBIT - overall on trend growth

Segment EBIT - Westrac on trend growth, Boral growth continues to accelerate, Coates and Media trending downwards, Energy is flattish

WESTRAC

• Revenue growth was average, up 4% - strong capital sales offset by lower average parts pricing.
• Capital sales $2.2b, up 12% - flagged to revert to recent averages
• Services $3.9bm flat, but installed fleet continues to age to 12.4 years, up 7% YoY, underpinning ongoing service revenue
• Battery fleet replacement will drive next wave of capital fleet replacements - earliest will be in 2028, services will continue to buffer revenue and earnings in the meantime

Was a bit surprised by the uptick in capital sales and the flat services, given that the Battery Electric Mining Truck is due in 2028-ish - was expecting the exact opposite, higher services, less capital sales as miners sweat existing assets until the Battery Trucks become available.

BORAL

• Revenue growth flat - resilient demand from engineering and pricing traction offsetting volatility in road and residential activity
• Cost efficiencies have kicked in to drive operating leverage
• Expecting recovery in residential in CY26 underpinned by government housing programs, interest rate moderation - operating leverage will become more evident
• Pricing traction sustained

The challenge for Boral in FY26 and one to watch out for, will be to sustain the gains achieved by Vik Bansal once he exits.

COATES

• Revenue down 9%, EBIT down 9% normalised for the sale of Coates Indonesia in the PCP - mixed market conditions, mostly in VIC and SA
• Cost takeouts occurred in FY25 - workforce, branch footprint, repairs & maintenance

Inevitable and probably imminent when SGH took BLD private, as Vik publicly said he wanted to front a public company, but still sad to see Vik go.

I have a lot of issues with crazy aggro CEO's and given Vik's much highlighted style-related challenges at Cleanaway, I was very weary when SGH announced Vik to run BLD. But gee, he has done a good job turning it around and putting it on the right trajectory. He will be missed. The market made that clear this morning!

SGH has a good track record of getting the right managers in place (bar Seven West Media, but thats another story on its own), so have confidence that they will eventually find the right guy to succeed Vik and see the rest of the transformation through.

Which makes the SM LGI conversation tomorrow that much more interesting as Vik is the Chairman of LGI. He has a track record of making something of things he takes on ...

Discl: Held IRL