The Adelaide Brighton Ltd (ASX: ABC) share price is currently down a jaw-dropping 18% following the release of revised earnings guidance to the ASX.
Established in 1882, Adelaide Brighton is a leading building and construction materials producer. Adelaide Brighton is the second largest supplier of cement in Australia and the largest producer of lime.
ASX release
Today’s update includes a revised earnings guidance for the year ended 31 December 2019. Adelaide Brighton’s management now expects underlying net profit after tax to be in the range of $120 to $130 million.
They are citing, “…a further softening of conditions in the residential and civil construction markets, continued competitive pressure in Queensland and South Australia, and a sustained increase in raw material costs” as impacting on profits.
Dividend Cut… Ouch!
In order to conserve capital and maintain balance sheet flexibility to pursue near term growth opportunities, the Adelaide Brighton Board has determined not to declare an interim dividend for the period ending 30 June 2019.
Their priorities are to:
- Maintain market share;
- Strengthen the balance sheet;
- Prudently manage capital spend;
- Contain costs and right-size the business to improve performance; and
- Pursue future growth and investment opportunities.
Impairment
As part of the Company’s preparation for reporting its interim result, to be released on 28 August, management has been undertaking a balance sheet review.
They expect the review will result in a non-cash impairment of no more than $100 million,
which would represent no more than 5% of Adelaide Brighton’s total assets. They said that, “these adjustments will not impact operational performance or the underlying profit of the business. The Company remains well within its banking covenants“.
Is Adelaide Brighton A Buy?
Personally, it’s not for me. The housing market remains fickle. Yesterday’s announcement that new housing approvals slumped to a six-year low won’t be helping the industry.
Less than 2 weeks ago construction and mining firm Cimic Group Limited (ASX: CIM) disappointed the market with their first-half result, their shares subsequently crashed down 18% on the day.
Adelaide Brighton is a price taker with its products facing reduced demand. I prefer companies with pricing power and differentiated products, so this is not a stock that I am interested in adding to my portfolio.
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Disclosure: At the time of writing David does not have a financial interest in any of the companies mentioned.