Noting the Adbri acquisition of two modestly sized quarries.

This announcement follows up on the Barro JV for the Metro Sand quarries group, and the Milbrae JV back in September.

Adbri is a good business that hasn’t seen much top line growth for a while. Revenue’s have been flat to down across most segments.

The flat top line is a function of the decline in residential apartments, which peaked back in 2018…

…and although ABC have re-segmented results, resi and multi-dwelling specifically represented a fairly significant chunk of the overall book (apartment complexes need more concrete, compared to a detached house).

Similarly, engineering work (ex mining) peaked at around the same time.

The 3rd quarter trading update (from earlier in the month) was reasonably positive, from a demand perspective, albeit supply chain kinks appear to have eaten whatever additional EBIT that was on offer.

Today’s half year profit announcement from CSR does suggest they (CSR) are doing perhaps a better job of managing such challenges given seemingly stronger cost control.

Still, ABC appear to be executing well enough, and enjoy relatively modest earnings hurdles, which appear achievable given the strong demand backdrop that CSR point to (namely construction demand, including from previous measures like HomeBuilder) and the impact of the recent acquisitions.

And compares well to regression fundamentals (here, using forecast earnings per share growth, and forecast ROE to predict price-book ratios). Below the line is deemed as expensive, but, for the most part suggests that names in the space are fairly priced.

ABC has reasonable relative valuation support, screening favourably against peers…

…and has what we regard as relatively moderately overall valuation metrics, in a market that is otherwise quite expensive.

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