Transformation in Holcim’s Product Mix Continues to Pay Dividends Following Record 2022 Print

We were not surprised by narrow-moat Holcim’s HOLN full-year performance, which exceeded management’s upgraded guidance provided last quarter, and thus maintain our CHF 56 fair value estimate. Organic revenue and EBIT grew by 13% and 7% respectively, which given Holcim’s shift in product mix toward materials with lower capital intensity, unsurprisingly sits in the middle of the pack between heavy building materials manufacturer HeidelbergCement and downstream producer Saint-Gobain. However, the group was more upbeat in its outlook for 2023 than peers, guiding for organic revenue growth between 3% and 5% and an overproportional increase in profit. A dividend of CHF 2.5 has been proposed, an increase of 14% year over year, and confirms management’s confident outlook. We view shares as fairly valued and maintain CRH as our preferred pick in the sector.

Outperformance was driven by a combination of price increases in building materials and the fast expansion of its solutions and products segment, which grew by 54% compared with the prior year or 18.5% organically. The segment now contributes 19% of group sales and is firmly on track to meet the group’s target of 30% by 2025. The shift in the group’s product mix, which is less energy-intensive than manufacturing cement, was a tailwind in 2022 and supported like-for-like EBIT growth of 7.2%. The shift in product mix also increases the group’s end-market exposure to repair and maintenance activities, which is less cyclical than new residential construction, and is facing pressure.

Results have been somewhat overshadowed by the announcement that Beat Hess, chair of the board, will resign and be replaced by current CEO Jan Jenisch, who will be replaced as CEO in the next 12 months.

Holcim’s net debt/EBITDA of 0.9 times allows ample room for further acquisitions and capital returns. The group has already made seven acquisitions in 2023. Holcim also has a CHF 2 billion share buyback program to be completed by May 2023.