Boral attractive, but near-term bid talk seen overdone

Boral attractive, but near-term bid talk seen overdone
Published: 08 September 2005

A run of takeovers among global building products groups could deter any near-term bid for Australia’s Boral Ltd, despite a sharp price spike on takeover speculation, fund managers and analysts said.  

Shares in Australia’s second-largest building products group hit a record A$8.11 on talk that the company, which has a market value of A$4.6bn ($3.5bn), could be a target for larger peers such as Lafarge SA or Saint-Gobain  

The talk was fuelled by a Credit Suisse First Boston research report that cited Boral’s low risk, leading market positions, strong balance sheet, surplus assets and open share register.  

"Whilst Boral continues to trade on a single to low double-digit PE multiple, the possibility of a global bid should not be ruled out," CSFB analysts said.  

However other analysts pointed to recent acquisitions among global building products groups, and a weaker outlook for Boral.  

"Boral has a number of qualities that might attract potential acquirers, however its subdued near-term growth outlook may dissuade offshore suitors already digesting significant recent M&A," said UBS analyst Mark Ebbinghaus.  

A Boral spokeswoman declined to comment on the takeover talk.  

Boral, which last month reported a flat annual profit before one-off items of A$374m, warned a slowdown in the domestic housing market could see earnings fall this year.  

Unlike Australian heavy building materials group Rinker and plasterboard company James Hardie Industries N.V, Boral makes about 80 percent of its earnings in Australia.  

Nevertheless its shares have spiked 14 percent in the past six trading sessions, although the share price rise appeared "a bit overdone", said Hans Kunnen, head of investment markets research at Colonial First State Investment Managers.  

Any bid would likely carry only a small premium to the current price, Kunnen said.  

Fund managers also put some of the positive sentiment down to Boral’s plans to raise concrete prices from October to recover rising fuel and cement costs, and a rally in building stocks following Hurricane Katrina.