Investment Thesis
- Macro conditions remains uncertain in key regions.
- Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk.
- Solid balance sheet position provides some flexibility to the Company to pursue growth.
- Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
- Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
- Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.
Key Risks
We see the following key risks to our investment thesis:
- Softer sales volume than expected.
- Loss of market share to competitors or imports and pressure on pricing.
- Softer than expected pricing increases.
- Higher than expected energy prices.
- Execution risk in relation to Company’s cost-out and vertical integration strategies.
- Deterioration of A$ relative to other currencies.
- Unfavorable weather impacts.
1H21 results summary
- Revenue was up +7.4% over pcp to $752.3m with robust demand, particularly on the eastern seaboard, driving higher volumes across all products. Lime pricing declined in accordance with contractual arrangements, while average cement price increased marginally, and concrete and aggregate prices were stable overall.
- Underlying EBITDA increased +8.7% over pcp to $133.1m with margins improving +20bps to 17.7%, benefitting from disciplined implementation of cost efficiencies across the Group.
- Underlying NPAT of $55m was up +15.5% over pcp driven by improved demand for construction materials supported by increased residential housing activity and infrastructure spending.
- Operating cash flow of $76.8m declined -34% over pcp, largely due to the one-off benefit in the prior year of Covid-19 stimulus measures with the temporary deferral of GST and PAYG payments that boosted 1H20 cash flow by circa $30m (measures reversed in 2H20 following payment of the deferred liabilities and were not repeated in 1H21).
- Capex declined -8% over pcp to $67.6m and was split between stay-in-business capital of $51.8m and development capital of $15.8m.
Company Description
Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
