Breedon maintains solidity in a shaky market

The solid progress made by Breedon (BREE) in the first half of the year is not to be sniffed at, given the travails faced by other building materials operators. Underlying pre-tax profit was up 7 per cent to £64.9mn, once one-offs such as the £5mn cost of upgrading its listing to London’s main market are stripped out. 

Energy costs remain elevated, but it has increased pricing to cover this. A 12 percentage point uplift in prices masked volume weakness in an “unpredictable” market in Great Britain. In Northern Ireland, the lack of a sitting government in the devolved assembly has also slowed activity.

Net debt rose by £23mn to £220mn following three bolt-on deals. Chief executive Rob Wood said he would be “disappointed” if further deals weren’t completed in the second half.

The company has kept full-year guidance unchanged, with the short-term outlook remaining difficult to call. The UK’s housing market continues to be a drag on demand, but as highlighted in our recent idea, only a fifth of Breedon's sales are linked to the residential sector.

The long-term prospects for both the housing and infrastructure markets across the UK and Ireland are still decent, though, and in the interim Wood said “if the market doesn’t help us, we will continue to focus on self help”. Operational excellence reviews are under way across all divisions to squeeze out costs. 

Even after an 18 per cent year-to-date gain, Breedon shares trade at 11 times FactSet consensus forecast earnings, below their five-year average of 14.5 times. We think they look like good value for those willing to ride out short-term volatility. Buy.

Last IC View: Buy, 338p, 15 May 2023