Adelaide Brighton shares down after stocks downgraded

Adelaide Brighton shares down after stocks downgraded
Published: 11 November 2010

Adelaide Brighton Cement are down nearly 16 per cent this week in response to analysts downgrading the stock after managing director Mark Chellew’s earnings warning.

“A competitive landscape remains,’’ Mr Chellew said of its profit outlook, released to the ASX after the market closed on Monday.

High energy prices might cut $10 million from earnings while reduced volumes on a key West Australian contract might take a $10 million bite from this year’s pre-tax earnings, he said.

“On current market conditions, Adelaide Brighton expects a net profit after tax of circa $150 million for 2010,’’ Mr Chellew said.

Sparked by Deutsche Bank and Citigroup’s downgrade from ``buy’’ to ``hold’’, Adelaide Brighton shares dived 11 per cent on Tuesday, with the fallout continuing yesterday.

The Deutsche report cited uncertainty with a contract with Cement Australia in WA - which may cost Adelaide Brighton 50 per cent of volume or up to 250,000 tonnes a year - as the reason for the downgrade.

The cement supplier is also expected to renew supply agreements in Victoria, South Australia and WA from next year.

“While we have long flagged the contract renewal with Cement Australia as a risk, we were not expecting the company to lose this contract (in whole or in part),’’ Deutsche analysts said.

“The 50 per cent contract loss would represent a 7 per cent fall in Adelaide Brighton’s cement production capacity.’’

Citigroup Global Markets also downgraded its recommendation from buy to hold.
``The earnings revisions reflect less upside in the 2010 financial year due to partial Australian dollar hedging and a softer 2011 financial year due to lower volumes and decreased pricing power,’’ its report said.