HeidelbergCement Finishes 2022 on a Positive Note, but We See Guidance As Slightly Ambitious

Narrow-moat HeidelbergCement HEI finished 2022 on a positive note, delivering organic EBITDA growth of 3.1% during the fourth quarter and met its financial targets. The group managed to achieve a positive price/cost spread during the fourth quarter, benefiting from price increases in the high teens and lower energy costs. The company guided for 2023 organic revenue growth and EBIT between EUR 2.35 billion and EUR 2.65 billion, which mostly falls within with our expectations, albeit we are more conservative. We reiterate our EUR 71 fair value estimate, and while shares remain slightly undervalued despite a 40% rally during the last six months, CRH remains our preferred pick in the sector, offering investors higher growth and more defensive end-market exposure.

Full-year revenue grew 12% organically to EUR 21.1 billion, driven entirely by price increases, which more than compensated for a decline in volumes across all business lines. However, price increases were unable to fully offset significant cost inflation, resulting in like-for-like EBIT declining 6% during the full year. The trend improved throughout the year, with EBIT growth of 4% in the final quarter. Management’s EBIT guidance for 2023 implies a broad range of outcomes, anywhere between a 5% decline and 7% growth. We fall on the lower end of the range and believe pricing will come under pressure as the demand environment weakens, particularly for residential construction, due to higher interest rates.

HeidelbergCement returned EUR 978 million capital to shareholders during 2022 (7.5% of its market capitalization) and finished the year with a net deb/EBITA ratio of 1.5 times, the low end of its target. We believe the group has sufficient capacity to replicate similar returns to shareholders during the current year.