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Octopus investment nominees just took up 5%, good stuff, RNS not showing here yet
Volume is very high this morning with some very chunky trades marked up as sells, but must have been buys - maybe more institutional buying orders going through from earlier orders taking a while to fill.
Trading suggest something is going on. Rotation of of investors. Who is buying and who is selling?.... May be Londoner7 knows -:), but he is nowhere to be read...
Hi L3Trader, no doubt something is going on for this much activity in the stock. Maybe one II swapping their holding with another II – it has that look about it. Perhaps something else comes of it but I’m not inclined to react to these activities. Besides, we’ve seen this before and I’m not one for reading tea leaves.
Even the recent pullback in the share price isn’t unusual for Q3, but again I don’t have a read, other than the long gap between the interims and the November update. That’s not to say I don’t take advantage of it when I can.
But I can see headwinds that may be impacting the SP currently. The HGV driver issues are well known, and it was reported that Breedon and other companies have raised ‘franchised driver rates’, whatever they are. (I know we have a Breedon driver on the board – perhaps he could clarify).
Material shortages are impacting the construction activity. The ONS reported on this for July, although Breedon didn’t raise it in their August update. A large builder recently boasted on their ability to use their clout to maintain their material supplies, highlighting problems for smaller contractors without the clout.
Energy and carbon prices are on the up – although Breedon said their 2021 carbon allowances are in the bag. These costs will impact, but Breedon can pass these cost pressures on in time.
As I say, headwinds, and probably short term. On the upside, kiln maintenance is complete for the year so H2 cement numbers could be very good, I’m expecting progress in Ireland after a significant H1 lockdown impact, and the Cemex acquisitions add significant scale. Just have to wait for the November update.
We also had a heads-up at the interims on further bolt on acquisitions expected to close before the March report. But my fear here, is a substantial European acquisition which could require a dilutive placing.
Rather than a biggie in Europe, I’d love to see Breedon bed in the acquisitions to date and achieve the often heralded 15% ambition on aggregate margins. That would really fire up the SP.
Best, Londoner7.
Hello Londoner7,
Hope you are well. Welcome back!
Thank you for sharing your thoughts. The change of guard between IIs is also what comes to my mind. I have not taken adavantage of the recent drop to add more. Had done so at some point but above current levels.
I fully agree with you that a new large acquisition across the channel is not needed. I would, like you, like to see higher aggregate margins.
Nevertheless, with money available at low rates companies seems to always be thinking about acquisitions.
To me the net effect of increased pay for drivers, carbon licences fuel and increase of the prices of the products Breedon sells is not clear yet. Can it pass through all its cost increases? But, level of sales might be lower than expected because of supply chain issues not just on their own supply chain but also the supply chains of others. A construction project can only go forward if you can secure all the supplies and labour you need.
I have found it difficult to get supplies and labour over the last half year for my own small construction projects.
It is disappointing that this BB does not attract a lot more posters sharing information. I guess commenting on cement prices is not as exciting on commenting of the prices of oil, gas, gold, iron ore, nickel, you name it...
The price of commodities evertywhere in the world are definitely up. Fortunately, I have some direct exposure. So cannot complain too much.
All the best,
L3
Maybe Breedon will consider a FTSE250 listing, especially as its now attracting more institutional investment, presumably because its seen as more inflation proof than most companies.
A FTSE250 listing would bring it in at a current ranking of 118 within the 250.
It could be an opportunistic time for such a move and would I think give the SP a big push as more equity went into sticky institutional hands.
Personally I would be pretty fed up if Breeding moved to the FTSE250 as this would have a significant hit on my Death Duty planning. I would immediately sell.
Londoner, franchised drivers are Owner Drivers or outside Contractors as opposed to those of us that are employees of Breedon. ODS and Contractors deliver on a paid per load basis and are responsible for their own truck costs (No overheads for Breedon, just a weekly invoice) No shortages yet, this may change if driver rates soar and BREE don't keep up. Demand here is still high and this is the reason for ODs and Contractors, they don't have enough of their own trucks to keep pace. Hope that helps clarify things
Thanks Trencherpilot. Very clear.
Anyone has any idea if the SP weakness is related to something that is specific to BREEDON? I assume energy costs will have gone through the roof...
Agree L3Trader, plus maybe driver shortage.
Given that Breedon is such a well managed and well regulated company, I think it would find the move to the FTSE 250 quite straightforward. It would seem to be a natural progression for the company and one that would almost certainly increase its investability and market cap.
I, like many others, hold Breedon for IHT purposes, so would sell if it moved to the FTSE 250.
This board is very quiet... Does anyone know of any relevant developments one should be paying attention to? I am a investor in bricks (i.e., companies that produce them). Their SP have tanked a bit recently. Could it be mostly due to increased energy costs that cannot be passed on to the customers? Or is there a dial back in construction work? If so, is BREEDON also seeing less activity?
ATB
L3Trader, in a Q3 update Ibstock said, "Strong Q3 performance supported by continued robust demand in core markets"
I take that as a positive.
The MPA said this:
https://www.mineralproducts.org/News-CEO-Blog/2021/release37.aspx
At first sight disappointing but dig deeper and it appears materials, except concrete, are up on 2019. Concrete is down largely due to London. Breedon has acquired a small interest there, but they are mainly further north.
We'll know more later this month when they will certainly give a revenue number and I look forward to what comes out of the Capital Markets day - they may talk about the energy demands of cement production.
In a previous post you asked if there was anything specific to Breedon. Knowing you, I'd guess you are well aware of the significance of Breedon's cement business so I was surprised by the open nature of the question and chose not to respond.
Breedon's AR has considerable detail on energy usage. I've worked the numbers for an H2 v H1 energy cost delta, but there are some unknows. The delta is significant but the question is to what degree this can this be negated by price rises.
From memory I think Ibstock recently increased their prices, which held. I'd guess cement will be similar, but hopefully we'll know more later this month.
A key area of construction activity for Breedon is housebuilding and infrastructure. There are supply issues which largely affect the smaller operations. The word I've heard from the big builders is that they are few constraints. A key element will be how effectively Breedon are managing deliveries, e.g. the HGV issues.
Bottom line, it comes down to the ability of material suppliers to force through price increases. I believe the volumes are there.
Hello Londoner7,
Thank you for the reply and for sharing your analysis and info. All makes sense to me.
I have been wondering why the weakness of the SP in the last 2 months and could not find a clear cut reason, as most of the reasons I was entertaining where already relevant before . Thus, the nature of my open ended questions.
While I am aware that cement is only c. 1/5th of the sales I have wondered the extent to which it had been hit by energy costs and unavailability of HGV drivers. Thus, I was considering the possibility that volumes would be lower than expected and that margins not just in cement but in aggregates could be smashed. Yes, bricks matter little to Breedon. my thinking was that the battering of the SP of the brick producing companies could be that margins were being smashed if the sellers had engaged in long term supply contracts with housebuilders at fixed prices. I have not heard anything about it, so just speculation on my part.
Your post suggests you are upbeat about the TU and CMD. You follow this sector closer than I do and you analyse the data much deeper than I do.
Hopefully BREE will announce underlying EBIT for the year of close to £150M, and margins of >=10%.
I am hopeful that dividends can starting going up quickly if acquisitions slow down...
Many thanks again.
ATB
Hi L3Trader, I think energy costs across the business, but particularly in cement, are a key factor in the recent weakness (post the interims) in the share price, which is whey I found the open nature of your query unusual for you.
Since the interims in July the spot price for gas has more than doubled. The international price of coal has taken a similar path though has dropped back recently. However, I don't follow the UK pricing of coal so I've no idea what Breedon pay or the nature of their contracts or hedging activities - they did say that their carbon costs were covered for year (2021).
I said that I had looked at cost deltas for energy in H2. A tricky exercise given the lack of price visibility but for a numbers guy like me an interesting exercise given the level of detail on energy usage and emission now provided in the AR. Breedon frequently refer to the 71% of alternative (to coal) energy supplying the Irish cement plant. But nothing on the larger and much older Hope cement plant.
No doubt energy costs are up on July expectations. The unknown is the degree to which Breedon can implement price rises. In my conversations with Breedon over the years its clear than costs get priced in but with a lag. For that reason I think the guidance provided at the interims of high end of the analysts at £109m - £128m EBIT would be a good outcome for the full year. (Incidentally, there is a one off deferred tax charge impacting EPS by c0.85p for 2021 which some analysts numbers might mot include)
Given the degree to which pricing and costs are such significant variables in determining margin I tend to focus on revenue and over the years I've been pretty close in my estimates. Based on a single revenue number in the AGM update and considerable noise around the impact of Covid particularly in the ROI market I had a stab at a full year revenue number and came out at £1,236m (workings posted below). That was well ahead of consensus at the time, but I note that current consensus (FT) is £1,190m with a high of £1,240. so the market is now at my estimate. I haven't reviewed it since but expect Breedon to beat it marginally.
Which brings us to your estimate of £150m EBIT and, based on margin, £1,500m revenue. Some way above others estimates, so I wonder how you came to that estimate.
My workings from the AGM update:
Breedon AGM Update 20/04/21
Q1 264
2020 Q1 207.8740157
Lfl Q1 222.4251969 Based on good 2019 Q1
Cemex 41.57480315
Cemex H1 88.08221006
Cemwx 2021 182.9467503 Close to FY 2018
LfL 2021 978.7651141
2021 total 1161.711864
Concensus 1089 High £1,130m
Ireland 10% 74.87553123 Suspect overly conservative
Expect 1236.587396 13.6%
Londoner7
I have been invested here for sometime and although not as analytical as yourself agree that Bree are a solid lth
Working in the industry I can say demand is very strong and bree have a very good reputation built over a number of years
On a slightly different note the original people behind Breedon are now Bay Capital therefore I have taken a small position with them and awaiting developments
Hi Londoner7,
Many thanks for sharing your thought. Deepest aplogies for the delay. As you will learn from the relevant bb, I have regigged my oil&gas portfolio and have been focusing on that.
I am always so relaxed about this one company that I actually always miss RNSs, TUs, etc. And, here, because the risk involved is minimal I tend to have a half-full perspective, not a half-empty one as in oil&gas or mining companies...
So I allow myself a bit of optimism here when writing down numbers even if posts can still be half-empty glass like.
Basically, if the energy costs were passed on (and thus the content of my posts thinking the SP reaction might be linked to the market's preception that they had not been, which i thought was but i have now partially dispelled) together with the acquisition, it means revenues have moved ++ higher.
I expect Ireland to have gone into overdrive in terms of Sales in H2.
Ireland 2021, £260M (c. 30% more than in 2019)
Cement 2021, £224M (c. 20% above 2019)
Great Britain 2021 £738M (c. 20% above 2019 lfl)
Acquisition sales (GB) £175M (£75M in H1 and £100M in H2)
£1397M but eliminations will bring it down to £1300M x 11% margin (-:) = £143M.
There is optimism here (mostly about Ireland), but when it comes to cement, aggregates and bricks there is no reason not to be!
ATB
L3
Hi L3Trader,
Thanks for your breakdown. I see you've used the like for like breakout from the interims which looks like a good strategy, but £1,300m is some way below your original £1,500 (using your original 10% margin), hence my query.
Looking at the breakout I think you're looking for a lot from Ireland and Cement, but perhaps Cement will surprise. I noted a US cement supplier pushed through a 8% cement price price in the US for the year to 2021 Q3. If Breedon can do something similar then that will certainly help Cement revenues but as that's to address increasing energy costs it probably doesn't add to EBIT.
We'll have some clarity in a couple of days. The revenue number to end of Oct typically represents c86% of full year revenue so that's £1,066m for a £1,240m full year outcome and £1,118m for a £1,300m outcome. Broker consensus is £1,190m FY, which requires a £1,023m Oct number, but focus will be on the EBIT guidance.
Guidance in July was higher end of the £109m - £128m range. I'd be very happy to see this guidance repeated but prepared for a revision down to mid range c.£118.
I hope we get a timely view of the presentation slides for the Capital Markets Event later in the afternoon. Ideally, a simultaneous web cast. What's that about? I'm expecting something more than ESG plans but hope it doesn't include a steer towards European expansion. Breedon has added sizable debt facilities and I can't figure out why.