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Construction industry shut down 23rd March 2020 so bit disappointed by the 7% like for like. 7 working days and 2 weekends shorter than this year, especially as all signs are that construction is flying this year so far.
Ignoring my typos and auto corrects, looking at the market today and SLA, L & G plus many more are well down today at a time that coming out of lockdown I expected a bounce. So maybe a market thing in general.
No Londoner7, I'm in the same camp. In the circumstances a rise of 7% compared to 1st are last year when C19. wasn't really an influence I thought was great. Buys and sells fairly even so all down to the MM I guess. I'm certainly hiding tight.
I thought it was a good update, but I seem to be in a camp of one.
Hard to know if the price action reflects the update or simply a position change happening in the background. What ever it is, I gave up on interpreting day trading a long time ago. The guidance, "Based on the Group's performance in the year to date, the Board's expectations for the full year are unchanged." might have deflated". The update was given at the time the board is guiding the remuneration committee on targets for their bonus, and it's too soon to start raising those numbers now. That might appear cynical but I've seen the pattern time and time again.
The £264m and LfL detail offers a lot of information, albeit based around a typically quiet period number, but when I allow for ROI and extrapolate I come to a full year revenue number well ahead of current broker consensus. It will be interesting to see how it compares to the final outcome.
We should get Q1 revenues, and usually get like for like comparisons with last year, but there's a lot of noise around this given the Covid impact late 2020 Q1 and the closure of much of construction in Ireland for most of 2021 Q1. That said, not difficult to make some allowances for a comparison with 2020H2 which was good, but for reasons I don't understand, brokers estimates don't reflect a continuation of the H2 number.
Couple of posts asking good questions, I hope this helps.
The following three items are taken from the ‘outlook’ slide in today’s presentation: Priority now on CEMEX integration and synergy delivery Remain focused on further reducing debt Will pursue opportunities to grow and develop
There are others, which are important, but these are the focus items for me.
The items are self-explanatory, but they all boil down to maximising free cash flows in a sustainable, safe and environmentally responsible manner. I don’t want to get into what this means in practice, but the opening sections of Breedon’s annual report expands of how this is achieved.
Breedon have guided to £70m of capital expenditure in 2021, some £10m higher than might be expected, with the additional expenditure directed towards Cemex assets to raise their margins towards the those achieved elsewhere in the group. This isn’t a single step transition but a series of targeted activities and expenditures which are likely to extend over at least a couple of years. I’d expect the ‘super deduction allowance’ to accelerate this process.
Investing capital in organic growth and development generally produces the biggest bang per buck! The management skill is identifying which process or asset offers the best return on investment. Due to a lack of investment prior to acquisition, Cemex is an obvious target. Fast-growing markets say ROI or the Midlands with HS2 activity are other targets.
An attraction for me as an investor is that I believe Breedon has a large portfolio of assets, operational and some currently idle, ripe for investment. Investable projects will be weighted by potential return on investment, but the key resultant company metric is ‘margin’ - free cash flow in proportion to sales.
The CFO (CEO from 1st April) clarified the point when he stated his intension of returning the business to historic (pre-Covid) margins. This statement threw me because I saw 2020 H2 margins close to historic levels but digging deeper I see this is largely due in 2020 to reduced transport cost or improved delivery efficiency (Trencherpilot, any views on this?) and same again admin (head office) costs. Cost of sales increased significantly by 4.5% from c60% to c65% - these are the costs of extracting material and formulating or packaging the material for the end market/customer. The costs of transporting the finished material are an additional c18% of revenue.
Reducing the ‘cost of sales’ margin will be Breedon’s challenge for 2021.
Most of today’s call revolved around analysts attempts to get a measure on the 2021 margin but the CFO wasn’t giving much away. That response might be behind today’s lack lustre share price reaction to what are very good 2020 results.
Next months AGM statement should include Q1 revenue, but alas we'll need to wait till the interims for the margin number.
It will cost money in absorbing the assets into the group and the cost of bringing some sites up to standard etc. Plus I'm guessing some Cemex/ Breedon redundancies where posts overlap. I drive for Breedons and in the East Midland on concrete, we're flat out all week, have been since coming back last May.
Please correct me if I'm wrong, but the £178m purchase of CEMEX will have reduced profits, but, will advertently raise profits significantly in the near future.....?????
Revenue actually remained the same, which, considering the pandemic, is actually quite amazing... Assets have increased, as has free cash flow. However, expenses have expectantly increased, bringing profit down.
Hopefully it won't dip too much and it'll recover in the coming months. GLA
I'm really really not a figures man, and have never been in business, but according to the September update the first 8 months took a £93m hit in revenue on 2019, including a one month contribution from Cemex. So they made that up in the last four.
They said at the time, "The Group believes that the average of current full-year market expectations for underlying EBIT is £57 million, with a range of £49 million to £70 million." With a final EBIT down 34% at £76.5m, they exceeded the top of the expected range in September, and their "at least £70 million" from November.
With the expectation of a maiden divi too I can live with that.
The results and news of the first dividend to be paid has not stopped the fall today. I sold out last week because after three years the share had made me diddly squat. Finding companies that are providing good growth and a divi are getting hard to find..
Breedon are an obvious beneficiary of yesterday's news.
Depreciation in 2020 is likely c£66m, of which half equates to required maintenance CapEx. A roundabout away of looking at it but that's how I remember it presented a couple of years ago.
In a normal 2020 CapEx would likely have been c£60m. At the half way stage £16m was spent, just covering maintenance needs, though I'm sure the pace would have picked up in the second half. My point is that there'll be some carry over of CapEx into 2021. I don't know how the April 2021 startup of the 2 year 'super deduction' is defined, but I'm sure the CFO will be looking at any short deferments necessary and bringing forward some of the longer term CapEx.
The 'cherry on the top' is the expected CapEx on the newly acquired Cemex sites. A headline from the case for acquisition was , short payback on investment in high-return capital projects. The cost of those investments will now come with a 25p in the £ reduction on the tax bill.
Yes, 25% corporation tax on the horizon, but as Paul Johnson of IFS said yesterday, bringing at end to super deduction at the same time as the increase in corporation tax would be a large headwind to investment from 2023. Something might give!
It sounds to me a bit like 'help to buy'. Once these incentives are introduced they are hard to withdraw.
But if this boom to investment achieves the productivity growth the economy has lacked since 2008, then why terminate it in 2023 if the net benefit to the treasury is positive.
There's a new (to me) presentation on Breedon's website labelled 'November 2020'.
To anyone new to Breedon it provides a good overview of activity, but of course the annual report is always the reference.
As a long term follower of Breedon there were two areas I found interesting: slide 4 showing how little overlap there is between the new Cemex sites and existing Breedon sites, and slide 30 showing capital allocations over the last five years.
Told people I had a good feeling about this one and not to miss out! ;) Dividend announcement soon maybe! This and DX. Group for me this year. I have a feeling DX. will be announcing a dividend soon too. Don't miss out! :)