The James Hardie Industries Plc (ASX: JHX) share price recently hit an all-time high.
James Hardie is the world’s largest manufacturer and marketer of fibre cement building products. These products address both the interior and exterior aspects of construction, from walls and floors to cladding and weatherboards.
James Hardie is incorporated in Ireland and a member of the S&P/ASX 100 (INDEXASX: XTO). The company is also listed on the New York Stock Exchange, with sales in North America comprising about 70% of total group sales in FY20.
JHX share price chart
What is fibre cement?
According to James Hardie’s corporate website, fibre cement is formed through combining Portland cement with cellulose fibre (from plantation-grown Radiata pine trees), sand, water and small amounts of chemical additives.
The benefits of using fibre cement, according to James Hardie, include:
- Durability – “Products will not burn, are resistant to permanent water and termite damage”;
- Thermal efficiency – Cools quickly after a warm day;
- Quicker construction – Fiber cement panels can be installed more quickly than using say bricks or poured concrete;
- Space maximisation – Walls can be made thinner with fibre cement when compared to brick or aerated concrete panels, thereby maximising the available living space; and
- Stylish – You be the judge.
Asbestos Injuries Compensation Fund (AICF)
The AICF was formed in 2007, by agreement between James Hardie and the New South Wales Government, to compensate victims of asbestos-related diseases.
For those who may not know, James Hardie’s building products once contained asbestos, which is linked with diseases such as mesothelioma – fatal cancer of the lining of the lungs (Source: Asbestos Safety and Eradication Agency).
James Hardie contributed a massive 35% of its free cash flow to the AICF in 2020, equivalent to US$153.3 million. James Hardie must continue this level of free cash flow contribution until at least 31 March 2045.
Strong fundamentals
In August, James Hardie released its Australian annual review for FY20. Net sales were up 4% on FY19 to US$2607 million, adjusted EBIT
rose 20% to US$487 million and adjusted net operating profit increased 17% to US$353 million. This continues the strong momentum achieved in recent years.
CEO Dr Jack Truong said: “These results reflect the significant impact of our commercial transformation from pull to push-pull and the Lean transformation in our network of manufacturing plants”.
Are James Hardie shares a buy?
Although the James Hardie share price is reaching all-time highs, I wouldn’t be trying to jump on the bandwagon now.
While the share price has strong momentum, this could stop at any day. Personally, I cannot overlook the whopping 35% of annual free cash flow that must be contributed to AICF.
If you’re on the hunt for share ideas, whether it be for growth or income, check out Rask Media’s share ideas page.
