2012 Media Releases

Deutsche Bank has initiated coverage of building material products manufacturer and distributer Alesco (ASX: ALS), with a Buy recommendation.

Research analyst John Hynd said, “Alesco has undertaken a substantial restructure in the last six years, evolving from a company with a wide portfolio of businesses to a company solely focused on supplying building material products to industrial customers. The company has acquired 21 businesses for AUD445m while selling four businesses for AUD222m.

“Our positive rating of Alesco is predicated on the benefits from this restructure and from the cyclical recovery forecast for FY13.”

After selling the majority of its loss making division - Decorative Surfaces & Appliances, in March 2012, management is now focused on restructuring and growing its three remaining divisions Garage Doors & Openers, Construction Products & Equipment and Cabinet & Window Products.

Alesco’s largest exposure is to the new housing, renovation and non-residential building segments, so any improvement in housing and commercial volumes is likely to impact earnings. Deutsche Bank expects alteration and housing addition volumes to increase 6.4% and 8.7% in CY12 and CY13 respectively.

Hynd added “While Deutsche Bank expects residential and non-residential conditions to remain challenging in FY12, we forecast FY13 housing starts to increase 5% year on year to 146,000 and alteration and addition to increase 10%. If housing starts were to decline by up to 25% in FY13, Alesco would still report flat NPAT vs FY12.”

Downside risks include a softer housing recovery, rising costs of wages and raw materials in Australia, slower restructure of the Cabinet & Window Products division and poor execution of the Construction Products & Equipment store roll out.

“As a result, Deutsche Bank expects Alesco to be in the favourable position of operating three efficient, high margin division with accelerating growth potential at the beginning of a recovery of the Australia residential and non-residential.”

Alesco, headquartered in Sydney, manufactures and distributes industrial products to the construction, building and renovation sectors in Australia and New Zealand.