Construction materials business Breedon (BREE:AIM) gained 3.8% to 76.8p as it reported a strong recovery in demand post-lockdown.

Breedon is the UK’s leading aggregates play. Aggregate is a term given to material frequently used in construction as a means of stabilising and reinforcement and includes items like sand, gravel and concrete.

The company reinstated guidance and said it expected annual performance to top current market expectations supported by a return in demand since early May.

Breedon said it had delivered revenue for the first eight months of the year of £531 million, down from £624 million for the same period 12 months ago.

‘We currently anticipate delivering second-half underlying EBIT (earnings before interest and tax) broadly in line with the second half of 2019, which would deliver a result in excess of the average of current full-year market expectations,’ the company said.

FORECASTS UPGRADED

Full-year market expectations for underlying EBIT was £57 million, with a range of £49 million to £70 million.

Numis analyst Christen Hjorth, who upgraded his 2020 EBIT forecast by 35% to £66 million in response to the update, commented: ‘Breedon’s almost five-fold increase in EBIT over 2014-2019 was achieved despite a number of competitors pointing to profit declines.

‘In our view, this clearly demonstrates the advantages of the group’s business model and the multi-year benefits of its M&A strategy. Furthermore, looking forward, we believe that Breedon is particularly well-placed given its exposure to UK infrastructure activity.

‘Indeed, the Government has a clear mandate for increased investment and a good track record of leveraging infrastructure spend during times of crisis. For example, UK infrastructure activity in the three years following the 1990 and 2008 recessions increased by 21% and 54%, respectively.’

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Issue Date: 17 Sep 2020