News of Bunnings' new focus on residential frame and truss is a little concerning:
https://woodcentral.com.au/bunnings-75m-move-to-shake-up-australias-truss-frame-supply/https://www.commercialrealestate.com.au/news/bunnings-invests-75m-in-a-changing-home-build-market-1234379/
Bunnings is not a competitor you want to have. I don't have enough prior knowledge of BRI or the industry to have an informed opinion though.
Also, I note our projected earnings has fallen on Commsec. I wonder if this is a result of the Ord Minnett adjustment to forecast earnings (as reported by Tarvold) and our share price has then fallen in response.
I'm no chartist either, but it seems like someone is exiting a position and it's putting pressure on the share price. Prior to a couple of weeks ago, there would be days with only three or four trades. A lot of volume going through the market (for us, anyway) this week:
BRI represents less than 1% of my portfolio. Typically, I've been reluctant to buy more with the share price under pressure ("what if the company is cheap for a reason, and I'm stuck in a loss-making position/mess!" -- questions we all ask ourselves). Then the share price moves up 7.2% like it did today, and I wish it had stayed at $1.95 so I could have bought more cheaply. Not that I probably would have
This stock investing thing isn't easy!
I've been impressed with BRI's discipline in not making a lot of acquisitions to simply grow revenue. It seems ages since our last acquisition -- despite having the capacity for it. Management have come across as conservative people who understand the business and industry well. The AGM and results announcement presentation (available on the Big River website) are informative and feel like information is being freely given, rather than withheld. Our acquisitions have been targeted, and value-adding from the start. Despite the board declaring a desire to grow through M&A, they've been cautious and deliberate. We seem to have low debt too, and no trouble paying down what we have borrowed. It's hard to go broke when you don't have (a lot of) debt, as Peter Lynch said! Shares have been issued at times (something I dislike) but it's been to acquire add-on, value-accretive businesses.
I like how we have a third of our revenue coming from BRI manufactured products, a third from other Australian suppliers, and a third sourced from abroad. Also, that we have a network of our own stores across all states in Australia, rather than trying to sell branded goods through Mitre 10, or some nonsense like that. Big River has a fully functional, independent, nation-wide manufacture, supply and sales chain, with decades-long relationships with tradespeople. That's important, and difficult for anyone (even Bunnings) to replicate.
I heard the fund manager of our biggest shareholder (NAOS Asset Management, 36.4%) say (in an interview or podcast; I can't remember) he felt Big River looked like an early stage Reece Plumbing, which consolidated its industry, improved margins, and became the industry leader. He would say that, and it's a brave call. We're a 100 year old company, which counts for something. I like to think BRI is an established player in a traditional, but fragmented market.
Like Dabozza, I take the view commercial property (new builds and re-fitting existing buildings) is doing well. Given Australia's insane immigration policies, record low rental property vacancies, and record low new home build starts, it is surely absolutely inevitable that residential home builds will kick-off at some point -- or else hundreds of thousands of folks will be living in tents, or sleeping in their cars. As massive numbers of homeless is unthinkable, the only alternative is for an unprecedented residential housing boom. Or converting B-grade commercial office buildings into apartment -- either way a lot of BRI products would be required.
Putting aside fairy tales of BRI becoming a ten-bagger Reece-like scenario and acknowledging it's a classic
cyclical industry, at that point I could see (with both a strongly profitable year, positive forward outlook
and P/E expansion) our share price doubling and trading at $4.00-odd, under the right conditions. It's not that much of a stretch given population projections and assuming management are as solid as they appear in presentations.
A lot to like here, including the fully-franked dividends.
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