The US housing slump is a hangover from the pandemic recovery when homebuyers were able to lock in record low-interest rates and enjoy a renovation boom. The subsequent rise in interest rates to curb inflation means anyone looking to buy a new home faces a doubling in their mortgage rates from the post-pandemic low.
Home sales and renovations have gone into a deep freeze, and it has become one of the issues driving Trump’s push for the US Fed to make mortgages more affordable – as well as his soaring government debt levels.
Donald Trump is desperate to get rid of Fed chair Jerome Powell, who he has dubbed “Mr Too Late”, and engineer lower interest rates.Credit: AP
Analysts have been left struggling to understand the level of mess James Hardie has created for itself.
Despite the stock dropping more than 36 per cent from peak to trough in barely 48 hours, the ASX does not seem to have any issue with continuous disclosure.
But there is also the $5 billion debt, which means any further deterioration could see the group breach loan covenants with its banks.
Putting a buffer in place would require raising more money from investors, but that’s not something anyone would recommend at the current share price.
The decline on Wednesday alone was the biggest for James Hardie since 1973 when Gough Whitlam was prime minister and I Am Woman by Helen Reddy was topping the charts.
So much for Erter’s comment that it is a mere “blip” with distributors running down inventory blamed for the volume drop.
In the words of the Jarden team led by Rohan Gallagher: “This is not a blip”.
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Gallagher also slipped in other anxiety-inducing phrases such as “lack of earnings transparency”, and noted that the recent share price recovery from its April disaster was driven by positive macro projections.
“Fundamentals have proven a harsh reality check,” he said.
And it’s a pity that the inventory de-stocking by its distribution channel – James Hardie’s optimistic explanation for the gigantic sales slump – was not visible when the group announced its full-year results in May.
As Barrenjoey analysts point out, James Hardie noted “normal stock levels” at that time despite the fact it was already seven weeks into the troublesome June quarter.
Macquarie analysts have also expressed scepticism.
“We still struggle to reconcile James Hardie comments on new construction in the southern US with the group’s major builder exposures that are actually lifting starts activity and downplaying the systemic nature of new home inventory issues,” they say.
A slowdown in US home construction is hurting sales at building materials group James Hardie.Credit: Bloomberg
Other analysts raise the clear prospect that it is losing market share to rivals rather than facing short-term indigestion in its distribution channel.
It means that the James Hardie annual shareholder meeting in October will provide the most compelling corporate viewing since the last episode of HBO drama Succession.
Wherever remains of the group’s Australian investor base will be in an absolutely vile mood. And they will be making sure the board knows it.
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And the sweetheart deal James Hardie offered Azek investors for their business is not likely to offer any refuge either. Not after their freshly minted James Hardie shares have tanked so spectacularly on issues solely related to the James Hardie business.
And let’s hope the ASX rules still apply when it comes to the remuneration report. James Hardie received a first strike last year; another one this year would mean investors can vote to dump the entire board. If interest rates stay high, and the US housing market remains in the dumps, they may just take the opportunity.
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