Welcome to Fear and Greed, summer investing series brought to you by vanta specialist in compliance lead growth. I'm Sean Aylmer. James Hardy is a global building materials manufacturer. Although in Australia many people still associated with the supply of asbestos products decades ago and the legal battles and compensation that followed. I wanted to find out more about this company though, including how investors should think about it in twenty twenty five. As always, this is general information only and you should seek independent advice before making investment decisions. Grav Sodi is the deputy head of Research at Intelligent Investor Grave. Welcome back to Fear and Greed.

Welcome to Fear and Greed, summer investing series brought to you by vanta specialist in compliance lead growth. I'm Sean Aylmer. James Hardy is a global building materials manufacturer. Although in Australia many people still associated with the supply of asbestos products decades ago and the legal battles and compensation that followed. I wanted to find out more about this company though, including how investors should think about it in twenty twenty five. As always, this is general information only and you should seek independent advice before making investment decisions. Grav Sodi is the deputy head of Research at Intelligent Investor Grave. Welcome back to Fear and Greed.

Hi, Sean, thanks for having me on again.

Hi, Sean, thanks for having me on again.

James Hardy is an iconic company in Australia, but it's past in some ways.

James Hardy is an iconic company in Australia, but it's past in some ways.

Lingers, would you agree absolutely? There are probably two stigmas attached to James Hardy. One is the historical stigma attached to their production of the asbestos and they have been paying money from their profits to asbestos victims for many many years and they will continue doing that for many many years. So when you're looking through the accounts, that's something to keep in mind. I think the company does a very good job of adjusting for those and it's quite easy to look through those payments and see what the underlying business is doing. But there's a second stigma that I think investors have about this business as well, and that is that it's a cyclical pig because it's a building materials business. Building materials businesses are typically capital intensive, they're cyclical, and they're competitive, so they're not ideal hunting ground for great investing ideas. But I think the reason we're talking about Hardy today is because Hardy's different. Tell us why, Well, the way to think about James Hardy is not so much as a traditional buildings material business but as a disruptor. What really distinguishes this business from other of its peers is that it doesn't really screw amble for margin, or face competition or fight the cycle. This is a business that's come up with a new cladding that is absolutely tearing away. In the US. Now, in the US, cladding is just the exterior composition of houses, what they put on the outside of houses. In Australia, we're used to having high quality materials like brick or jip, rock on the outside of houses. In the US, they've sometimes had leather, a cardboard material really low quarterly quality, rather cladding materials, and James Hardy has introduced fiber cement, which is a relatively cheap alternative, but an infinitely better quality alternative. Now that clouding material is rapidly gaining market share. It's a disruptor in the US, and James Hardy controls ninety percent of the supply of fiber cement into the North American market. So I view this as not so much as a cyclical competitive business, but as a disruptive business, and the returns are commensurate with a disruptive business. Hardies typically generates returns on capital around twenty percent, unheard of in this industry, and cash flows have sort of tripled over the last ten years. Margins have expanded, revenues have grown. This looks like nothing like a traditional buildings materials company. When you tear it down, it actually looks like a high growth, high quality business, and we are treated as such.

Lingers, would you agree absolutely? There are probably two stigmas attached to James Hardy. One is the historical stigma attached to their production of the asbestos and they have been paying money from their profits to asbestos victims for many many years and they will continue doing that for many many years. So when you're looking through the accounts, that's something to keep in mind. I think the company does a very good job of adjusting for those and it's quite easy to look through those payments and see what the underlying business is doing. But there's a second stigma that I think investors have about this business as well, and that is that it's a cyclical pig because it's a building materials business. Building materials businesses are typically capital intensive, they're cyclical, and they're competitive, so they're not ideal hunting ground for great investing ideas. But I think the reason we're talking about Hardy today is because Hardy's different. Tell us why, Well, the way to think about James Hardy is not so much as a traditional buildings material business but as a disruptor. What really distinguishes this business from other of its peers is that it doesn't really screw amble for margin, or face competition or fight the cycle. This is a business that's come up with a new cladding that is absolutely tearing away. In the US. Now, in the US, cladding is just the exterior composition of houses, what they put on the outside of houses. In Australia, we're used to having high quality materials like brick or jip, rock on the outside of houses. In the US, they've sometimes had leather, a cardboard material really low quarterly quality, rather cladding materials, and James Hardy has introduced fiber cement, which is a relatively cheap alternative, but an infinitely better quality alternative. Now that clouding material is rapidly gaining market share. It's a disruptor in the US, and James Hardy controls ninety percent of the supply of fiber cement into the North American market. So I view this as not so much as a cyclical competitive business, but as a disruptive business, and the returns are commensurate with a disruptive business. Hardies typically generates returns on capital around twenty percent, unheard of in this industry, and cash flows have sort of tripled over the last ten years. Margins have expanded, revenues have grown. This looks like nothing like a traditional buildings materials company. When you tear it down, it actually looks like a high growth, high quality business, and we are treated as such.

Management of Hardies.

Management of Hardies.

Again, this is a hard business to manage. You have to manage a really large distribution network in order to get your product through to individual builders. Requires thousands of points of distribution difficult to manage. On top of that, this is a traditional manufacturing business, so you have to have big, heavy industry plants source raw materials. So it does require very good management. And over the years, Hardy's has built up a reputation as being a superbly managed business. So I'm really happy with the management. And it's not just a superstar. See we've seen successive waves of CEOs come and go at Hardy's and they've all been good quality. What we're always looking for is good capital allocation. How do they retain profits, how do they reinvest profits? Do they return them back to the shareholder? And you don't expect a lot of dividends here because there is a lot of maintenance of equipment. There's lots of new investment in new supply, but the returns they get from that investment is fantastic. So management quality gets a big tick from me.

Again, this is a hard business to manage. You have to manage a really large distribution network in order to get your product through to individual builders. Requires thousands of points of distribution difficult to manage. On top of that, this is a traditional manufacturing business, so you have to have big, heavy industry plants source raw materials. So it does require very good management. And over the years, Hardy's has built up a reputation as being a superbly managed business. So I'm really happy with the management. And it's not just a superstar. See we've seen successive waves of CEOs come and go at Hardy's and they've all been good quality. What we're always looking for is good capital allocation. How do they retain profits, how do they reinvest profits? Do they return them back to the shareholder? And you don't expect a lot of dividends here because there is a lot of maintenance of equipment. There's lots of new investment in new supply, but the returns they get from that investment is fantastic. So management quality gets a big tick from me.

There's always a risk to investing in any company. What's the risk with James Hardy.

There's always a risk to investing in any company. What's the risk with James Hardy.

Too big, Ris Shawan. The first is that this remains a cyclical business. Now, this is not a boom and bus stock the way other building materials businesses are. But we certainly see that margins and revenues expand in the boom and they contract in the bust, and so there's an opportunity typically to buy this at very attractive prices, but it does look beaten down and knocked up when that happens. The other thing is that the investment community is now starting to realize that Hardy's is a great business and the pe has been creeping higher over the years. We used to be able to buy this, and we have bought this many times at twenty times earnings or less. You're now being asked to pay about thirty times earnings. So right valuation matters, so make sure you get this at the right price.

Too big, Ris Shawan. The first is that this remains a cyclical business. Now, this is not a boom and bus stock the way other building materials businesses are. But we certainly see that margins and revenues expand in the boom and they contract in the bust, and so there's an opportunity typically to buy this at very attractive prices, but it does look beaten down and knocked up when that happens. The other thing is that the investment community is now starting to realize that Hardy's is a great business and the pe has been creeping higher over the years. We used to be able to buy this, and we have bought this many times at twenty times earnings or less. You're now being asked to pay about thirty times earnings. So right valuation matters, so make sure you get this at the right price.

Gorav, thanks for your time, pleasure.

Gorav, thanks for your time, pleasure.

Sean, thank you.

Sean, thank you.

That was Gore Av Sody, Deputy head of research at Intelligent Investor. Remember to get your own independent advice before making investment decisions. This is Fair and Greed Summer Investing series brought to you by Vana. Vana automates compliance for frameworks like ISO twenty seven one two, CPS two three four and Essentialate saving time and money while building trust. Join over eight thousand companies like at Lassian, Dovetail, and fire Ant Managing real time risk. Get one thousand dollars off at vant dot com slash fear and greed. I'm Sean Elmer. Enjoy your day,

That was Gore Av Sody, Deputy head of research at Intelligent Investor. Remember to get your own independent advice before making investment decisions. This is Fair and Greed Summer Investing series brought to you by Vana. Vana automates compliance for frameworks like ISO twenty seven one two, CPS two three four and Essentialate saving time and money while building trust. Join over eight thousand companies like at Lassian, Dovetail, and fire Ant Managing real time risk. Get one thousand dollars off at vant dot com slash fear and greed. I'm Sean Elmer. Enjoy your day,