Boral looks for a new road

boral-mike-kane-2Quest added Boral to our portfolios during December. Boral supplies building and construction materials in Australia ,United States and Asia. Until now it has attracted little interest from our team having under performed the market for more than 8 years. This is a tough business; low margin, high fixed costs, competitive and subject to the volatility of housing demand.

Back in May the Boral Board unexpectedly sacked the incumbent CEO and appointed Mike Kane as a replacement. Kane was previously President of Boral USA for 2 years and has over 20 years experience in executive roles in the US building materials industry. He has recent experience in very tough trading conditions and managing in that environment . Kane announced his new business structure for the company last week which earned the company more headlines than the company is accustomed too. The new structure sees 700 jobs to go  from 14,700 and from all levels of the business including the Divisional Managing Directors of both the Cement  and Building Products divisions. The savings are expected to be around $90 million per annum.

Last year at Quest we took a fresh look at building materials companies given the improved interest rate cycle, historically low share prices and demographic changes that were appearing in Australia. Soon after we bought Fletcher Building with Boral following in December after the appointment of Mike Kane.

The attraction of Boral is both the leverage to an improving cycle and the arrival of a new CEO who appears to determined to bring change. Boral has a long proud history but there comes a time where doing things the old way no longer cuts the mustard. Kane has been installed to deliver change.

The Boral share price has been on fire in recent days post the restructuring plan. Next comes the execution and delivery of  a satisfactory return on assets to shareholders that has been lacking for years. While the stock market loves a cost cutting initiative, the longer term share price performance comes down to delivery. That task starts now.