Australia | Feb 23 2007
By Chris Shaw
An upgrade to Buy from Hold and an increase in price target to $3.43 from $2.52 is evidence Deutsche Bank was impressed by the profit result of Adelaide Brighton (ABC), but the broker was not alone as the $100m result was above consensus forecasts of about $94m.
The earnings improvement was driven by a combination of better operational performance and price increases in both cement and lime, with management expecting this trend to continue and result in higher earnings in 2007. As a result the broker has pushed up its profit forecasts to $111m this year and $117m in 2008.
It is not alone in lifting forecasts, GSJB Were increasing its estimates by 6.6% in 2007 to $106.6m and by 7.9% in 2008 to $118.2m, while UBS is at $115m and $122m respectively. ABN Amro and Credit Suisse are among those to also lift profit forecasts.
Risk appears to be to the upside, as Weres notes the company’s exposure to the NSW housing market through C&M Bricks offers leverage to any improvement. There is also potential for further increases in lime prices, which would provide an additional boost to margins.
Brokers have also reacted positively to the company’s decision to pay a 6c fully franked special dividend, taking the view it won’t be the last one announced in coming years. Weres point out the specials are clearly management’s preferred capital management initiative, with Deutsche noting they will allow the company to address its current low gearing level.
This is of significance as UBS suggests potential capital expenditure requirements may be lower than previously expected in coming years, as flexibility in capacity should alleviate the need to build another kiln for a further 7-8 years.
Following the company’s profit result the FNArena database shows the stock as being rated as Neutral six times, with only Deutsche taking a more positive view. The average price target is $3.28, up from $2.66 prior to the result.
Shares in Adelaide Brighton are trading 2c lower at $3.35 as at 1.35pm, reflecting a breather after the run up from levels below $3.00 prior to the result. Also note the current share price is above the (increased) average target price.