After nearly 100 years in operation, timber manufacturer Big River Industries is planning to list on the ASX in a deal which values the company at almost $80 million. Over the past 12 months ASX listed competitors James Hardie (JHX), Boral (BLD) or Fletcher Building (FBU) have performed mixed, so how can Big River create value in this highly competitive $45 billion market?
Incorporated in 1920, Big River sells hardwood and softwood engineered flooring products to professional builders and construction companies in the infrastructure construction markets. The company acts as a global distributor but also owns manufacturing facilities in Grafton and Wagga Wagga, where it produces its timber and steel products.
Big River’s management intends to grow the business organically and through acquisitions. The fragmented timber distribution market consists of over 2,000 competitors and consolidation in the sector is a potential value driver. In its prospectus, the company forecasts to grow revenue and earnings over the next two financial years averaging a mid-single digit growth rate.
The largest risk for IPO investors is Big River’s exposure to the residential and commercial housing market. A deterioration in business activity or a change in interest rates could have a negative impact on demand for its building products. In addition, an increase in offshore competition could threaten its capital-intensive operations.
Big River Industries may not be the most exciting IPO of the year, but the company is fundamentally sound and projects to pay a fully-franked dividend as early as fiscal year 2018, yielding over 5 per cent. With a track record of almost 100 years, over 2,700 customers and a valuation broadly in line with industry peers, the float offers a balanced income opportunity for investors seeking to gain exposure to the domestic construction industry.
ASX Code: BRI Shares on Offer: 11.6m Listing Price: $1.46 Market Capitalisation: $76.8m Listing Date: May 8
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.
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