There are some tempting stock opportunities in the FTSE 250 index right now, and one of my favourites is Breedon (LSE: BREE).
This is one of those rare UK companies having a crack at breaking into the American market. The good news is the firm’s growth story across the pond has only just started – kicked off by a promising acquisition completed on 7 March (read on for more about that).
However, let me sit down and calm my excitement. This isn’t some whizzy-dizzy tech outfit selling at vast multiples of earnings. This is a muck-under-the fingernails, mundane kind of a business – often the best kind to target for building wealth via shares.
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A decent dividend yield
In its own words, Breedon is a leading vertically-integrated construction materials group with operations in Great Britain, Ireland and – as of very recently – the USA.
In down-to-earth language, that means the business owns mineral reserves and resources. It also operates concrete and asphalt plants. Then it produces and sells products such as aggregates, cement, ready-mixed concrete and specialist building items. The company’s also one of the UK’s biggest surfacing and asphalt contractors.
When economies are chugging along well, it’s a good way to make a living. Right now, City analysts expect normalised earnings to improve by a modest single-digit percentage this year and by about 11% next year.
Predictions are for increases in the shareholder dividend too. With the share price near 382p (27 March), the forward-looking yield is almost 4% for 2025 – that strikes me as decent income for shareholders to collect.
Trading well
However, one of the risks with this stock is the inherent cyclicality of the underlying industry. We can see its effects in Breedon’s trading and financial record. Earnings and dividends have previously been volatile, and may become so again if the general economic environment deteriorates.
Under such harsher conditions, investors could easily lose money with Breedon shares.
Nevertheless, despite challenging general economic conditions, the company recently delivered a solid set of full-year results for 2023. The directors expressed cautious optimism about the outlook for the business.
However, the most exciting development is the acquisition in the US. The company paid $285m cash and $15m-worth of Breedon shares for a business called BMC Enterprises.
An agenda for growth
Chief executive Rob Wood said BMC represents a “compelling” opportunity to launch in the US. It’s a “high-quality” aggregates and concrete business that has grown “at pace”, organically and via acquisitions.
At first glance, the outfit looks like a good fit with the existing operations this side of the pond. Breedon plans further bolt-on acquisitions ahead as part of its growth strategy. However, it drew the purchase cash price for this deal from its revolving credit facility, so the bulk of the cost was funded with debt.
Borrowings look under control right now, but that’s one indicator to keep an eye on. Nevertheless, Breedon looks well worth the time needed for further research and consideration now. I’d aim to pick up a few of the shares to hold as growth hopefully rolls out in the coming years.
