Investors' faith in UK aggregates outfit Breedon (BREE:AIM) is proving justified as shares in the £591.5 million cap advance 3.8% to 54.5p on the back of an eye-watering 92% leap in profit before tax in the six months to the end of June.
The UK's largest independent aggregates business reports that first-half trading was strong and that the outlook for the second half bodes well as macro-economic factors and favourable market conditions continue to support the sector.
Group revenue for the half-year at £160.5 million was up 28% on the same period last year and while the profit before tax headline is eyecatching, the fact that underlying EBITDA margin (earning before interest tax, depreciation and amortisation) is up 17% perhaps highlights the company's robust fundamentals in a more meaningful way.
This strong trading performance is set against a backdrop of low unemployment and long-awaited rising real wages. While oil prices have certainly come off their fourth quarter 2014 troughs, the company maintains that even with margin pressure associated with price rises in this commodity, Breedon still believes that the second half performance will continue in the same vein and that 'market expectations for the year will be exceeded.'
Organic growth through the service of existing contracts (as well as the winning of new ones) has been a vital component in the Breedon success story but acquisition has also played its part and these interims have started to show the benefit of deals like Huntsman's Quarries which was acquired on 1 June 2014 and Barr Quarries, which was acquired on 31 October 2014.
A strong balance sheet suggests that Breedon remains on the hunt for accretive deals and furthermore, it has the capital to invest in any companies it takes on. Breedon's net assets at 30 June 2015 were £181.7 million, compared to £167.2 million at 31 December 2014 and £156.7 million at 30 June 2014. Meanwhile the ratio of net debt to EBITDA reduced to 1.2x at 30 June 2015, compared to 1.7x at 31 December 2014 and 1.9x at June 2014.
