HeidelbergCement’s Fourth-Quarter Results Impress; Shares Are Undervalued

Narrow-moat HeidelbergCement’s ability to raise prices to offset rising energy and freight costs highlights the sector's strong fundamentals. Fourth-quarter organic revenue and operating profit grew 7% and 2%, respectively. A ramp-up in price increases during the fourth quarter, which included a 13% price hike in December 2021, helped support profitability and highlights the strong demand environment. The ability to raise prices in excess of costs is central to HeidelbergCement’s narrow moat rating, which we believe the market is discounting on environmental, social, and governance concerns over its cement operations. Investors have been rewarded by the strong business performance through dividends and buybacks to the tune of EUR 786 million, a yield of 7% on the current share price. Management is optimistic on the outlook for 2022, expecting strong revenue growth and a slight increase in organic profits despite high energy costs. Demand and the current strong pricing environment are expected to be driven by global infrastructure projects. We reiterate our EUR 81 fair value estimate and view shares as undervalued.