Adbri dividend still on hold while capex and debt take precedence

Adbri shares fell sharply in early trade after the company said it would not pay an interim dividend, preferring to focus on capex and debt.

Adbri says demand for its products should remain solid.

Adbri has reported double digit growth in underlying earnings and revenue, but has kept dividend payments on hold to pay for capital projects and reduce debt.

The company’s shares fell as much as 15 per cent on the news, with analysts putting the fall down to the lack of an interim dividend and higher reported capital expenditure in the first half.

The stock plunged from Monday’s close of $2.74 to as low as $2.33, before recovering in morning trade to be 3.5 per cent lower at $2.64.

The cement and associated building products maker reported first half revenue of $926.4m, up 14 per cent on the previous corresponding period, and underlying net profit of $52.1m, up 12.8 per cent.

Statutory net profit was $49.8m, up 3.5 per cent.

The company said the board decided not to pay an interim dividend due to the capital requirements for the upgrade of its Kwinana operations and because of “elevated leverage’’.

Adbri also did not pay a full year dividend.

“All of our product lines recorded revenue growth, supported by continued solid demand and traction on price increases,’’ chief executive Mark Irwin said.

“We expect demand in the second half of the year to be similar to the first half, with the benefits of price increases and cost discipline supporting moderately higher earnings than 1H23.”

Adbri said demand from the commercial, engineering and industrial sectors was strong during the first half “particularly on the east coast, driving higher demand for concrete and aggregates compared to 1H22’’.

“Revenue increased 14.0 per cent driven by price growth across most product lines and geographies, and supported by modest volume growth,’’ the company said.

Net debt increased by $96.5m to $672.9m, representing a leverage ratio of 2.3 times EBITDA, which is outside the board’s target range of 1-2 times.

“However, the group continues to have significant headroom in its bank covenants and substantial liquidity to support the business through the elevated investment period,’’ Adbri said.

The Kwinana upgrade project was more than half complete at the end of July with $203m invested the company said.

Full year total capital expenditure is expected to be between $330m and $350m.

Adbri said it had also been engaging with the federal government on the Safeguard Mechanism reform, and said it was confident the legislation as it stood at the end of July this year would not have a material impact on earnings.

“We will continue to engage with the government to pursue opportunities such as the government’s $400m in targeted funding available for industries providing critical inputs to clean energy industries, as well as seeking implementation of a Carbon Border Adjustment Mechanism (CBAM) for the cement and lime industries,’’ Adbri said.

On the outlook front the company said it was expecting a moderate improvement in its earnings in the second half.

“We expect demand for our products to remain strong throughout the second half of the year with trading conditions similar to the first half, notwithstanding a slight softening in the residential and retail sectors.

“The benefits of price increases and cost discipline are expected to continue in 2H23, in an environment of continued elevated inflationary pressures, and as such we anticipate 2H23 EBITDA to be moderately higher than 1H23.’’

Citi analysts said “Given strong run into the result, and peer beats we expect the market was looking for more and expect shares could underperform’’.

“Interestingly Adbri only saw $1m EBITDA growth attributable to volume.

“Despite peers reporting mid-single digit growth and what was expected to be a strong market, it surprised us that volume growth was so anaemic.

“Looking closer, volumes actually declined in concrete, about 3 per cent and masonry about 5 per cent sequentially on 2H22.’’