Heidelberg Materials Earnings: Higher Prices Lift Operating Profits; Raising Our Fair Value Estimate

Narrow-moat Heidelberg Materials grew operating profit by 22% to EUR 3 billion, ahead of its original guidance set at the start of 2023, but in line with company-compiled consensus. The 253-basis-point improvement in its operating margin has been supported by lower energy costs and higher building material prices, which will likely protect profitability in the short term and underpin the increase in our fair value estimate to EUR 84, from EUR 80. However, we think the likelihood of further margin expansion in the future is unlikely, reflected in its fiscal 2024 operating profit guidance between EUR 3 billion and EUR 3.3 billion, implying marginal growth at best. Room for further price increases is limited, given a weak outlook for construction activity, which we anticipate will keep operating profit largely unchanged in fiscal 2024. Shares are currently fairly valued.