HeidelbergCement Fails to Offset Rising Cost Inflation in Q1; Full-Year Guidance Maintained

Narrow-moat HeidelbergCement increased revenue 14% in the first quarter driven by double-digit price increases, which were still not sufficient to offset higher energy and transportation costs, resulting in EBITDA declining 25%. We attribute weaker profitability performance compared with CRH and Holcim to those peers’ greater exposure to downstream materials, which are less energy-intensive, as well as larger hedging contracts in place. The first quarter is typically not so significant for full-year results due to construction activity taking place in the warmer months (usually the second and third quarters) and thus weak first-quarter profitability has not affected management’s full-year guidance for strong revenue growth and a slight increase in operating profit. We reiterate our EUR 81 fair value estimate. While HeidelbergCement shares appear undervalued, CRH and Holcim are our preferred picks in the sector.