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Hi Londoner7,
Thank you for sharing your thoughts and analysis.
I am surprised the SP is drifting lower and lower. Hard to think this will not deliver good EBIT in H1 and also in H2. They have market power so easier for them to pass cost increases onyo their customers.
ATB,
L3
A continuation of my last post. I also see the links didn't work so I'll try them again.
With just 7 weeks to the end of H1 I suspect Breedon will report a very good H1, on both revenue and margin. But it will be the commentary that accompanies the release on the 17th July that will be most interesting. If the house builders come under pressure, they will be resistant to price increases in materials, which will then pressure Breedon’s margins. That said, I suspect Breedon are better placed than most in the aggregate materials supply to manage any pressures.
https://www.theconstructionindex.co.uk/news/view/output-growth-reaches-record-heights
https://www.mineralproducts.org/News-CEO-Blog/2022/release14.aspx
A couple of releases this morning measuring activity through Q1. I emphasis this point as it is historic and of most interest to us, as investors, is future activity.
The ONS has released construction data for March. Breedon’s primary activities are in Infrastructure and Housing, and both are doing well. The measure of new work is largely flat compared to pre-Covid, but this includes the negative impact of ‘private commercial’, largely London office blocks, which isn’t a significant part of Breedon’s business – though they have a share in a London concrete business which will be impacted.
The detail is on the ONS site but I thought the commentary in the media is interesting. Here’s one read:
Construction output reaches record heights (theconstructionindex.co.uk)
The MPA also released their numbers today for Q1, though I believe this data has been available to industry insiders, including analysts, for over a week. I think the commentary is excellent. Here’s an example, “Ready-mixed concrete sales were hit hard during the onset of the pandemic, and in the year ending March 2022 were still 6% below the pre-pandemic (2019) levels. Both London and the South East, which make up just over 30% of the total share of volumes across Great Britain, have endured a sustained period of weakness which can be traced back to comparatively slow recovery in commercial construction projects, particularly for new office towers and retail space. Overall demand is nonetheless supported by major infrastructure projects, including HS2 and Hinckley Point C, as well as a healthy pipeline of industrial warehouse projects.”
Strong start to the year for mineral products but outlook uncertain
It’s only been two weeks since Breedon’s AGM update, but it seems much has changed. Not least the BOE’s warning of a recession next year.
Ahead of the AGM I wrote a note (not posted) which ended, “On the negative side I think housing building in 2023 is one area to watch. The big builders are mindful of their margins.” Yesterday’s bust up between Gove (Housing Minister) and No 10 is a warning. The government will talk about housing targets, but when push comes to shove, they care most about the incumbent house holders, their core constituents. They will move heaven and earth to maintain house prices. If that means adding to the already substantial costs to new buyers, thereby limiting additional supply, so be it. Gove talking tough to the ‘big’ developers is also a clue to intent. (There are largely only big developers today because the planning costs deter the smaller builders).
Over the last month house builders have been reporting positive trading, but that was before talk of a recession next year. There are updates due next week. It will be interesting to see if the tone has changed.
I believe overall construction numbers are down and material shortages are not helping but I would not think this would apply to quarrying unless there is still a driver shortage which I do not believe this is the case
I did asked about blackrock reducing their position perhaps they know something we don’t
Cant believe they have dropped this low !
71p? drifting lower... what is wrong?
L3T
Many thanks for your response
I have been here for a long time and having worked for them for a number of years have confidence in their management
Agree with the comment on cost and would assume like most companies are keeping a close eye on them
GLA
Just to follow up on the below - https://www.linkedin.com/feed/update/urn:li:share:6926485413259837440/?midToken=AQERz7smiSztEA&midSig=0isH04xGNl1Gg1&trk=eml-email_network_conversations_01-hero-1-check_update_cta&trkEmail=eml-email_network_conversations_01-hero-1-check_update_cta-null-9x36dq%7El2qiojvc%7Ejd-null-neptune%2Ffeed%2Eupdate
Whitemountain, Lagan Asphalt and Lagan materials all now rebranded into Breedon Ireland. Will be interesting to see if the share-price reacts
Megan2012,
It could be just portfolio rotation. They might see better returns elsewhere. Londoner7 follows the news from the industry. nothing he has posted suggested any worries. we know energy costs could be a problem, but as long as they are passed on to the customers, it does not affect the margins.
Like dazzag, I increased my holding slightly yesterday.
ATB
Noticed Blackrock recently reduced their position in Breedon and have now done the same in Sigmaroc
Anything wrong with quarrying companies?
Been buying today
There was a full rebrand when Breedon took them over and all the plant (and head office signage) that was previously marron / white / gold was painted the Breedon colours, but it was still Whitemountain written down the side.
Whitemountain did do full on civil engineering works right across the UK (eg https://www.youtube.com/watch?v=hToxwtgcxqk) but it does seem that Breedon always kept it under the radar and there's very little mention about it. Seem that they have now finally pulled the plug on it completely.
Definitely seems to have been a tough decision taken for the betterment of Breedon as a whole. Keeps the business simple and easy to understand without too many off-shoots away from the core business plan. My pal was definitly under the illusion that the decision was made due to "investability", and came following feedback. He mentioned to me about Civil Engineering Contracting being considered so high-risk that it was almost toxic to US investors.
Culling that department is possibly to pave the way for some major investment - will be interesting to see what comes down the tracks in the next couple of months, but I'm taking it as a buy-signal and loading up now when they're cheap!
Expect many sales today as the 2017 share plan scheme matured on 1st May, many who opted to sell will be doing so 1st thing. Me, I'm holding on to mine.
Hi Stebo, thanks for your additional comments.
I knew Whitemountain are involved in airport runway surfacing and thought that might be the 'civil engineering' component, but looking again I see Whitemountain has a separate 'civil engineering' division from runway surfacing. They are currently inviting tenders on a project called 'Lambeg Sluice Gate',
I don't know what such a project might involve but it sounds very different from Breedon's standard business. The division will be a relatively small part of Breedon and perhaps a small part of the Ireland business too.
There are clearly two factors in play, aside from any US influence. One, the division may be taking up a disproportionate amount of management time. Two, the nature of contracts, say if they are largely fixed price in an inflationary environment would make them a higher risk than the more straightforward supply of materials as demand rather than contracts dictate. Breedon does pursue some contract business - they did this through 2018-19 in Scotland when other work was drying up - but their preference is for short term supply at a premium pricing point.
I remember a comment by the founder of Breedon, Peter Tom, who memorably said, "Breedon feeds off the crumbs from the big boys table". I thought it summed up their strategy very well.
I'm aware of many companies that have been hammered by a single bad contract, when the rest of the business has been performing well. As I say, I suspect the Whitemountain civil engineering business doesn't have the scale to have a big impact on Breedon overall, but if its a distraction, better to let a business focused on civil engineering handle the work.
On rebranding. This might be a 'flag' to the local market, that there has been a restructure, or refocus, of the business, but it might be unrelated. Breedon went through a similar exercise with 'Hope Cement'. They thought the Hope name was a significant Brand in the industry but the message coming across was that the Breedon name was better known, so they rebranded to 'Breedon Cement'.
While looking at Whitemountain I noticed a concrete mixer badged 'Whitemountain' with the Breedon logo alongside. I don't know the company that paints the Breedon wagons, but I'd guess business is good.
Thanks for your input.
Thanks for you input, we are lucky to have such a super poster
Was chatting to my pal again last night. Whitemountain are shutting down their civil engineering side of the company to focus more on the higher profit and lower risk activities. Also dropping the Whitemountain name and starting to trade as Breedon, which to me suggests a focus more so on the materials side of the business.
My pal is led to believe that it’s following feedback from large potential investors in USA who see civil engineering contracting as high-risk. That would likely tie up with the new presence in USA, and potentially signal either a buy-out from a large American company, or maybe Breedon starting to look at acquisitions in USA and moving into a new territory. All just speculation though.
Stebo, thanks for clarifying your comments.
Londoner7, would need to check with my contact what all I can say, but the upshot of his comments were "20 or so lads being let go for the sake of making Breedon more investible and adding a few pence to the share price".
I live local to Whitemountain's head-office and I drove past it today and seen that they are changing the signs from "Whitemountain" to "Breedon", so there's definitely changes afoot.
Not to my knowledge but seems many AIM stocks are undervalued until a takeover rumour attracts investors. This company seems to be doing everything right yet share price drifts downwards.
Hi Stebo, what changes are you referring to?
Thanks, L3.
I was surprised a revenue number wasn’t posted, but on a second look, with ‘reported’ and ‘like for like’ the same, 16% growth in revenue is a more helpful measure.
The rest of the commentary was what I’d hoped particularly around pricing and expectations, given macro events.
“The Group has started the year well with order intake and volumes following usual seasonal patterns through the first three months of 2022”
I don’t think there’s much else to say.
dazzag, as far as I know, only on this board.
Great RNS today.
I'm surprised however that the recent structural changes in the Whitemountain part of the business haven't been RNS'd. That should add a few pence to the share price, and shows Rob Wood has the stomach to make the tough decisions for the sake of reducing risk exposure (and no doubt supporting the share-price).
Has there been any takeover rumours then?
Hi Londoner7,
Thank you for sharing your thoughts. Your forecasting model for BREE is always spot on. Very impressive indeed.
I live in the hope of the £150 EBIT this year...
I had hoped the TU would provide more details of current trading, company's expectations for this year and commented on energy costs. Probably not much more they could add to what they said at this stage.
ENQ: Thank you for the explanation about Kraken and Magnus.
ATB
Despite trading results being better than anticipated is anything going to move this share price other than takeover speculation?
In a recent post I said,
"In my 16th March estimate, I expect a revenue of £308m in Q1, 17% up on 2021 Q1, because of the Covid impact on ROI. I may be overestimating the 2021 impact, particularly as the ROI market is mainly about tendering in Q1 with the bulk of the work done through the rest of the year. But I’ll stick with it and won’t be too bothered by a small miss. I’ll also be listening for updated commentary on costs and pricing."
Today Breedon reported 16% revenue increase on reported and like for like on 2021 Q1, so I'm sticking with FY revenue of £1,355m.
Importantly, they report 'full cost recovery', which supports margins.
There's an MPA quarterly update in a week or so, otherwise no news expected till interims 27th July.