Adelaide Brighton's share price is down 32% in the last 12 months: Is it a buy?

The Adelaide Brighton Ltd. (ASX: ABC) share price has fallen 32% in the last 12 months.

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With the ongoing uncertainty in Australia's housing market and the outcomes of the Banking Royal Commission beginning to show its full effects on some of Australia's biggest companies, financial services, resources, and construction companies have been among the worst performers in the S&P/ASX 200 this year.

Among this group of companies feeling the brunt of market uncertainty is Adelaide Brighton Ltd (ASX: ABC).

In the last 12 months, the Adelaide Brighton share price has fallen 32.5%. As one of Australia's largest manufacturers of construction materials including cement, lime and aggregates, it's easy to see why the company's share price has struggled in the wake of the housing market's woes.

And it's not just the housing market that's affecting the Adelaide Brighton share price. Earlier this month the company's management communicated that cost pressures from energy and imports would affect the company's performance in this financial year as well.

Why has the Adelaide Brighton share price fallen?

Trading at $4.60 at the time of writing, down from its 52-week high of $7.07 in July 2018, Adelaide Brighton is certainly looking like its share price is under constant pressure.

Full-year results for the 12 months ending 31 December 2018 were released earlier this month, detailing that while clinker and cement sales increased by 1.1%, pressures on its cement margins remained a problem. This is a result of declining volumes,  lower average realised prices and increased import costs. The Adelaide Brighton share price fell 6% following this report.

Beyond uncertain market conditions and pricing pressures, the other immediate risk for Adelaide Brighton is its corporate governance. At its Annual General Meeting on 10 May 2019, the company board will vote on whether Raymond Barro's sister, Rhonda Barro, will join the company as a Director. Barro Properties currently has a 43% stake in Adelaide Brighton and has two Directors on the board including Raymond Barro.

If Rhonda Barro is elected to the board, this will see representatives of Barro Properties' entity having a majority on the board. The company in the past, however, has held a strong stance on corporate governance sticking with the ASX Corporate Governance Council's recommendation that a company board always has to have a majority of independent directors.

Should you buy Adelaide Brighton shares?

Adelaide Brighton is a prime example of a company that's performance is correlated with the performance of Australia's construction industry and housing market.

With the outlook on Australia's housing market still uncertain, and other operational and financial risks that the company needs to address this year, I think it's best to maintain a 'wait and see' approach with Adelaide Brighton. This also serves as an example of how to approach your outlook on other companies who are price takers (companies whose pricing is dependent on the market). You don't want to jump into an investment in a price taker company in uncertain market conditions.

With the global macro picture increasingly uncertain, now is the time to be focused on sectors that perform best in uncertain market conditions like utilities and healthcare, or on these top blue-chip shares.

Motley Fool contributor Nicola Smith has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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