Holcim Earnings: Raising Fair Value Following Strong Start to Year, Upgraded Guidance

Narrow-moat Holcim HOLN started 2023 in the same manner it left off in 2022, outperforming its own expectations and raising its full-year guidance. First-quarter organic revenue growth of 8% and a healthy order book for infrastructure projects gave management confidence to raise its full-year revenue growth guidance to above 6%, an increase from initial expectations of between 3% and 5%. Organic EBIT growth of 8% has been supported by strong pricing and some easing in cost inflation. Following the divestment of its cement business in India and the rapid growth of its roofing segment, Holcim’s end market exposure to repair and maintenance and activity has increased, which is less cyclical than new residential construction. We raise our fair value estimate to CHF 60 per share from CHF 56 to account for the strong start to the year and raise our EBIT margin outlook to 16.5%, an expected increase of 20 basis points compared with 2022 and in line with management’s updated guidance of above 16%. The shares appear fairly valued.

Reported revenue declined by 11% during the first quarter, mostly attributable to the divestment of Holcim’s sizable Indian business that was still reflected in last year’s first-quarter results. Proceeds received continue to be used as part of the group’s bolt-on acquisition strategy, having announced 12 acquisitions during the quarter. While the first quarter is typically the least material for construction material manufacturers, demand has remained resilient despite an increase in interest rates. Volume growth was reported in both North and Latin America, offsetting declining demand in Europe.

The group’s CHF 2 billion share buyback announced last year will end in May, but we believe Holcim is in a comfortable position to announce a new program to maintain its attractive return of capital to shareholders.