Market not convinced cash call off the agenda for Adbri

Nick Miller has made a sudden exit from his role as Adbri chief executive. Picture: Britta Campion

Market experts and shareholders are not convinced that an equity raising is out of the question for Adbri after the announced the departure of its managing director Nick Miller on the back of escalating costs.

Unlike its cashed-up rivals CSR, Boral and Fletcher Building, Adbri has $553.9m of net debt at June 30, twice the size of its annual earnings before interest, tax, depreciation and amortisation and a debt level (gearing level) of 43 per cent.

Adbri is yet to make a decision surrounding dividend payments, which experts say indicates that the state of the company’s balance sheet is weighing on the mind of its top level management and directors.

It is also committed to rebuilding its $199m Kwinana cement facility in Western Australia and more lime assets, which obviously cost money.

A raise of about $200m could bring its debt level down to about one times EBITDA, although tapping the market in the current environment when its share price is so low would be expensive.

Adbri’s share price is now half what it was at the start of the year and a quarter of its value during 2018.

It was once worth $4.4bn.

Shares closed down more than 21 per cent on Monday to finish at $1.44, taking its market value to $1.2bn.

They also fell sharply in August, when it revealed its net profit fell 15 per cent to $48.1m for the six months to June on the previous corresponding period.

In the past, Adbri has been close to Credit Suisse and Bank of America but with new management could come new advisers for any looming raise.

There is a view that Mr Miller is being unfairly punished for factors outside the company’s control, such as Covid-19 disruptions, impacts from flooding, rising energy costs and long-term shipping and supply contracts that have made the whole industry slow to pass on price rises to its customers.

Adbri, a cement importer, has more contracts in place than its listed rivals, so it feels it more than most.

But with disappointing results and a weaker-than-expected net profit forecast of $75m to $85m excluding significant items and property for the year to December, another view is that a departure was inevitable, and now former GrainCorp boss Mark Irwin will take the reins until a more permanent solution can be found.

The unusual aspect of the company is the lack of independence with its chairman, Raymond Barro, the leader of its 43 per cent shareholder, Barro Group.

For some, it’s an uncomfortable relationship, as Barro buys products from Adbri and Adbri sells products to Independent Cement and Lime (ICL), a joint venture between Adelaide Brighton and Barro that supplies cement.

There are customers that feel uneasy about sourcing products from Adbri when they compete with Barro, a supplier of premixed concrete, quarry products and other building material products, directly.

With Adbri’s market value hovering, there is always the prospect that the Barro family privatises Adbri, as has been speculated in the past, or another group like Boral buys the business at a time that the fragmented industry is in desperate need of consolidation.

But mergers and acquisitions are not on the minds of the industry right now as companies battle inflation and a weakening economy.

The Barro holding is now worth about $400m, down from about $2bn in past years.

Once a cash cow delivering the Barros about $60m in annual fully franked dividend payments, it now seems the rivers of gold at Adbri are running dry.