Shares in southern Queensland construction and transport company Wagners plunged more than 20% yesterday after informing the market last night about a dispute with Boral that could cost the company about $20 million.
A warning yesterday from building products group Boral for weaker than expected earnings for the first half of 2017-19 sent the shares down 6% to 12 month low of $5.30 at one stage before they retraced to close at $5.52, off 1.9% thanks to the big afternoon ASX rally.
Boral's result has provided the broker with more confidence management's FY19 guidance can be achieved. A fly ash price increase of 13% and counting underpins that confidence although guidance for a flat FY in Australia still looks risky in the context of the housing slowdown, in the broker's view.
Following a series of downgrades the past twelve months, the broker's confidence in Boral's guidance has waned, leading to forecast cuts. Boral derives 50% of its earnings from housing and both US and Australian housing are in decline, Australia notably, and non-residential building carries downside risk if sentiment continues to deteriorate.
Boral will sell its US block business for US$156m. Morgan Stanley believes the sale comprises a healthy multiple relative to valuation. The transaction is only small but should help to de-leverage the balance sheet.