We Are Not Surprised by Yet Another Holcim Guidance Upgrade; Shares Remain Cheap

Narrow-moat Holcim's third-quarter results confirmed that our investment thesis is firmly intact, reporting record quarterly revenue and raising full-year guidance for its third-consecutive quarter. The higher full-year revenue guidance of at least 12% like-for-like growth and mid-single-digit EBIT growth did not come as a surprise to us, given Holcim's strong pricing and the shift in its product portfolio toward materials with lower capital (and energy) intensity. Strong operating performance, combined with over CHF 7 billion in proceeds received from divestments this year, led management to announce a CHF 2 billion share repurchase. We view the decision as astute capital allocation, with shares currently trading at a 20% discount to our CHF 56 fair value estimate, which we maintain. The buyback is significant, accounting for over 7% of the group's market capitalization, which combined with the group's attractive (and stable) 5% dividend yield, provides shareholders with a compelling expected return profile. Despite Holcim having outperformed both its European and U.S. peers, we believe shares remain undervalued.