Breedon Aggregates (LON:BREE) and Whitemountain, part of the Lagan Group, have jointly won a contract north of the border valued at up to £55mln.
The contract is to lay asphalt on the £745mln Aberdeen Western Peripheral Route/Balmedie-Tipperty (AWPR/B-T) project.
The joint venture will supply and lay more than 500,000 tonnes of asphalt material for the works, which are being constructed by the AWPR Construction Joint Venture on behalf of Aberdeen Roads Limited.
The AWPR/B-T is the longest roads construction project currently under construction in the UK, extending from Stonehaven in the south to Tipperty in the north and comprising 55 kilometres of dual carriageway, 22 kilometres of slip roads and 39 kilometres of side roads and accesses, Breedon told investors.
"We're proud to be playing our part in bringing this hugely important infrastructure project to fruition. It will remove one of the most notorious bottlenecks in the country and deliver significant benefits to the local economy,” said Alan Mackenzie, chief executive of Breedon Aggregates, Scotland.
"This is our largest-ever contract award and will provide the backbone of work for our contracting division over the next two years,” he added.
Breedon and Whitemountain will each erect a mobile asphalt plant on site to service the project, using aggregates sourced from the local area.
“Importantly, the two mobile plants will mean we're self-sufficient on-site,” Mackenzie noted.
Broker Cantor Fitzgerald said the announcement was more good news for Breedon, with the deal having the potential to add around 4-7% to Breedon's group sales in its view, underpinning the broker's projected 9% per annum organic growth in sales during a period of margin expansion.
“The AWPR/B-T project is the longest road construction project currently under way in the UK making it something of a prize for Breedon,” noted Cantor analyst Ian Osburn.
“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,” Osburn said, as he reiterated his 'buy' recommendation and target price of 75p.
Cenkos Securities, meanwhile, said the contract would provide a tremendous backbone of work for the Scottish division over the next two years, with revenues starting to feed in during the second half of the current year.
“These [revenues] 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,” the broker said.
“Some up-front investment will be necessary primarily on a mobile asphalt plant (c£1.5m) but this be used in the business thereafter to gain a return if it cannot be ‘priced’ into the cost of the contract,” Cenkos added.
Cenkos also has a 'buy' rating on Breedon.
Shares in Breedon were trading up 1.2% at 66.29p in lunchtime trading.