Biden Infrastructure Bill | James Hardie Delivers

11 August 2021

Global markets were mixed overnight (US S&P 500 index +0.1%) as the US infrastructure bill passed its vote in the Senate (the biggest spend on public works in America in decades) as the oil & commodity sectors rebound and tech underperformed. 

In stock moves, Micron Technology led a decline in chip stocks, which are down for a fourth session.

As widely anticipated, the US Senate finally passed the infrastructure bill, worth about $1 trillion with $550bn of new spending, seen as a political win for President Biden, but it still faces some hurdles to pass in the House before being implemented. House Speaker Pelosi said she will not allow a vote on the bill in the House until the Senate has passed the broader $3.5 trillion economic plan – this ongoing political football likely has months left to play out.

 

 

James Hardie (JHX:ASX)


James Hardie (JHX) shares hit fresh all-time highs yesterday on the back of bumper quarterly profits and soaring sales. This was pleasing to see as we have been BUY rated on JHX for some time now.

During the first quarter of its 2022 fiscal year, net sales from ordinary activities rose 35% to a record $US843.3 million while net profit soared 1191% to $US121.4 million in April-June.
The North American and Asia Pacific divisions were what drove the earnings higher, as the North America division saw adjusted earnings up 29% to US$169.3 million and Asia Pacific adjusted earnings (EBIT) rising 50% to A$50.4 million.

While expectations are running high for the stock, trading at a ~27x price to earnings ratio , it remains attractive on a relative basis to the broader market (at a lower premium than its history). 

The building sector around the world continues to boom and grow with demand for building products and services and the outlook appears to remain supportive for its major markets, while JHX is maintaining healthy margins from their restructuring efforts.
However, our BUY comes with a High Risk caveat. We do caution there may be some share price volatility if there were a sudden shock to the economy – particularly when there is an impact on residential housing. Another risk we are watching is the strong Aussie dollar, which is a headwind given a significant amount of JHX's business is generated in the US. 

 

   
Australia & New Zealand Market Movers

The Australian market stayed on its positive trend on Tuesday (ASX 200 Index +0.3%) as a surge in the valuation of lithium producers pushed Australian shares to another record high.

Major broker, JP Morgan, declared investors should buy almost any ASX lithium producer they can get their hands on with a bullish perspective on the outlook for lithium used in battery production, with compound annual growth in lithium demand forecast to rise 19% over the next 10 years.  This helped Orocobre (which has agreed to merge with Galaxy Resources) and Pilbara Minerals rally 8.7%  and 11% respectively. 

Meanwhile, Santos’ heightened exposure to the risky business environment in Papua New Guinea resulting from its proposed $21 billion merger with Oil Search has run alarm bells at credit rating agencies. More than 40% of the merged company’s earnings would come from PNG, noted Standard & Poor’s.

Internet connectivity business Megaport has widened its financial 2021 net loss to $55 million, although its shares were still up +3% as revenue was up 35% to $78.3 million, with total customers rising 24 per cent to 2285

There are reports Myer and its bankers are testing the waters for an “OnlineCo” JV or spin-off, which could see a new strategic or financial investor take a stake in its $600m a year online retail business.  Kogan.com and Wesfarmers, which owns Catch Group, are the sorts of investors expected to be on Myer and its bankers’ hitlist.

New Zealand shares climbed yesterday (NZX 50 index +0.5%) as investors positioned themselves in stocks exposed to the domestic economy ahead of earnings results set to be released next week.

The electricity sector is under pressure as Minister Megan Woods described yesterday’s black outs as a market failure and has asked MBIE to undertake a review. The key question is what does the Government do? It seems unlikely to do nothing. Most of the obvious tinkering would Not have a material on the generators. The risk lies in the Govt deciding the market is fundamentally broken and that something more draconian is required.

As far as responses from specific listed companies Mercury has been front footing with customer compensation ($50 for those disconnected) but Genesis has been the weak link, with CEO Marc England saying that comments from Minister Megan Woods laying blame on Genesis for not turning on its third coal-powered generator in Huntley were “misguided” for “many reasons”. He further explained that the market conditions were a consequence of a combination of issues and that the coal generators cannot be turned on quickly.
 

3 Things Markets will be Watching this Week

  1. Highlights this week include the latest​ inflation​​ prints in the US and China​.
  2. ​Earnings season across Australasia kicks into gear. Key names reporting this week include Aurizon, Suncorp, Transurban, Challenger, CBA, Computershare, James Hardie, IAG, Mineral Resources, Orica, ANZ Q1, AGL Energy, AMP, Downer, Goodman Group, Mirvac, QBE, Telstra and Precinct Properties.
  3. ​Ongoing commentary and reactions to the COVID delta variant remain in the headlines.​
As widely anticipated, the US Senate finally passed the infrastructure bill, worth about $1 trillion with $550bn of new spending, seen as a political win for President Biden, but it still faces some hurdles to pass in the House before being implemented.

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