Construction material manufacturers face a tough year, says Morgan Stanley (NYSE:MS), amid soaring energy costs, the largest expenditure for companies in the sector.
CRH PLC (LSE:CRH), Breedon Group Plc (AIM:BREE), HeidelbergCement, Holcim and Buzzi Unicem are listed in the note with target prices downgraded 21% on average, and underlying earnings for the year now forecast 9% below consensus.
The US investment bank added that the average spot energy costs for heavy-side producers are roughly 169% higher than 2021, with prices rising as a result of geopolitical tensions.
FTSE 100-listed CRH “benefits from lower exposure to cement and larger exposure to aggregates and building products” compared to European rivals Holcim, Heidelberg and Buzzi, which are expected to be hit hardest as they will need to hike their prices by a minimum of 7-9% to offset rising costs.
Morgan Stanley's analysts believe that current market valuation multiples reflect the market’s view that it will be tough to pass through costs to consumers.