Heidelberg Materials Earnings: Price Increases Stick, Boosting Margins and Driving Fair Value Up 13%

Narrow-moat Heidelberg Materials raised its full-year operating profit guidance for the second consecutive quarter as price increases stick and energy costs fall. The aforementioned factors contributed to organic EBIT growth of 17.5% in the second quarter, a faster pace than the 4.6% organic revenue growth because volume declines (most notably in Europe) somewhat offset strong pricing. We have increased our fiscal 2023 EBIT estimate from EUR 2.3 billion to EUR 2.8 billion, which falls at the midpoint of management's revised full-year guidance, as price increases implemented in the previous year appear more sticky than initially anticipated. Declining energy costs provide a further tailwind to profitability, contributing to our fair value estimate increase to EUR 80 per share from EUR 71. The shares appear slightly undervalued and are trading at a mere 8 times consensus (company-compiled) earnings per share estimates. CRH remains our preferred pick in the sector, though, due to its favorable geographic exposure and product mix.