Morningstar | Adelaide Brighton’s Outlook Becomes More Cautious With Infrastructure yet to Deliver; FVE Unchanged
Residential construction in Australia is cooling faster than narrow-moat Adelaide Brighton had anticipated in February when it guided to flat 2019 volumes. The company’s 2019 outlook has now become more cautious, with the significant pipeline of infrastructure projects yet to provide much needed offset to softening demand from housing construction. We share Adelaide Brighton’s cautious view on 2019, having previously revised our expectations lower for construction materials names Adelaide Brighton and no-moat Boral in April. We maintain our view that construction material and cement volumes will fall by circa 1.5% in 2019, before a pipeline of circa AUD 280 billion in Australian public infrastructure spending will see volumes stage a recovery in 2020 and onward. Therefore, we retain our 2019 full-year net income forecast of AUD 179 million for Adelaide Brighton, which sits 7.5% above the midpoint of management’s new guidance range. Adelaide Brighton’s shares screen attractively, trading at an approximate 24% discount to our unchanged fair value estimate of AUD 5.00 per share.Adelaide Brighton now expects soft volumes and more vigorous price competition in the Queensland market to result in delivery of net income in the range of AUD 162 million-AUD 171 million in 2019, a 10%-15% decline from a year earlier.
Boral manufactures and supplies building and construction materials in Australia, the U.S. and Asia. Co.'s segments are: Construction Materials & Cement, consisting of quarries, concrete, asphalt, transport, landfill, property, cement and concrete placing; Building Products, consisting of Australian bricks, roofing and masonry, and timber products; Boral Gypsum Joint Venture, which manufactures and sells plasterboard and associated products; and Boral USA, consisting of bricks, cultured stone, roof tiles, fly ash, concrete and quarries. The primary end use markets for Co.'s products include residential and non-residential construction and the engineering and infrastructure markets.
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