Challenging conditions
FY22 RESULT
Need To Know
- Earnings ex-property income at bottom end of guidance
- Margins halved reflecting known inflation pressures in 2022
- Outlook points to higher CAPEX costs. Vague comments around margin outlook
Ex-property sales, the NPAT of $78m compared to ABC guidance of $75-85m. Underlying EBIT was $179m, flat on FY22. As expected, the earnings performance revealed a collapse in margins reflecting ABC's inability to push through enough price increases to recover cost inflation in 2022. EBIT margin collapsed from 11.4% to 6.6%. There was no final dividend as expected.
Result quality was poor, with both cash flow and cash realisation weakening in the periods. As a result, net debt has increased from 1.6x to 2.0x EBITDA, which is now at the upper end of ABC’s target range.
Outlook comments point to the persistence of cost headwinds, and strong demand. “The Company anticipates cost headwinds to persist in 2023. However, the strong demand for products and the benefits of price increases should rebuild resilience and margin”.
It’s unclear to our view what rebuilding or resilience and margin refers to. The market is currently assuming a partial rebuild in margins in 2023.
Interestingly, the Result materials contained no reference to the former management team's $100m cost-out program by 2025.
Mark Irwin was appointed CEO in February 2023, for a fixed term of 18 months, after taking on an interim CEO role in October 2022. Mark was previously employed at Oz Minerals (OZL) as a project executive.
Investment View
The big test for ABC is to achieve price increases that can offset the persistent cost pressures. This will not be easy in the face of increasing competition from the independents.
The share price is now trading below NTA but until the earnings outlook shows evidence of improvement, there is no catalyst to buy the stock in our view
The task ahead of the new CEO is difficult and it may not be enough to resuscitate earnings growth. We retain our Hold rating for now.
Stock Overview
Share Price
Company Overview
ADBRI is an Australian construction materials and industrial mineral manufacturing company. Its products include cement and cementitious products, lime, pre-mixed concrete, aggregate, sand and masonry.
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