Breedon Group

Acquisition of Cemex UK assets for £178m

  • Sectors : Building Materials
  • Companies : Breedon Group

Ratings and price correct at time of issue.

  • Breedon Group

    Closing Price: 82.0p

  • RATING 22/11/19

  • PREVIOUS RATING 25/10/17

    NEUTRAL

DAVY VIEW

Breedon’s acquisition of certain Cemex UK assets looks like a strong strategic fit, executed at an opportune time, without overly stretching the balance sheet. A couple of items stand-out: 1) the deal looks inexpensive at 7.7x EBITDA, albeit that represents a 2018 result that was likely lower in 2019; 2) the potential for synergies and profit recovery is high given the current margin profile and historic performance of the business; 3) the assets themselves come with significant reserves of c.170mt; 4) while large ready-mix concrete (RMC) operations are being acquired, the deal is heavily weighted towards aggregates and asphalt; and 5) pro-forma net debt/EBITDA will rise to 2.4x on completion but should be closer to 2x by end-2020. The deal is exactly the type of transaction we anticipated and supports our ‘Outperform’ stock rating.

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Jan 8 2020, 08:20 GMT

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