Breedon Group PLC (LON:BREE) is a direct play on the consolidation of UK heavy-side materials believes Shore Capital, which has just started coverage of the UK-based quarry owner.
Aggregates and building materials will be a long-term beneficiary of rising UK infrastructure spend over the next ten years, argues the broker.
Breedon’s strategy has been to grow revenues and assets rapidly through a series of value-accretive acquisitions.
That has left it as the leading challenger to the majors and well-placed as aggregates and ready-mix concrete (RMC) output in the UK is still well below peak levels of ten years ago.
Supportive government policy initiatives and the secondary effect of private sector investment should see that output gap close.
Meanwhile, Breedon can take advantage of further opportunities as cashflow is excellent with operating conversion consistently above 100%.
Hold is the broker’s investment view as, on current assumptions, it has a price target of 69p but a more bullish view on long-term revenue growth and cycle-average margins imply an equity valuation of 95p.
Shares were trading today at 74p.