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Adelaide Brighton confident construction demand will offset residential slide

Lex Hall with AAP  |  28 Feb 2019Text size  Decrease  Increase  |  
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Building firm Adelaide Brighton has reported a slight increase in full-year profit and predicts demand for construction materials will remain stable despite a residential sector decline.

The company's net profit for the 12 months to 31 December rose 1.4 per cent to $185.3 million, with revenue up 4.6 per cent to $1.63 billion.

Underlying earnings before interest, tax, depreciation and amortisation fell 3.7 per cent to $191 million for the year, which the company attributed to lower cement volumes and higher import costs.

Shares in the company were down 5.42 per cent to $4.71 at 3.45 Sydney time on Thursday, reflecting the flatter guidance, says Morningstar equity analyst Grant Slade.
Adelaide Brighton carries a fair value estimate of $5.

According to Morningstar forecasts for cement demand in the Australian market, volumes will fall 0.3 per cent in 2019 but will rebound by about 1.5 per cent in 2020.

“Management has delivered a cautious outlook, guiding to flat volumes for 2019, which has spooked the market, but guidance largely tracks our forecast volumes in the year ahead,” Slade said.

The building materials supplier said it expected demand in the residential sector to fall over the coming year, particularly in NSW and Victoria, but that this would be offset by an increase in non-residential, engineering and infrastructure work.

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Australian Bureau of Statistics data released on Wednesday pointed to steeper than expected falls in home building work in the December quarter.

Despite the fall in residential construction, Slade says there is substantial infrastructure pipeline – including the $885m Northern Connector motorway in Adelaide – which will boost volumes.

Adelaide Brighton announced it would put up the prices of all of its products from 1 April, stating that "the demand environment is anticipated to be supportive of these increases".

The company said on Thursday it would distribute a special dividend of four cents on top of a final dividend of 11 cents a share, which was one cent lower than a year ago.

“The traditional interpretation is that the board may be concerned that the near term earnings trajectory isn't upward,” said Slade.

“That could be another factor that is causing the market to question whether infrastructure cycle can deliver near-term top-line growth and offset declining residential demand.

“We think volumes will grow modestly over the medium term as demand for infrastructure projects offsets the fall in residential construction.”

. Lex Hall is content editor with Morningstar Australia

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