Adelaide Brighton Cement

ABC has performed strongly in the market in the last 6 months. We argue that this company is still inexpensive, having a long term valuation of $6 and ff yield of 5%. With key contract risks mitigated, ABC now offers compelling exposure to the upcoming residential, commercial and infrastructure development boom in greater Western Sydney. Nationally, we see ABC as a Price Maker by virtue of its upstream positioning as quarry owner and manufacturer/importer of low cost cement, aggregates, and lime. Its key assets are extremely well positioned relative to target markets (e.g. lime plants for Alcoa & Worsley Alumina; Austen Quarry next door to Western Sydney’s growth corridor, etc.), enabling margin improvement even in a moderate demand setting. These attributes are further underpinned by a balance sheet that could fund both special distributions near term as well as potentially interesting upstream quarry and downstream concrete acquisitions long term. With complex infrastructure PPPs ahead, we think a higher margin construction materials manufacturer (ABC) is a better way to play that exposure than the higher risk, lower margin construction contractors.