The timing didn’t work in our favor, but we believe in the construction business for the future. Here at Mare Evidence Lab Towers, we reiterate our positive outlook and our buying ratings for both LafargeHolcim (HCMLF, OTCPK: HCMLY) and for HeidelbergCement (HLBZF, OTCPK: HDELY).
In short, our key points for Holcim were:
- Higher public spending on infrastructure plans to revitalize the business after the pandemic;
- We see Holcim as a leader in the ESG environment;
- M&A support;
- And a good financial return.
Given the performance of the company and the appreciation of the stock price, we could not be happier. We are right with all the above points and we confirm our thesis.
From point four, Holcim recorded a record revenue of CHF 6.44 billion, an increase of + 20.1%. This was driven by strong demand, support acquisitions (point three) and pricing power. Lowering the P&L, the company recorded another record performance in terms of operating profit with a 1Q that recorded CHF 614 million with a total growth of + 16.3% in the CET. Once again, a strong contribution was due to the last acquisition, in our last article on Holcim, we highlighted the opportunity for multiple arbitration thanks to Firestone. In fact, the contribution of the roofing company was within an operating profit margin of 17%.
Our points two and three
A picture paints more than a thousand words and we can use some to see what Holcim is doing. Jan Jenisch Holcim CEO said: “With sustainability at the heart of our strategy, we published our first Climate Report, sharing our zero net journey with the 2030 and 2050 goals validated by the Science-Based Goals initiative. For the first time in our industry, review our decarbonization actions, from green building solutions to circular construction and next-generation technologies.. “
ECOPact green concrete accounted for 10% of sales of finished products in March 2022. Holcim not only works at the ESG level on zero net emissions, but also takes advantage of favorable EU legislation in the area of green bonds ( with an extremely low level of interest rates).
In terms of acquisition, we see Holcim as a real player of value. Malarkey is a proven growth engine and is very complementary to the acquisition of Firestone. Increase BPA starting this year, $ 40 million synergies in the third year and better sales diversification.
Conclusion and Assessment
Despite the recent macro development, Holcim has once again raised the bar of the guide for 2022 and we are confident that it will meet its internal prospects. Our in-house team expects an EBITDA of 7 billion francs thanks to a better product combination, the latest acquisition and a strong pricing power. We really like companies that are adaptive and Holcim is definitely one of them. From a pure player in cement, aggregates and concrete, they have decided to move to more value-added products (image below). We value the company based on our 6.5x EBITDA forecast and reach a valuation of CHF 67 per share, which implies a current increase of more than 42%. Aside from the usual risks in the construction business sector, we would like our readers to consider the Syrian litigation.
Prior coverage in the construction / cement sector:
- LafargeHolcim: Multiple arbitration thanks to the acquisition of Firestone
- HeidelbergCement: The best is yet to come
- Looking at the Russian HeidelbergCement exhibition