Breedon (BREE) delivered results slightly ahead of analyst expectations despite a deteriorating trading backdrop in 2018. Nevertheless, although returns trumped consensus, underlying operating profits were down 6 per cent on a like-for-like basis, partly a consequence of increased input costs. Scaling up a business can often help on the cost front and the construction materials group certainly went on the acquisition trail in 2018, including a £455m marquee deal to acquire industry peer Lagan Group (Holdings).
Besides the additional scale afforded by the deal – underlying operating profits exceeded £100m for the first time – it gives the group enhanced access to the Irish market. Construction output grew more than 6 per cent in the Republic of Ireland, compared with Great Britain and Northern Ireland where activity was only “modestly ahead”. However, the threat posed by a 'no-deal' Brexit to the Irish economy is acute, even by comparison with the UK.
The group also made two further acquisitions – Staffs Concrete in the West Midlands and Blinkbonny Quarry in south-east Scotland – along with an asset swap of 23 of its ready-mixed concrete plants and £6.1m in cash for four quarries and an asphalt plant from Tarmac. Scale benefits from the buying spree will take time to accrue, so we'll get a better idea of how integration is proceeding at the half-year mark.
Analyst Peel Hunt is forecasting adjusted 2019 pre-tax profits of £101m, giving EPS of 4.8p, up from £92m and 4.7p in 2018.
| BREEDON (BREE) | ||||
| ORD PRICE: | 68.7p | MARKET VALUE: | £1.15bn | |
| TOUCH: | 68.2-69.2p | 12-MONTH HIGH: | 86p | LOW: 55p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 17 | |
| NET ASSET VALUE: | 46p* | NET DEBT: | 40% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 270 | 21.4 | 1.70 | nil |
| 2015 | 319 | 31.0 | 2.30 | nil |
| 2016 | 455 | 47.0 | 2.90 | nil |
| 2017 | 652 | 71.2 | 3.98 | nil |
| 2018 | 863 | 79.9 | 4.01 | nil |
| % change | +32 | +12 | +1 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £467m, or 28p a share | ||||
