Here’s why the Adbri (ASX:ABC) share price is raging 8% higher today

An extended supply agreement puts Adbri shares in the green…

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Key points

  • ASX-listed Adbri shares surge following supply agreement extension
  • The extension with Alcoa of Australia for quicklime will add a further 12 months to the arrangement
  • Agreement will see between $25 million to $35 million in additional revenue

The Adbri Ltd (ASX: ABC) share price is finding a pocket of optimism within the materials sector today. This follows the company’s announcement of an extension to an existing lime supply agreement with Alcoa of Australia Limited.

At the time of writing, shares in the integrated construction materials company are trading 7.5% higher to $3 apiece. However, this only puts the 140-year-old materials manufacturer ~9% above its recently set 52-week low of $2.75.

Let’s take a closer look at this morning’s announcement.

What’s moving Adbri on the ASX today?

Investors have been drawn to the Adbri share price on Monday after the cement and lime producer posted an announcement to the ASX.

According to the release, Adbri’s subsidiary, Cockburn Cement Limited, has secured an extension for its lime supply agreement with Alcoa of Australia. This agreement is with the local Australian arm of the US$11.5 billion United States industrial giant, Alcoa Corp (NYSE: AA).

Furthermore, the agreement relates to the supply of ASX-listed Adbri’s ‘quicklime’ product. Additionally, the extension moves the end of the existing arrangement from 31 January 2022 to 31 January 2023 — an added year of supply.

As part of the updated agreement, the company expects a minimum of $25 million in additional revenue from the extended supply. Likewise, a maximum supply volume of quicklime has been agreed upon which would correlate with a maximum additional revenue of $35 million.

Commenting on the announcement, Adbri managing director and CEO Nick Miller said:

We thank Alcoa for continuing to work with CCL around the supply of quicklime to their operations in
Western Australia. The extension reinforces CCL’s position as a reliable and high-quality supplier of lime through
our local manufacturing and distribution network across Western Australia, supporting local manufacturing jobs,
the resources sector and broader WA economy.

Adbri share price in the rear view

It has been an uneventful period for Adbri on the ASX over the past year. To illustrate, accounting for today’s gain in share price, the company is back to where it was 12 months ago.

Prior to the company’s half-year results in August 2021, the Adbri share price was up ~15% since the beginning of the year. However, the market was unimpressed with Adbri’s performance during the half, leading to a selloff over the following months.

Finally, the company is trading on a price-to-earnings (P/E) ratio of 15 based on Adbri’s current pricing on the ASX.

Should you invest $1,000 in Adbri right now?

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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