CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

Adbri share price: implications of the Alcoa contract loss

We examine the details behind Adbri’s recently announced supply contract loss; as well as how three top investment banks reacted.

Adelaide Brighton (Adbri) share price drops on key contract loss

Adbri Limited (ABC) – previously trading under the the name Adelaide Brighton Limited – last Friday announced that Alcoa Australia would not be renewing its current lime supply contract with the firm.

That supply contract – expiring 30 June 2021 – contributes ~approximately $70 million in annual revenues, driving around 40% of Adbri’s lime segment sales, according to Citi.

In a statement released to the market, the company said it 'will promptly evaluate and take necessary mitigating actions’ to the loss of the supply contract. Even so, it was noted that the financial impact of the contract loss could not be quantified at present.

The market, performing its own back-of-the-envelope calculations, bid the stock down aggressively on Friday – with the Adbri share price closing out the session down ~25%, to $2.350 per share.

The company's Chief Executive, Nick Miller described the non-renewal as disappointing given the long supply relationship held with Alcoa. Even so, Mr Miller stressed that 'We will work quickly to mitigate the impact on local jobs supporting our lime business and we remain committed to supplying our WA resources sector customers.'

On Monday the stock continued to trend lower, down ~5.5% to $2.22 per share as of 2:06PM (AEST).

The materiality of Alcoa

Framed against the earnings significant of Adbri’s lime segment, the pronounced share price decline witnessed during the last two sessions is hardly surprising.

Indeed, while the lime segment’s contribution to ABC’s top-line is comparably small, its earning contribution is anything but, estimated at between 20-30% of Group earnings (EBIT), according to analysts from Citi.

‘The potential loss of earnings is significant and one response may be to reduce pricing and try to retain Alcoa, which may have a smaller earnings impact than losing the contract outright,’ Citi analysts mused.

Citi currently has a Neutral rating and a price target of $3.00 per share on the stock.

By comparison, analysts from Morgan Stanley (MS), though recognising the material impact the loss of the Alcoa contract would have on Adbri’s FY21 earnings, reiterated their Overweight rating and $3.70 price target on the stock.

‘We still see ABC as well positioned to benefit from a construction related stimulus in the short to medium term, but today’s announcement does detract from ABC’s highest quality business,’ MS analysts said.

Macquarie analysts were less constructive than MS and Citi, noting that ABC looks expensive at current price levels. In response to Friday’s announcement, they reiterated their Underperform rating and cut their price target to $1.85 per share.

‘The contract loss risks affecting the competitive ability of the remainder of the lime business, while potentially opening opportunity to importers who would gain scale from the win. Price and cost could be at stake,’ Macquarie analysts warned.

Want to trade Adbri: long or short?

Create an IG trading account or log in to your existing account to get started now.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on share opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.