HeidelbergCement Trails Peers in Combating Inflation; We Slightly Lower Our FVE to EUR 77

Narrow-moat HeidelbergCement has been unable to offset inflationary pressure to the same extent as some of its peers. Like-for-like revenue grew 11.6% during the first half of the year, driven entirely driven by a double-digit increase in prices. However, despite raising prices to a similar level to its peers, HeidelbergCement could not contain costs to the same extent, resulting in a 12% decline in like-for-like EBITDA. Despite a positive price over cost spread in the month of June, management has downgraded its profit guidance and expects a slight decrease in profit for the full year. We expect that peers' superior management of cost inflation will restrict HeidelbergCement's ability to implement further price hikes, especially as we enter a highly uncertain macroeconomic environment and have therefore revised our profit forecasts downward. We lower HeidelbergCement’s fair value estimate to EUR 77 from EUR 81, to reflect weaker profitability both in the current year and medium term. Shares remain undervalued; however, we view CRH and Holcim as our preferred picks in the sector.