I would describe the headline figures from Breedon Group’s (LSE: BREE) full-year results today as stunning.
The construction materials firm delivered revenue up 43% compared to a year ago, profit before tax 58% higher and ballooning earnings per share that were up 30%.
Building assets
Executive chairman Peter Tom CBE said that during 2016, the company completed its largest acquisition to date in the £336m purchase of Hope Construction Materials, a leading independent producer of cement, cementitious products, aggregates and ready-mixed concrete. The firm also invested a record amount in the business, began supplying its biggest ever contract and delivered an excellent financial performance despite an uncertain economic environment and challenging trading conditions in many markets.
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Indeed, the acquisition programme is a big part of Breedon’s growth plan and works alongside organic expansion. During the year, the firm also signed off on the purchase of Sherburn Minerals Group, which added two cementitious import terminals, four quarries and five ready-mixed concrete plants to Breedon’s portfolio of assets.
Asset backing is key to the success we’re seeing now in Breedon’s operations. The firm claims to own more than 750m tonnes of mineral reserves and resources and declares that its strategy is to grow by consolidating the UK heavyside building materials sector. A lofty ambition that I wouldn’t want to bet against given the thumping figures Breedon is posting now.
Looking ahead
Mr Tom is optimistic about the outlook for the company. He points to the government’s apparent recent commitment to substantial investment in Britain’s infrastructure and anticipated growth in the private housing market as reasons to be cheerful for the medium and long term.
So, what can we expect from Breedon now? Mr Tom is clear: a focus on efficiency, more organic growth and more earnings-enhancing acquisitions. It’s the same strategy that drove the share price from 17p during 2012 to 79p today, a return of more than 360% for shareholders. But would you have been brave enough to buy Breedon’s shares during the lows? One of the great litmus tests for investor decisions has flashed a misleading signal for years: the dividend. There isn’t one.
Even now the directors are saying that dividends will only be paid when they believe it is appropriate and prudent to do so, subject to availability of distributable reserves and the main focus is on delivering continued capital growth for shareholders.
Why fight the momentum?
Despite the distance travelled by the shares, the lack of a dividend and the cyclicality integral to Breedon’s business model, it’s hard to deny the attraction of the operational and share-price momentum on offer right now. I wouldn’t like to bet against this trend and so I’m more likely to go with it. I’m bullish on Breedon right now.
