HeidelbergCement's Trading Statement Highlights Sector's Strong Fundamentals; Shares Appear Cheap

We weren’t surprised by narrow-moat HeidelbergCement’s strong trading update, which largely met our expectations and exceeded company-compiled consensus, and triggered the company to release some preliminary figures. Operating profit grew 12% year over year for the full year, an overproportional increase to the group’s 8% organic revenue growth. The ability to raise prices in excess of costs is central to HeidelbergCement’s narrow economic moat rating, which we believe the market is discounting on environmental, social, and governance concerns over its cement operations. We expect government stimulus will support long-term demand and provide a favorable pricing environment that will help offset cost inflation as well as any potential incremental environmental costs. We maintain our EUR 81 fair value estimate and view shares as undervalued at current levels.