HLBZF - HeidelbergCement: Comments On Q2 2022 Results

• Compared to Holcim's Q2 results, HeidelbergCement delivered a mixed quarter.
• Holcim is offering a new business transformation that cannot be unnoticed.
• We are lowering our 2022 EBITDA and maintaing a buy rating.

Following our comment on Holcim's Q2 results , today is the day for the HeidelbergCement second quarter analysis ( HLBZF ). The company just released its three-month accounts, and we believe Holcim delivered better results than the German company. As a reminder, we both rated the companies with an outperformance target.

Here are our previous publications for HeidelbergCement, so that you are well acquainted with the story up to now:

• 25/01/2022: Initiation of coverage
• 29/03/2022: HeidelbergCement's Russian exposure
• 12/05/2022: Q1 performance analysis

HeidelbergCement Vs. Holcim

1. Starting with the financials, Holcim recorded better revenue growth. To be precise, the Swiss giant increased top-line sales by 16.9% compared to a 12% achieved by Heidelberg;
2. In the first semester, Holcim increased volume whereas Heidelberg lost net volume in all three subdivisions: ready-mix, aggregates and cement;
3. Heidelberg was only partially able to offset raw material price increases and higher energy costs, whereas Holcim increased its operating profit;
4. Most importantly, Holcim raised the 2022 guidance and left its profit forecast unchanged. Heidelberg is now expecting a higher revenue growth (as for the Swiss counterpart) but announced lower numbers at the EBITDA level;
5. Aside from future guidance, a positive surprise was the net debt reduction to €6.8 billion from €7.5 billion compared to last year's semester. On the contrary, Holcim increased debt by 7.5%;
6. Both companies are on track to achieve lower carbon emissions and are proactively working to be more ESG complaint.

Source: HeidelbergCement Q2 results

Conclusion And Valuation

Our internal team believes that higher Keynesian spending from government recovery plans due to the COVID-19 outbreaks still needs to be materialized. Thanks to our initiation of coverage, we deep dive into the Italian market, and we believe there is a significant value driver opportunity due to Italcementi's acquisition. Moreover, HeidelbergCement has an immaterial exposure to Russia and Ukraine. Despite that and following the new management's guidance, we are lowering our 2022 EBITDA forecast, leaving the same multiple of 5.5x. We derive a new equity value of €10.8 billion, implying a potential upside of more than 17%. In Holcim's valuation, we used a higher EBITDA multiple due to the company's past track record and the ongoing portfolio transformation that is delivering sales growth and higher margins.

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