Stock Analysis
Momentum
Australia

James Hardie Industries climbs on strong results and 2020 outlook (JHX:ASX)

7 Nov 2019
By Thomas Brunton
James Hardie outperforms expectations with a 17% increase in adjusted net operating profit and a 21% increase in adjusted EBIT...

James Hardie Industries (JHX), the world’s biggest fibre cement maker, reported a 17% increase in full year adjusted net operating profit (NOPAT) of US$188.8 million as its US segment experienced strong growth amid improving U.S housing market conditions.

Adjusted EBIT over the same period rose by 21% to US$258.6 million, sales increased by 2% to US$1,316.9 million and a FY2020 First half ordinary dividend of US$0.10 was announced to be paid on December 20.

While all three major regional segments posted growth in net sales and EBIT, North America outperformed as decreasing interest rates fostered growth in mortgage applications and lending and supported growth across the broader U.S housing market.  In total, EBIT margins in North American, Asia Pacific and Europe increased by 26.1%, 23.5% and 10.3% respectively.

The Dublin-based company raised its full year adjusted net operating profit forecast to between $340 million to $370 million, up from an earlier forecast of $325 million to $365 million, and also raised its EBIT margin range to 25-27% for the 2020 fiscal year as a result of strong momentum in commercial and lean transformations.

Overall, JHX holds a particularly optimistic outlook for 2020 and indicated that continued growth in the US housing market is expected to generate new construction starts of between 1.2 and 1.3 million. Conversely, over the same period, the Australian housing market segment is expected to experience a single digit contraction and the European addressable underlying market will also decrease slightly despite net sales and EBIT margin growth.

With an FY2020 first-half dividend of US$0.10, and three prior dividend payments equalling US$0.26, US$0.10 and US$0.30, JHX is expected to retain its current payout ratio as well as its position within the ASX Momentum portfolio, should the price hold up.

Since being introduced to the ASX Momentum portfolio on October 23, JHX has generated a return of 4.60% and has an upcoming dividend of US$0.10 due to be paid December 20 (ex-div date of November 15).

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