Higher Building Material Prices Will Support Profitability in the Short Term; Raising our Fair Value

Heidelberg Materials is one of the largest manufacturers of building materials globally, with a significant contribution of revenue from cement production. The cement industry is a notorious contributor of carbon dioxide emissions, which has made the sector uninvestable for many investors due to environmental concerns. Heidelberg will accelerate investments into carbon capture and storage technologies to help lower its carbon footprint. 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. Unlike peers CRH and Holcim, there is no indication of Heidelberg entering the downstream building products sector, which has a lower ESG Risk Rating.