Why are these top brokers bearish on the Boral (ASX: BLD) share price?

Shares in the supplier of building and construction materials Boral Limited (ASX: BLD) opened at $ 6.45 apiece to start the session on Tuesday.

This price marks a 13% drop from the previous close of $ 7.41 on July 23 and a drop of almost 5% in the last week of trading.

Several brokers have evaluated this activity in recent weeks, each recently posting updates on their outlook for ASX stock.

Here’s why these top brokers are bearish on the Boral share price.

What are the prospects for the Boral share?

According to the JP Morgan team, profits from Boral’s local building materials business are at “low” levels.

The broker remains uncertain whether management can implement their $ 200 million to $ 250 million transformation program in Australia, for a few reasons.

First, the division has already delivered returns throughout the cycle. Second, it implies “a particularly low base level of income compared to previous years when activity was at its lowest.”

JP Morgan also notes that management language points to an estimated $ 16 million hit from forced lockdowns in July.

For example, the drag in the first quarter is expected to be about $ 50 million, and ‘the ability to recover [these] lost volumes remain unclear, ”says the broker.

The broker believes that to value Boral it boils down to two key assumptions: how much is its fly ash business worth in the United States, plus “the level of processing benefits that can be brought to Australia, and those benefits are incremental up to the point. ‘at the last cycle’.

As such, JP Morgan has a sell rating with a price target of $ 6 implying a 7% downside potential at the time of writing.

What other brokers are bearish?

His fellow broker UBS is also concerned about the outlook for the Boral share price. He recently lowered his 5% price target to $ 6.45 with a neutral rating, which means he now considers Boral’s stock price to be properly valued.

UBS believes that while Boral’s concrete and quarry volumes have exceeded expectations, there are underlying challenges related to market conditions.

He also believes Boral might struggle to gain ground in its core margins until there is a significant recovery in the Sydney market.

Not only that, but UBS notes the recent divestments by the player from building materials, which end up slashing its business from a profit standpoint.

Jefferies is not so rosy on the Boral share price either. He believes the company’s debt portfolio needs a bit of attention, as it has US $ 1.25 billion in debt on 8 US senior bonds.

The coupon rate (or interest rate) of these bonds ranges from 3% to 4.58%, with maturities ranging from November 2022 to November 2030.

He notes that there will “probably be no cover for this debt given the probable total exit of North American companies.”

As a reference, Boral recently finalized a partial tender for a portion of the short-term debt, but incurred a cost of “reclamation” of several million dollars.

Jeffries states that “a balance will need to be struck between the costs of repair and the additional cost of hedging the USD debt exposure, which we hope is something Boral management is giving special consideration to. appropriate attention ”.

So what is the sentiment on the Boral share price?

Of the 11 analysts covering ASX stock, 8 have a hold or sell rating on the Boral stock price.

Two brokers have a buy rating, with Macquarie Group Ltd. (ASX: MQG) holding the largest price target of $ 7.50 per share.

The spread between high and low valuations is $ 1.50 or 25%, with JP Morgan’s outlook being the most bearish for the direction of the share price.

Of the 72.8% of neutral or bearish forecasts, only Swiss credit has a price target above Boral’s current market price of $ 6.90.

In addition, the average or consensus of these price targets is $ 6.09, which implies a potential downside of almost 6%.

Based on this rudimentary analysis, sentiment appears to be tilting towards a bearish tone in the list of analysts provided by Bloomberg Intelligence.

Despite this, over the past 12 months, Boral’s stock price has gained 25% after rising 30% this year to date.

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