How long have you held the stock?
We’ve had an overweight position versus benchmark since early 2013.
James Hardie Industries (JHX)
What do you like about it?
In the first half of 2013 we liked the potential for some additional exposure to the housing and, more broadly, the building construction cycle in the US and parts of Europe, Asia and the local market.
Clearly the improving macro factors globally over the past 18 months have also been supportive for both business and household construction. Given they are focused on manufacturing and selling fibre cement building products for both interior and exterior building construction applications, there needs to be good streamlined cost controls and ability to raise prices through the cycle to expand margins. Combined with on going product development and effective marketing they have justified the circa 50% share price appreciation over the past year.
How is it better than its competitors?
They have a proven track record in diversified markets with expanding conditions for housing (both new and renovation market), they have a good price point versus substitutable materials (ie. brick, vinyl producers), cost controls and ability to maintain margins over the cycle are also robust.
What do you like about its management?
An experienced senior management and supportive board in recent years have ensured they can compete in a number of different markets. Macro factors are either a big tailwind or headwind at different stages of the cycle, so the focus on costs, margins, sales and product development add value over the medium to longer term.
What is your target price on James Hardie?
Around AUD $15.5 by mid-2015. Target has been revised higher over the past year.
At what point would you sell it?
Current valuations, while not cheap, are justified following ongoing recovery within their markets. The building cycle continues to have upside and the current accommodative monetary policy will continue to act as a tailwind over the coming year. A stock like this would be a potential sell when global conditions require some tighter monetary policy. That would be more of a 2016 issue.
How much has it added to your overall portfolio over the last 12 months?
JHX is up around 55% over the past year and, not surprisingly, has outperformed the broader ASX200 benchmark, which is up around 19% (total return) over the same time period. We still see good upside in James Hardie in the year ahead but most of the re-rating is behind us. Anticipating a total return around 12-15% in the year ahead.
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