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Adelaide Brighton Limited Price Falls As Construction Boom Slows

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Adelaide Brighton Limited (ASX: ABC) has revised 2019 earnings guidance this morning, ABC now expects net profits after tax for 2019 to be $120-$130 million, this is significantly lower than the $190 million earnt in 2018. In response to this the share price of ABC has fallen 18.75% to $3.50, this is down from a 52-week high of $7.03.

Adelaide-Brighton-ABC-share-price

Adelaide Brighton Limited is a key manufacturer of construction materials used in building, infrastructure and mineral processing markets throughout Australia. The Company is Australia’s second-largest supplier of cement and clinker, as well as the fourth biggest producer of concrete. ABC also manufactures concrete products such as pavers, masonry and bricks.

The Australian construction market has been in decline over the past year with building approvals down 20% from June 2018. This is a result of several factors, including tighter lending restrictions imposed by the big four banks following the Royal Commission causing a reduction in demand for new residential construction.

Government infrastructure spending has also fallen, failing to outpace the slump in construction projects caused by the end of the mining boom. With infrastructure-related projects growing by 24% over 2018 failing to account for a 60% decline in resource construction expected over 2019.

ABC also has attributed its decline in earnings as a result of increased competition in Queensland and South Australian markets sustained raw material price increases and one-off costs associated with cancelled orders for softening Victorian markets.

The Company has also undertaken a balance sheet review that has resulted in a non-cash impairment of $100 million pre-tax. ABC claims this represents less than 5% of its total assets and will not impact its operational performance.

These ongoing challenges for ABC have resulted in the company announcing that they do not plan to distribute an interim dividend for the period ending 30 June 2019. ABC maintains its priorities; to secure market share, strengthen its balance sheet, manage capital spending, contain costs and pursue future growth. However, current market conditions may see ABC facing continued difficulty in achieving these goals and improve earnings, as construction is expected to continue its decline into 2021.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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