Key points
- Last year was a difficult one for Adbri shareholders who saw considerable downside
- Yet, Morgan Stanley is bullish on the direction of Adbri and advocate it as a buy
- The broker values Adbri shares at $3.30, which are less than 1% down on the day.
Shares in construction materials company Adbri Ltd (ASX: ABC) are inching lower today and now trade less than 1% in the red at $2.98.
Last year was a difficult one for Adbri shareholders, who witnessed the company's share price glide down off a closing high of $3.84 in August.
Why then is the team at Morgan Stanley bullish on the direction of Adbri and advocate it as a buy in 2022? Let's take a look.
Is Adbri a buy in 2022?
According to analysts at leading broker Morgan Stanley, that could be the case. The broker reaffirmed its bullish stance and recommended it as a buy in a note sent out to investors today.
Morgan Stanley notes Adbri has extended its lime contract with Alcoa, which it feels adds further weight to the company's growth prospects in 2022.
Under the revised agreement, Adbri will continue supplying a portion of contracted volumes for the next 12 months. Previously, the contract was expected to cease all supply in January this year.
The broker also highlights that the extension is worth around $25 million to $35 million in revenue, which comes in at approximately 2% of its revenue modelling for FY22.
Morgan Stanley reckons the renewed contract is confirmation that its "overweight thesis for Adbri is playing out", helping it to remain bullish on the stock.
The firm also reckons the macro-economic environment is set for Adbri as well, given the turbulence to global supply and manufacturing chains that has ensued since COVID-19 started.
Analysts at the firm note that it expects "domestic manufacturers, such as Adbri, to benefit from tightness in import supply chains" given its pricing power and location within the construction materials value chain.
Meanwhile, Macquarie and Morgans are both bullish as well, whereas Credit Suisse has it as a sell right now. In notes sent out to clients last month, each broker values the company at $4.05, $3.80 and $2.90 per share respectively.
Adbri share price summary
In the last 12 months, the Adbri share price has slipped 1% in the red. It has started the year off well however, climbing almost 6% since January 1 after allying 6% in the last month.
Given its struggles last year, Adbri has lagged the benchmark S&P/ASX 200 Index (ASX: XJO)'s return in the last year.
