Heidelberg Materials Earnings: Full-Year EBIT Growth Guidance Raised After Strong Start to the Year

Narrow-moat Heidelberg HEI Materials reported organic revenue growth of 13% during the first quarter, outperforming its Europe-listed construction materials peers. We attribute its outperformance to the group’s larger weighting toward heavy building materials where price increases were pronounced. While the first quarter tends to be the least material during the year, management has raised the low end of its full-year EBIT guidance from EUR 2.35 billion to EUR 2.5 billion, resulting in a midpoint upgrade of 3%. Construction demand from infrastructure and commercial end markets remains robust, which supports CRH remaining our preferred pick in the sector given it is well positioned for an increase in infrastructure and commercial construction spending in the United States. We maintain our EUR 71 fair value estimate for Heidelberg Materials and view shares as fairly valued.

Like-for-like EBITDA grew by almost half during the first quarter against a low comparable, driven entirely by a favorable price over cost, which offset lower volumes. While Heidelberg Materials has benefited from a decline in energy prices (combined with strong price increases implemented during the previous year), its first-quarter EBITDA margin of 11.4% still trails the 13.6% it achieved in first-quarter 2021, highlighting the group’s easy comparable. Price increases implemented for both cement and aggregates were most notable during the first half of last year, and therefore the spillover effect will be less pronounced as the current year progresses. The group’s revised EBIT guidance implies between 0% and 7% growth for the year.