HeidelbergCement’s New Financial Targets Do Not Alter Our FVE; Shares Remain Undervalued

We’re maintaining our EUR 81 fair value estimate for narrow-moat HeidelbergCement after its capital markets day gave us no compelling reason to materially alter our thesis or long-term forecasts for the company. We are pleased to see the firm increase its level of investments into carbon capture technologies to lower its carbon footprint, which has made the sector uninvestable for many investors due to environmental concerns. However, the benefits are only likely to be realized in the second half of this decade and are unlikely to provide a catalyst for the market to assign a significantly higher multiple on the business in the short term. Most peers have instead opted to perform large acquisitions in other building materials, which don’t exhibit characteristics of an economic moat, to shift their revenue contribution to products that are more environmentally friendly than cement. A larger business mix toward cement has HeidelbergCement trading at a mere price to company-forward earnings estimate of 7 times, based on company compiled consensus estimates, a significant discount to peers. We view shares as undervalued.