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17 September 2019 | Sell

Sold our holding in Boral Limited (BLD)

In late August, Boral reported a disappointing FY19 result that missed market estimates as declining residential markets and projects delays meant both the US and Australian markets were softer than expected. Unfortunately, guidance (pre the US$440m debt funded USG plasterboard acquisition) will see earnings decline by 5-15% next year (also below market expectations) and this paints a weaker outlook for Australia with minimal growth in the US. In Australia, they see downward earnings pressure as the slowdown in residential construction continues to impact and won’t be fully offset by growing volumes in infrastructure projects. Higher than average property earnings and further benefits from improvement initiatives will help the result. We expected a challenging FY19 result given the uncertain global and political backdrop particularly in Australia. However, with interest rates falling this year and a better than expected (pro property) election result we were hopeful of a more positive outlook in FY20.  After falling below $4 a share following the disappointing result the stock has recovered almost as sharply rallying over 20% in three weeks. With the stock now trading above fair value on a revised consensus basis and approaching technical resistance we have decided to exit and build cash for more attractive market opportunities.