Adelaide Brighton Ltd. (ASX: ABC) is one of Australia's longest-serving cement companies, dating back to 1882 and with operations in every state of Australia.
It also boasts market-beating performance, with a ten-year gain of 167% (before dividends), nearly tripling the performance of the ASX100 in that time.
Having paid total dividends of $1.58 during that time, Adelaide can add another 43% return to that figure – and all dividends were 100% franked.
It's the kind of performance that commands respect, and I'm going to take you through three of the main reasons Adelaide Brighton has delivered such an outstanding return – and why it should continue in the future.
1) Strong demand for cement, concrete and aggregates.
Although growth in demand is predicted to be slower over the next couple of years, there's no escaping the fact that infrastructure requires a virtually endless supply of raw materials.
According to estimates submitted to the Productivity Commission by Cement, Concretes and Aggregates Australia, every single Australian requires seven tonnes per annum of quarry materials to construct the roads, houses and infrastructure required to support their needs.
For example, one kilometre of highway requires up to 25,000 tonnes of crushed rock. One kilometre of suburban roadway requires 5,000 tonnes of crushed rock, 750 tonnes of concrete for footpaths, curbs and gutters, and another 450 tonnes of asphalt for surfacing.
If current demand trends in line with population growth, by 2056 Australia will require 210Mt of aggregate, 14Mt of cement and 37 million cubic metres of concrete per year (up from the 130Mt, 9Mt and 24 million cubic metres produced p.a. at present).
While that equates to only 1.5% growth a year, it's worth pointing out that most population growth occurs outside big city centres, and these regions require exponentially more infrastructure.
2) Vertically integrated business model.
Adelaide Brighton operates a so-called 'vertically integrated' business model, where it owns each part of the supply chain from extraction through to manufacturing and sales.
It essentially allows the company to retain the profit from each sector in-house, relying less on external suppliers, whilst also increasing the productivity and cost savings that can be made along the way. It's a very, very effective way of running a business and one worth buying into.
3) Resources with long-term viability,
Yesterday Adelaide Brighton announced more acquisitions (in addition to several recently) that further underpin the long-life nature of the business.
New quarries in Queensland and South Australia with 30-50 years of productive extraction remaining can supply the growth in materials needed to meet demand, and act as the steel backbone of the company's potential going forward.
With these factors in mind and several more not covered in detail (strong management, protection from foreign competition, potential higher future productivity) for reasons of length, an investor can easily understand how Adelaide Brighton has been one of the standout performers on the ASX in the last 10 years, and could be again over the next decade or longer.
At The Motley Fool we love to own businesses with deeply ingrained long-term competitive advantages like these – I myself wrote a recent article on 3 of the best companies to buy and hold forever – and we think you should too.
That's why our top analyst has recently released a free report on his top stock pick for 2014 – while it's small, it has great long-term earning potential and flies under the radar of most investors. It's a stock I already own and one I think is worth your time.
If you're interested, simply enter your email address in the link below – it takes less than 30 seconds, and is completely FREE!
