Breedon has grown from an Aim-listed shell company to become one of the biggest building materials groups in the UK, not to mention steward of the country’s largest cement plant.
The FTSE 250 group has swollen in size over the past 17 years thanks to a series of shrewd acquisitions. Now it has set its sights on the US market.
Last year the group bought the Missouri-based BMC Enterprises for $300 million. This year Breedon announced it had agreed to buy another Missouri business, Lionmark Construction Companies, for $238 million, in a deal that Rob Wood, Breedon chief executive, has described as “immediately earnings enhancing”.
Its full-year results were also strong, with revenue rising by 6 per cent to just under £1.6 billion and adjusted cash profits up 11 per cent to £270 million on a margin of 17.1 per cent. Volumes fell by 6 per cent due to weakness in the UK market and difficult weather, but pricing was 2 per cent higher overall.
But most investors’ attention was on the Lionmark deal. While Breedon has been a key consolidator in the UK, this part of the business is now more focused on cash generation, and growth is now being driven by expansion plans in the US.
Lionmark is a construction and surfacing business, with a particular focus on infrastructure end-markets. Breedon’s acquisition should effectively double the size of its presence in the US and mean that its American business contributes about a fifth of group adjusted cash profits by 2026. Lionmark should also complement the BMC business, which focuses more on the residential sector.
Breedon’s long-term growth prospects look strong too, with its end-markets benefiting from population growth boosting demand for housing, urbanisation requiring further investment in infrastructure and an ageing housing stock feeding demand for building materials.
Including the new acquisition, analysts at the broker RBC Capital Markets have upgraded their earnings per share estimates for the 2025 and 2026 financial years by 0.8 per cent and 3.7 per cent respectively and have forecast that Breedon’s share price could climb by about 31 per cent.
That does not include cash returns, with Breedon adopting a much more generous dividend policy than it did a few years ago: since 2021 the group has targeted a payout ratio of 40 per cent of its underlying earnings per share. This year the ratio stood at 41 per cent, and looking over the next 12 months the stock is expected to yield 3.2 per cent, though that is below the FTSE 250’s 4.8 per cent.
Even so, with two big acquisitions in the US now under its belt, Breedon is a compelling growth rather than just an income story. City analysts are now broadly expecting further acquisition announcements this year, as outlined in November at a capital markets day.
Analysts at RBC expect that net debt will land somewhere in the range of £578 million to £587 million over 2025 and 2026, ahead of an initial estimate of £437 million to £445 million. Still that represents a reasonable leverage at 1.73 and 1.61 over 2025 and 2026 respectively.
Investors may also be encouraged by the fact that the company’s chairman, Amit Bhatia, has been building up his position significantly over the past couple of years. His investment firm Abicad Holding has increased its stake from 9.7 per cent two years ago to 19.1 per cent today, worth roughly £413 million, according to filings compiled by FactSet.
Breedon shares rose by nearly 12 per cent on the Lionmark news but are still reasonably priced at 12.8 times forecast earnings. Given the structural growth opportunities that support the business, management’s smart approach to deal-making, increasing focus in the US and the decent health of the balance sheet, this looks like more than a fair trade.
Advice Buy
Why Strong growth story at attractive valuation
B&M European Value Retail
The discounter giant B&M European Value Retail has had a torrid start to the year. The group has lost more than a fifth of its market value as shareholders have been forced to stomach a big cut in its full-year profit forecast and the departure of its chief executive.
The Liverpool-based chain revealed last month that Alex Russo is to retire at the end of April after two and a half years in the top job. That announcement came alongside a profit warning, with the company now expecting adjusted cash profits between £605 million and £625 million for the 12 months ending in March. That marked a serious fall against previous guidance of between £620 million and £660 million.
Analysts at the broker Panmure Liberum said at the time that the retirement of Russo and the profit downgrade were unlikely to have been “mutually exclusive events” and some investors may also be spooked by the fact that Bobby Arora, 53, the last member of the billionaire family that helped grow B&M, is also expected to leave the company this year.
• Discount retailers take a pounding as cost of living crisis eases
The group, which sells a range of products such as long-life groceries, homeware, toys and DIY tools, has expanded massively in the past decade, growing alongside other discount retailers such as Aldi and Lidl. But growth has faltered in the past year and this cut to expected profits has not come completely out of the blue.
This column last rated B&M as a hold in October, citing concerns around how the company could perform in a tough consumer environment.
B&M looks like it is losing the City’s confidence. The shares now trade at an undemanding 7.9 times forecast earnings and a forward dividend yield of 5.7 per cent suggests that the stock is now trading in value territory. Sluggish growth should ease up in 2026 against easier comparatives, but trading has been disappointing for a while now and must pick up soon if the company is to win back faith. Cash returns cannot satiate shareholders for ever.
Advice Hold
Why Strong brand but in a weak market
