CSR: Inexpensive with cyclical tailwinds likely to remain

CSR Limited (CSR) released a strong full year 2015 profit result in mid-May which exceeded consensus market expectations and the stock finished the month up 15.3%. The company has been a clear beneficiary of cyclical tail-winds over the past 12 months with building approvals and housing starts remaining robust in the low interest rate environment. Pleasingly, the company has delivered a number of operational improvements, notably the strong turnaround in the previously loss making Viridian glass business and good results from its “cost out” program. The company looks inexpensive and the cyclical tailwinds ought to continue to drive strong performance from the building materials and glass business into FY16. We have nevertheless reduced our position following share price appreciation due to some medium term concerns around the aluminium division, where spot premiums have fallen significantly, and the possibility of plasterboard competition intensifying with competitor, Knauf, recently announcing its intention to open a new facility.