HeidelbergCement on firm foundations

The most important point about HeidelbergCement is that it is underpinned by an array of tangible assets; in this case by 838 limestone and aggregates quarries all over the world, with enough reserves to last for 90 years of limestone extraction and 60 years for aggregates. Quarries are especially valuable in the developed world because of the difficulty of obtaining permits to open new ones in crowded countries swarming with vocal nimbies. To adapt Mark Twain's dictum, buy Heidelberg's shares because no one makes its raw materials any more.

In its latest balance sheet, Heidelberg had €12.6bn-worth (£10.1bn) of shareholders' funds, which works out at €67 per share (see table). Granted, much of the asset value on the other side of its balance sheet comprises €10.8bn-worth of goodwill - not too useful for value seekers, you might think. But much of that relates to the Hanson acquisitions and others. So, in practical terms, it is today's estimate of all the future profits that Heidelberg will generate from mining Hanson's quarries for many decades, which, in a way, is a pretty tangible asset. And Heidelberg's assets - both tangible and intangible - look safe now that management has opted to reduce net debt through generating cash, rather than via disposals.

Meanwhile, the share price is depressed by the lack of growth in western Europe, which accounted for a third of Heidelberg's €13bn of revenue in 2011. Judging by anaemic construction data, slow growth in this core market looks likely this year, too. Still, at least there is the positive proviso that the company has limited exposure to southern Europe and did not get caught up in Spain's speculative building boom.

Heidelberg's buoyant markets are in Asia and Africa, where sales growth averaging 12 per cent is expected between now and 2013, according to broker JPMorgan Cazenove. Africa and Asia are expected to account for just under half the company's operating profits by then, as well. Indeed, the encouraging signs are there. For example, Heidelberg's French rival, LaFarge, recently upgraded its outlook on the back of sales to Africa as a host of infrastructure projects, many funded from China, come to fruition.

For UK investors, the attraction of shares in overseas companies has increased immeasurably now that they can be routinely bought and sold through online brokers. For Heidelberg, this coincides with much better liquidity for its shares since the dilution of the Merckle family's stake to 25 per cent. That stands in stark contrast to other German powerhouse companies in the Dax 30 index, where powerful families, such as the Klattenburgs, the Porsches and the Flicks, own big chunks of the equity, often backed up by a myriad of cross-holdings. So, if a side-effect of the 2008-09 crisis was to force the company to open up its operations to wider shareholder control, then that can only be positive in the long run for small investors.

The chart, which shows net debt as a percentage of shareholders' funds, illustrates how quickly net debt has fallen since the takeover of Hanson at the peak of the credit boom in 2007. At the end of 2006, Heidelberg carried just €3.1bn of net debt. That figure had rocketed to €14.6bn a year later, following the Hanson deal. It was cut to €11.6bn by the end of 2008 then to €8.4bn by the end of 2009, thanks largely to equity fundraisings. Since then a further €653m has been trimmed from net debt with funds generated from trading.

The profile of its debt has also changed. Whereas German companies are traditionally dependent on bank finance, HeidelbergCement has been tapping the bond markets to refinance its debt, with five bond issues in 2011 alone. The bulk of debt will need to be refinanced in 2015, but the requirement falls away quickly after that date.