9th Jan 2020 14:54
(Alliance News) - Berenberg reiterated Buy rating for Breedon Group PLC and increased its price target to 105 pence from 87p, following the company's acquisition of CEMEX's UK assets on Wednesday.
Shares in Breedon were up 3.5% at 89.90p each on Thursday afternoon in London.
Breedon entered into agreement with Mexican building materials company CEMEX SAB de CV to acquire 100 active operations spread across the UK for GBP155 million in cash together with the assumption of GBP23 million of lease liabilities.
This will add around 170 million tonnes of mineral reserves and resources to the group, Berenberg noted.
The German bank assumes that the deal will be consolidated at the start of the second half of 2020, although this is partially offset by an forex headwind from the EUR to GBP. Putting this together, Berenberg thinks earnings before interest and taxes in 2021 will increase by 9%.
"Moreover, we understand that this deal will increase Breedon's market share by 3% - 4% in aggregates, asphalt and RMX," Berenberg analysts said.
In Berenberg's view, the assets acquired by Breedon are complementary to the group's current footprint, increasing exposure to the north -east, Scotland, Wales, Norfolk, the East Midlands and Yorkshire.
The company's target of return of invested capital covering weighted average cost of capital by 2022 implies GBP16 million of earning before interest & tax in 2022, from the current GBP11 million, the bank noted.
"Even if we assume no top-line growth, if the group can increase margins in the line with its UK division, we think earning before interest & tax for this acquisition could rise to GBP19 million, 19% above current forecasts," Berenberg said.
By Loreta Juodagalvyte; [email protected]
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