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Breedon Aggregates is crushing it

Published: 12:56 25 Jan 2016 GMT

Asphalt
Roads are good business for Breedon

Breedon Aggregates' (LON:BREE) latest contract win is the second headline-grabbing order it has won in 2016, and it is still only January.

While there is no guarantee the company can keep up this sort of pace throughout the year – the consensus 2016 revenue forecast among the six analysts that cover the stock is £451mln – the contract wins do underpin those forecasts.

The company, which is the largest independent aggregates (crushed rock, sand, gravel etc.) business in the UK and a significant player in the asphalt and concrete markets, bagged the £10mln contract to supply dry-stone, ready-mixed concrete and asphalt to the £35mln first stage of the project that will turn a five-mile stretch of the A9 between Kincraig and Dalraddy into a dual carriageway.

The five-mile stretch incorporates five new structures, numerous side roads and accesses to local estates. 

Furthermore, it is just the first stage in a £3 billion project to transform 80 miles of single carriageway to dual carriageway between Inverness and Perth by 2025, so Breedon would clearly be in the running for more work on this project.

The company said it is investing heavily in its Meadowside quarry near Kingussie to service the contract and ensure that supplies to its existing customers in the area are unaffected.

With more than half an eye on the environmental impact, the group is investing in a new high capacity concrete plant and a mobile asphalt plant to minimise lorry movements.

Sustainability is an important consideration for the company and, where possible, it always uses local suppliers and services on its project as part of its belief in recirculating its expenditure into the local economy.

It operates 53 quarries, 26 asphalt plants, 59 ready-mixed concrete & mortar plants and three concrete block plants in England, Wales and Scotland, employing more than 1,200 people, and though the location of its headquarters in Breedon-on-the-Hill in the East Midlands give a clue to the company's origins, recently it has been the sizeable Scottish division that has been setting the pace.

The A9 Kincraig-Dalraddy gig follows less than three weeks after the group's largest ever contract, for £55mln, to lay asphalt on the £745mln Aberdeen Western Peripheral Route/Balmedie-Tipperty (AWPR/B-T) project.

It is worth noting that this chunky contract has been won in conjunction with its joint venture (JV) partner, Whitemountain, which is part of the Lagan Group.

“Despite it being a 50/50 JV, with each partner having an asphalt plant on site to supply the project, Breedon has the most assets around Aberdeen with three aggregates quarries and nine concrete plants nearby while its JV partner will export material from Northern Ireland. This means Breedon could see additional benefit in our view,” vouched Ian Osburn, an investment analyst at Cantor Fitzgerald.

Meanwhile Cenkos, the company's joint broker and its nominated adviser, noted that the supplies for the AWPR/B-T project will not all be additional volumes since a proportion will be re-cycled materials from the on-going works.

“However, there could be additional benefit to BREE as the JV is also responsible for supply of off-site sand and aggregate and high value PSV surfacing aggregate which BREE is excellently positioned to supply,” Cenkos asserted.

Shares in Breedon nudged up 0.5% to 67.69p on the A9 contract win, still more than 7p below Cantor's target price, which is the same target price as that of Peel Hunt, the company's other house broker.

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