Adelaide Brighton Guides Lower NPAT; Shares Nosedived Over 10%

Today, on 9th May 2019, Adelaide Brighton Limited (ASX:ABC) announced that it expects underlying net profit after tax (NPAT), excluding property for the CY2019 will be 10% to 15% lesser than the previous year NPAT of $190.1 million. This has been attributed to subdued demand for the construction materials in the residential & property markets, competitive pressures in Queensland, and increasing competition in the cement imports as well as higher costs of key raw materials as compared to the previous year.

ABC’s Chief Executive, Nick Miller, stated that despite the challenging market conditions this year, the company’s balance sheet stands stronger and provides them with the flexibility to carry-on new opportunities that arise. They will continue to focus on cost efficiency along with operational improvement to subside the impact on earnings.

In the previous update, ABC published its Annual Report, where it highlighted operational and financial updates. Total cement sales volumes increased by 1.1% compared to 2017. The east coast markets remained stable in 2017, supported by the strong residential activity in New South Wales (NSW), Victoria and Queensland, and increased non-residential building as well as infrastructure activity. The lime sales volumes were stable in the year 2018. The company continued to successfully defend its market position with high quality, reliable and cost-effective domestic production. The average lime prices were lower as compared to 2017, due to both sales mix and contractual pricing arrangements.

The company reported an increase in its revenue by 4.6% to $1,630.6 million. Its underlying NPAT ex-property attributable to members increased by 0.1% to $190.1 million. ABC reported basic EPS of 28.5 cps, which was up 1.4% compared to the previous period. Its final ordinary dividend was reported at 11.0 cps, decrease of 1 cent per share as compared to the previous period, with special dividend reported at 4 cents per share.

ABC expects overall demand for construction materials to be stable, with growth in non-residential engineering and infrastructure demand, primarily offset by the declines in residential. Construction demand in the east coast markets is anticipated to remain healthy, with stable demand in the Northern Territory and Western Australia (WA). Volumes in South Australia are likely to be assisted by demand from projects and mining. While variation in sector demand is expected, overall, Adelaide Brighton’s east coast markets are anticipated to remain at healthy levels in 2019.

The demand environment appears favourable for further construction materials price increases, but, as always, this will be dependent on the local market conditions. The outlook for the joint venture operations in Australia remains positive, although Sunstate Cement may face increased competition in the southeast Queensland market. While there are regional variances in the outlook, the company is expecting a broadly stable demand environment in construction materials and lime in 2019. This should be supportive of the company’s efforts to implement the strategy and continue to grow long term value for shareholders.

On the stock information front, at market close on 9th May 2019, the stock of Adelaide Brighton was trading at $3.760, down 10.263% with a market capitalisation of $2.73 billion. Its current PE multiple stands at 14.7x, and its last EPS was noted at $0.285. Its annual dividend yield has been noted at 4.77%. Today, it touched day’s high at $3.970 and day’s low at $3.680, with a daily volume of 4,847,490. Its 52 weeks high and low price stands at $6.963 and $3.680, respectively. Its absolute returns for the past one year, six months and three months are -34.85%, -24.11%, and -10.25%, respectively.

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