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Morningstar | Narrow-Moat Adelaide Brighton Downgrades 2018 Guidance on Soft Volumes; FVE Unchanged. See Updated Analyst Note from 06 Dec 2018

Narrow-moat Adelaide Brighton’s 7% downgrade to full-year 2018 net income guidance has no impact on our fair value estimate, which remains intact at AUD 5.00 per share. A slow second half for construction activity in Western Australia, combined with adverse weather in east coast markets, has led to softer volumes than Adelaide Brighton had anticipated. Adelaide Brighton now expects 2018 net income in the range of AUD 188 million to AUD 195 million. As the company has a December year-end, we expect guidance to be accurate and have marginally reduced our 2018 volume expectations for cement, concrete, and aggregates to 1% from a prior 1.5%. We therefore trim our full-year 2018 net income forecast by 1.5% to AUD 190 million. But our long-term outlook is unaffected by today’s update, with sales volumes expected to be supported by a significant pipeline of infrastructure spending through the medium term. We also continue to expect price increases to offset surging Australian energy prices and further augment revenue growth. We forecast a five-year revenue CAGR of 4.8%, largely unaffected by today’s guidance update. Adelaide Brighton now appears fairly valued, following recent share price weakness, with shares trading around 0.95 times our fair value estimate and 16.2 times fiscal 2018 diluted EPS.