ASX Watch: Why Has ABC Tanked 6% Today?

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The market has a way of punishing companies that let it down.

And that’s exactly what just happened to Adelaide Brighton Limited [ASX:ABC] when it informed investors that it has lowered its net profit target for 2019.

Want to find out what happened?

Read on and I’ll explain…

Who is Adelaide Brighton?

Adelaide Brighton manufactures and supplies a range of building, construction and infrastructure products throughout Australia.

As a result, the company is at the mercy of Australia’s dwindling construction market.

Conditions haven’t been favourable over the last two years…and look to be getting worse.

That could explain ABC’s unexciting market update provided today, 9 May.

Let’s get to it…

What sent the share price sinking 6% today?

When companies issue bad news, investors tend to overreact and crush the share price. Nobody wants to get left holding the bag.

That was exactly the case for ABC this morning, as shares sank 6% lower.

ABC announced today that it expects underlying net profit for the 2019 financial year to be 10-15% lower than the prior year (this excludes tax and property).

It went on to say that the primary drivers for this decline included a softening in demand for construction material, increasing competition for cement, and growing costs for raw materials.

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ABC is still a profitable company, despite the significant drawdown in profits.

So it’s not all bad news.

However, as with any market release, I always like to overlay this information with the company’s chart. This helps me understand what the ‘smart money’ is doing.

And there is one point that I want to note in today’s update…

ABC has now broken a major support level. I have highlighted this for you on the chart below.

Source: Optuma

This indicates to me that investors and traders anticipate further declines in company profits.

I’d be a very reluctant buyer at this point, based off the current outlook and price action in the market. Certainly, ABC seems unlikely to take off anytime soon. I’m looking for opportunities elsewhere.

This article is not a recommendation to buy or sell ABC. It’s an update only. I hope you found it helpful.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch


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