Following the completion of the Azek acquisition, James Hardie’s JHX American depository receipts have been transferred to ordinary shares on a one-for-one basis. The company is now listed on the New York Stock Exchange under ticker JHX.

Why it matters: We now provide coverage for NYSE-listed ordinary James Hardie shares, with the prior ADR listing ceased. All ADRs and acquired Azek shares are issued as ordinary shares on the NYSE. The CHESS foreign securities listed on the Australian Securities Exchange are unchanged.

  • Australian shareholders have expressed concern that the ASX listing may be scrapped in favor of a single NYSE listing. The firm’s ties to Australia have diluted over the years with the company registered in Ireland and management mostly in the US.
  • Management says it is not seeking foreign exempt status on the ASX listing. If they sought this, they would not have to operate under ASX rules and could follow NYSE rules instead. Hardie intends to operate under both rules but states it would ask ASX shareholders to vote if this was not the case.

The bottom line: We make no change to our forecasts. Our fair value estimate for wide-moat James Hardie is unchanged at $48 per share, translating to a USD 31 per share for the new NYSE listing. Shares are fairly valued.

  • The market seems to share our concerns that the Azek deal was value-destructive. We view Azek’s products as less differentiated than Hardie’s and the industry more competitive. Consequently, we do not ascribe the full costs and benefits management expects from the USD 8.4 billion deal.

Business strategy and outlook

James Hardie’s growth strategy includes marketing directly to homeowners, market share growth, and category expansion. We view this as rational and achievable, given past success. We estimate Hardie has about 90% market share in the fiber cement category in its main geography of North America, which contributes about 80% of group operating income. About two-thirds of North American EBIT is from repair and renovation, or R&R, and the remainder is from new house construction. We view the R&R market as less cyclical, with homes needing to be re-sided approximately every 40 years. According to the US Census Bureau, about half of all houses are 40 years or older. As such, we expect a steady pipeline of homes requiring siding replacement or repairs through the next decade.

A focus on marketing directly to homeowners sees James Hardie promote demand for its fiber cement-based products emphasizing product value, durability, and design. The strategy to increase penetration and grow market share involves taking share from competing siding products seen as less durable or higher maintenance. Indeed, over the five years to 2022, the Census Bureau reports that fiber cement siding on newly built houses gained 3% market share in the US compared with vinyl (down 2%), stucco (up 2%), brick (down 2%), and wood (down 1%). Fiber cement siding was the siding of choice in 23% of all new US house completions in 2022. We estimate that James Hardie fiber cement siding is on about 7% of existing US houses.

Another growth initiative is targeted architectural products to appeal to higher-end markets, penetrate regions with different housing styles, and compete with costlier siding materials such as stucco and brick. This involves leveraging research and development into new products to better fit markets and/or improve margins. The firm’s primary R&R market is the US Northeast and Midwest, where the climate and house framing style suit traditional overlap siding, but newer products are targeted at other regions, such as a stucco-look product that competes in the predominantly stucco-clad Southwest.

Bulls say

  • James Hardie’s US segment continues to take market share from lower-cost alternative siding materials, such as vinyl and wood, despite higher prices and a downturn in residential spending.
  • Economic cycles aside, James Hardie’s wide economic moat provides a strong defense for long-term earnings and returns.
  • About one-fourth of all new house builds in the US use fiber cement siding, supporting the firm’s future repair and renovation pipeline as these homes will eventually need re-siding or repairs.

Bears say

  • High interest rates are likely to dampen demand for new housing.
  • US homebuyers could continue a shift toward multifamily units rather than single family, causing fiber cement siding demand to decline.
  • Despite two decades in the region, uptake of fiber cement in Europe has been slow and meeting midterm financial targets in this segment seems unlikely.

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Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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