Wagners: building the future

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Agribusiness
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Wagners Holding Company (WGN), which would be a familiar name to many throughout South East Queensland, listed on the Australian Stock Exchange at the end of last year.

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Justin Still

Justin Still

Wagners Holding Company (WGN), which would be a familiar name to many throughout South East Queensland, listed on the Australian Stock Exchange at the end of last year. 

Wagners is a leading Australian construction materials and services provider, founded by the Wagner Family in 1989. It is also an innovative developer and producer of new-generation building materials (NGBM). The company focuses on the manufacture and sale of construction and building materials. WGN offers a wide and highly integrated range of construction and building materials products and related services, including cement, mobile/on-site concrete, precast concrete, fixed concrete, quarries/crushing, composite fibre technologies (CFT), earth friendly concrete (EFC), transport/haulage services and reinforcing steel. 

Wagners has a long term take-or-pay cement offtake agreement with construction materials peer Boral. The agreement accounted for circa 45 per cent of WGN’s cement volumes in 2017. The contract has fixed volume and price growth mechanism built into it that helps underpin Wagner’s forward earnings expectations and underlying profitability during periods of demand/price volatility across construction materials markets. 

We believe Wagners stands to be a key beneficiary of the material surge in planned infrastructure spending, with particular focus on (concrete-intensive) transport infrastructure (roads and railways). Both the Federal and Queensland governments plan to materially boost investment, which we expect, for Queensland, will result in a 51pc year-on-year increase in major project expenditure across all sectors in 2018. Historically Wagner's sales revenue has demonstrated a strong correlation with Queensland major project expenditure, so we see this as a major positive, particularly given the magnitude of spend already approved for between 2018-2021 and beyond. 

There are significant barriers to entry in the building materials sector that make it difficult for new entrants to gain a foothold, including, high capital intensity, fragmented demand split between population bases, highly competitive industry of strong domestic and global players and a conservative customer base that typically forms long-term relationships with major participants. 

Given the high barriers to entry, we view having a robust and differentiated strategy (and effective management to execute) as critical. We believe Wagners has both, with a solid track record and robust strategy that has allowed it to emerge as the only independent major construction materials participant in its home market of Queensland. 

It’s for these reasons that we view Wagners as a great quality long term investment. The company will report its maiden first half result next week on February 21, so we look forward to hearing an update from the company then.

  • Justin Still, Investment Adviser (Authorised Representative: 000279726), Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410 
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