CSR benefiting from steady Australian Bureau of Statistics dwelling approvals in recent months

About CSR Limited

CSR Limited (CSR, the Group, ASX: CSR) was founded in 1855 and today is a leading Australian building products company in Australia and New Zealand. The Group employs 2800 people and operates out of 140 sites.

High employment and strong population growth driving housing demand

Demand for CSR’s building products is correlated to work done and completion activity for detached dwellings and multi-residential dwellings. The latest Australian Bureau of Statistics (ABS) dwelling approvals numbers released on 9 January 2024 reveal that November 2023 total dwelling approvals were 14,526 which is up 1.6 percent on the previous month and down 4.6 percent on the November 2022 approvals. Of the 14,526 dwelling approvals, 8506 were detached housing approvals. The 1.6 percent increase in November follows a 7.2 percent rise in October. ABS statistics include construction of new dwellings and alterations and additions to existing dwellings. A noteworthy aspect of this share buy-back is that it follows the previous and ongoing share buy-back program that has been renewed each year since May 2017.  Since the renewal of the most recent buy-back program announced in December 2022, 2,384,387 shares were bought on the market during the 12 months to 19 December 2023 for a total consideration of $55.8 million, representing $23.42 per share.

The two consecutive months of dwelling approvals increase correspond with detached housing build times showing early signs of beginning to contract from the elevated 12 months build time seen at the peak of supply chain and trade labour constraints post-Covid. Prior to Covid, average housing build times were approximately 8 months.

These numbers suggest that dwelling construction activity although below the boom levels of previous years, remains resilient in the face of historically high interest rates and high construction costs. This resilience is despite mortgage repayments as a share of household income being at 33 percent, up from 21 percent 3 years ago. The last time housing affordability was this low was in 2009 when 32 percent of household income was consumed by mortgage repayments.  Directors will determine the on-market buy-back share prices with just one restriction. The ASX listing rules limit the on-market buy-back price to not more than 5 percent above the average market price over the last 5 days on which share sales were recorded before the day on which the share purchase was made.

Outlook

In November 2023 for the six months reporting period to 30 September 2023, CSR was upbeat about the prospects for the Building Products division for the second half year to 31 March 2024. Building Products account for 78 percent of Group EBIT. CSR noted at the time that the pipeline for detached housing projects under construction is at about 50 percent above historical averages. It was also noted that the multi-residential pipeline represents about two to three year’s work and non-residential activity is supported by a large pipeline of approvals.

The Property division, which accounts for 20 percent of Group EBIT, and where CSR develops former manufacturing sites and industrial land, is set to deliver $44 million in contracted earnings for the next tranche of Horsley Park NSW and $58 million in the 2025 financial year. The sale process for the Darra, Queensland site is continuing and work is ongoing for major projects at Schofields and Badgery’s Creek, both in NSW.

The key drivers of residential dwelling demand are population growth and jobs growth. According to the ABS, Australia’s total population on 30 June 2023 was 26,638,544 people with an annual growth of 624,200 people, representing an annual growth rate of 2.4 percent. Annual natural increase was 106,100, and net overseas migration was 518,100 people. The unemployment rate is 3.9 percent with the number of people employed at 14,246,000, an all-time record. Federal and State government housing programs are likely to bolster housing supply in the medium term.

CSR is well diversified across brands, market segments and the build process which enables the Group to perform consistently through the economic cycle. This resilience is likely to be reflected in the year ending 31 March 2024 financial results to be released in May.