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.
Morgan Stanley suspects the market is finding it difficult to recognise the inherent asset value in the stock. The broker assesses the stock is currently trading at a meaningful discount to both peers and its historical valuation range.
UBS lowers its rating to Neutral from Buy as the stock is approaching the target. House prices are lifting and housing approvals appear to be bottoming but the next 12 months are still likely to experience a contraction ahead of a trough, in the broker's view.
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.