Numis upgrades Breedon on growth prospects after bolt-on deal

2nd Jun 2014 10:14

Numis Securities has upgraded its rating for UK aggregates business Breedon from 'add' to 'buy' after Monday's acquisition of North Cotswolds-based peer Huntsman's Quarries, saying that it is an "attractive deal"."There has been much talk of Holcim-Lafarge of late and Breedon is seen as the natural beneficiary of any non-core disposals, but the acquisition of Huntsman announced today demonstrates that scope for small bolt-ons remains a key priority," the broker said.Numis said that Huntsman increases Breedon's presence in the Gloucestershire market with its own Clearwell quarry just 40 miles away and expands the group's regional profile in England. "We believe that the scope for organic growth based on the acquisition is significant."The broker expects the deal to be 5% accretive to Breedon's earnings in the first full year of ownership and has raised its pre-tax profit forecast for 2015 from £21.6m to £22.6m. For this year, the estimate has been lifted by 3% from £16m to £16.5m.As for Breedon's shares, Numis believes short-term fundamental valuations remain high, but said: "the key attraction remains Breedon's ability to become a much larger player in the UK aggregates market as de-consolidation elsewhere occurs."Numis has a 58p target price for the stock, which was trading broadly flat at 42.03p by 10:19 on Monday.BC