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Results in: Adbri (ASX:ABC) share price cements its recovery

The Adbri Ltd (ASX: ABC) share price is building momentum after the construction materials company released its full-year FY20 results. 

At midday, the AdBri share price is pushing 6% higher. Here are the key points from AdBri’s report.

Stimulus and cost reductions offset COVID impacts

Revenue fell 4% on the prior year to $1,454 million, with the impact of lower residential activity on cement and concrete volumes offsetting improved sales of lime and concrete products.

Underlying net profit after tax (NPAT) came in at $115.6 million, down from $123.0 million in FY19 but ahead of the guidance that was withdrawn in early April 2020.

Earnings reflected the benefit of cost reductions, as the company’s cost-out and business improvement programs exceeded initial targets. 

Stronger than anticipated volumes in the second half also contributed to the result, particularly in Western Australia. This offset slowing demand in east coast markets, especially in New South Wales.

AdBri’s segment results

The company’s cement division generated $535 million of revenue for the year, down 5% from $565 million in FY19. The company attributed this to lower volumes in New South Wales due to the oversupply of multi-residential dwellings, and also in South Australia and the Northern Territory due to lower demand from infrastructure projects.

Western Australian demand increased due to mining activity, while Victorian demand was stronger than anticipated as a result of commercial building.

Turning to the lime division, revenue grew by 2% to $173 million due to higher volumes from the WA non-alumina sector on the back of increased gold and nickel production. This partially offset lower volumes in SA and NT, as well as lower pricing which fell by 1.8%.

The concrete and concrete aggregates division experienced an 8% fall in revenue due to lower residential demand and severe weather events in early 2020. Meanwhile, the concrete products division achieved 3% revenue growth on the back of increased retail products sales.

Housing approvals on the up, mining activity resilient

In construction, AdBri noted that housing approvals increased 5.2% year-on-year, driven by the Federal Government’s HomeBuilder stimulus and state-based government incentives. The company expects this to drive increased demand for construction materials in the first half of 2021.

As for mining, AdBri said mining activity continued largely unabated. Demand for cement from the mining sector continued to grow, driven by development and expansion activities in gold and iron ore. Meanwhile, lime demand continues to be buoyed by demand from gold and nickel producers.

AdBri dividend intact

On the back of these results, AdBri declared a final dividend of 7.25 cents per share, fully franked. 

Dividends for the full-year totalled 12 cents per share, representing a payout ratio of 68% of underlying earnings. This is in the middle of the company’s target range of paying out 65-75% of underlying earnings as dividends.

The full-year dividend of 12 cents per share puts AdBri shares on a dividend yield of around 3.8%.

What happens next?

Looking ahead, AdBri expects that various government stimulus measures, including infrastructure spending, home-building grants and stamp duty relief, will benefit the demand for construction materials in 2021.

The company also noted that the improvement in housing approvals in the second half of FY20 is translating to commencements, and planned infrastructure projects are moving to the construction phase at varying levels of speed.

That said, AdBri expects trading conditions to remain challenging until the stimulus measures completely offset the underlying softness in east coast construction markets.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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