BRI – Big River Industries

Big River Industries Limited (BRI) manufactures veneer, plywood and formply, and the distributes building supplies.

• Formwork & Commercial – 26%
• Building Trade Centres – 44%
• Panels – 30%

BRI listed on the ASX in early 2017 and now has a market cap of $190million. It has a low PE, paid a dividend for each of the last 5 years (though variable amounts), exhibiting positive earnings and RoE.

OUTLOOK – Market Conditions
❑ Market conditions in 2H22 are expected to remain fundamentally in line with 1H22
❑ Construction starts continue to lag approvals, with supply chain and Covid disruptions further impacting this lag. This supports demand from the detached housing sector well in FY23
❑ Recent multi-residential approvals growth point to a turn around beginning in FY23 ▪ Starts are however, still tracking 50% below the last cyclical peaks
❑ Civil construction remains strong, with a considerable pipeline of new Brisbane projects in particular

OUTLOOK – Strategic Execution
❑ Divisional re-structure implemented, generating enhanced operational focus
❑ Acquisition pipeline continues to be solid, with both small bolt on and larger opportunities being considered
❑ Financial improvement from increased scale and solid organic growth has fast tracked the medium term goal of enhancing EBITDA margins
❑ Expect earnings improvements from new Capex at Grafton manufacturing site, to occur from Q4

OUTLOOK – Financial Expectations
❑ Pro forma sales run rate in 2H22 expected to be in line with 1H22 (albeit with 7 less working days than the 1H22)
❑ Gross margin growth seen in 1H22 is not expected to be repeated in the 2H22, as higher cost inventory cycles through the business
❑ EBITDA in the 2H22 expected to be slightly below 1H22, but well ahead of 2H21.
❑ Additional contribution from Revolution Wood Panels and United Building Products to reduce the impact of the weaker expected 2H22

Big River Industries (ASX: BRI) posted a record profit and dividend and subsequently the stock increased by ~+7%, yet on a price to FY22 earnings ratio of <11 times, BRI trades on a 40% discount to other listed building materials businesses.

– Naos Asset Mgmt (NCC and NSC)