Adbri: Lower Near-Term Volumes Cushioned by Improved Pricing

Adbri’s share price has flatlined in recent months after a sharp fall in late August following its first-half fiscal 2023 result. We think the market underestimated the cyclicality in the residential housing sector, which contributes about one-third of group revenue. Nonetheless, we view this as a temporary headwind and expect a recovery in residential construction demand from fiscal 2025, driven by an undersupply of Australia’s existing housing stock. In the near term, earnings growth is expected to come from pricing increases, with volumes in concrete, cement, and aggregates flat over fiscal 2023 and 2024. In the smaller segment of lime, we expect declining sales volumes given import competition and the loss of a major customer in 2021. Shares in no-moat Adbri are fairly valued with our fair value estimate of AUD 1.90 per share maintained.