WGN – Wagners Holding Company

Motley Fool reports

Wagners share price crashes 20% lower due to Boral dispute
James Mickleboro
Motley Fool 19 March 2019

The Wagners Holding Company Ltd (ASX: WGN) share price has been the worst performer on the All Ordinaries by some distance on Tuesday.

In morning trade the construction materials provider’s shares crashed as much as 20% lower to $2.61.

At the time of writing they have recovered a touch but are still down over 14% to $2.80.

Why is the Wagners share price crashing lower?
Boral Limited (ASX: BLD).” After the market closed on Monday Wagners announced the suspension of a supply agreement with one of its major customers,

Wagners has a cement supply agreement with Boral, whereby the latter is required to purchase a minimum volume of cement from the company on an annual basis at a determined price.

Boral is entitled to issue a notice to Wagners if it supplies a bona fide offer from a third party supplier of cement which is supported by market pricing evidence showing that it will charge a price lower than the current agreement.

In this event, Wagners can reduce the price of the cement products supplied to Boral to the price in the notice or suspend supply of cement products for a period of up to six months.

According to yesterday’s update, Boral has issued a pricing notice to the company which “purports to refer to market pricing evidence in the form of an unsigned offer from a long established supplier of cement within South East Queensland, offering a price significantly lower than that currently charged.”

Wagners has commenced a formal process disputing the validity of the pricing notice “on the basis it has concerns regarding the bona fide nature of the market pricing evidence provided and therefore the contractual basis upon which the notice has been issued.”

As a result, it has made an election under the cement supply agreement to suspend the supply of cement products to Boral, pending resolution, or determination by the courts, of the dispute regarding the validity of the pricing notice.

Management has warned that the potential impact of the pricing notice to the company’s revenue in the event of a six-month suspension is around $20 million.

It decided it was in the best interest of shareholders to challenge the notice due to the potential long term impact it will have on the company and the cement industry throughout Queensland and NSW.

Should you buy the dip?
I would suggest investors stay clear of Wagners until this issue is resolved. Given that Boral’s quote is from a long established supplier of cement within South East Queensland, I suspect it will be legitimate and could be a sign that competition is intensifying in the sector.