There's a company that, since the start of 2000, has delivered one of the highest rates of total shareholder return amongst the ASX 200? It's not a miner, or an IT company. It has little pricing power, is capital intensive, produces a product that has no patent protection (and indeed has been produced for thousands of years). Its production is dirty, energy intensive and demand is subject to a highly cyclical construction industry.
Admittedly, it doesn't seem very sexy, but the results speak for themselves. Since the turn of the century, this company has grown its per share earnings at a compound rate of 12.8% per annum, while dividends have grown at an exceptional compound rate of 17.9% per year. In fact, had you invested $10,000 back then, you would today, with dividends, have over $82,000.
The company in question is cement and building products producer, Adelaide Brighton (ASX: ABC), and is one of the oldest Australian companies with its origins stretching back to 1882.
What gives?
Despite the many seemingly negative aspects of its business, Adelaide Brighton does have some meaningful competitive advantages. Hefty capital and regulatory requirements, quarrying assets, scale and geographic positioning combine to create some significant barriers to entry.
Cheaper offshore product isn't as much of a factor as you would imagine. Sure you can import 'clinker' (a precursor product used in cement production), but it's heavy stuff, and once you have it, you need facilities to complete the production process. Importantly, you need aggregates to combine with the cement to produce concrete — which is why having ready access to quarries is such an advantage.
All of this put the company in prime position to benefit from the unprecedented engineering construction boom we've seen since the turn of the century.
That was then, this is now
Despite an incredible run for the business since 2000, the past 4 years have seen a relatively flat earnings performance, and dividends haven't increased at all over that time.
Only a few weeks ago, the company revealed that it had lost a major customer, which has decided to bring its cement production in house. It was a blow to the company, and is expected to reduce its net profit by approximately $15 million from 2016.
As you would imagine, the news was not well received by the market, which in response sent the company's shares down a hefty 14%.
Foolish takeaway
Despite the disappointment of losing such a valuable customer, and although the mining construction boom is tapering off, the business remains in excellent shape.
Adelaide Brighton has a highly efficient and entrenched operation with significant competitive advantages. Though it's unlikely the high growth rates from the past decade will be repeated in the next, at the right price Adelaide Brighton is still a worthy investment.
Sadly, despite the recent fall in share price, the outlook for the business suggests that they are still far from bargain territory. That said, the gyrations of the market often yield excellent buying opportunities, and for those after a reliable long term performer with a history of steady, fully franked, dividends, Adelaide Brighton is well worth adding to your watchlist.
