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Why I think this multi-bagging stock could bag again in the years ahead

FTSE AIM 100 construction materials company Breedon (LSE: BREE) has been growing revenue, earnings and cash flow like mad over the past few years. But there’s always been one glaring omission from the financial figures – no shareholder dividends!

Happily, the directors have finally decided to right that wrong. They plan to adopt a progressive dividend policy starting with a maiden payment. They will declare this with the 2021 interim results – hurrah!

Great figures (again)

Once again, the figures in today’s full-year results report look good. And that’s the kind of outcome we’ve become used to from the firm. Chief executive Pat Ward describes in the report the company’s “10 years of successful and profitable growth.”

Revenue rose by 8% compared to the prior year, underlying earnings per share also elevated by 8%, and net debt eased back by almost 6.6%. All the indicators appear to be moving in the right direction.

Breeden runs a large operation covering the UK and Ireland, involving two cement plants and an “extensive” network of quarries, asphalt plants, and ready-mixed concrete plants. It also produces slate, concrete and clay products, and engages in contract surfacing and highway maintenance operations. 

In October last year, Breedon acquired a company called Roadway and, in December, it formed a “strategically important” joint venture in London with Brett, trading as Capital Concrete.

After the year-end, the firm also agreed to acquire a portfolio of “high-quality” assets from CEMEX in the UK, which the directors reckon will “substantially strengthen” Breedon’s network in Britain and develop the firm’s platform for further growth.

Meanwhile, the acquisition pipeline is “robust”, the directors said. And looking ahead, they think the firm is well placed to benefit from the UK government’s intention to increase investment in the nation’s infrastructure.

Shorter-term road bumps ahead

However, there are a couple of potential shorter-term road bumps that could affect performance. Namely, Brexit and Covid-19 coronavirus. The firm’s contingency plan for Covid-19 focuses on the health and wellbeing of employees, “whilst seeking to minimise the disruption to the business.”

And, regarding Brexit, the company’s operations are mainly local and the products and supply chains don’t generally cross national borders. However, with operations in cement and bitumen, the firm does import into the UK from the EU.

However, Ward said: “I am confident that we will make further progress in 2020 and beyond.”

Meanwhile, City analysts have pencilled in a low, double-digit percentage increase in earnings for 2020. And with the share price near 90p, the forward-looking earnings multiple is just above 16.

That’s quite a rich valuation. But the business has been growing fast, and I’m keeping a close eye on Breedon because it may make an attractive long-term investment.

Indeed, this multi-bagging stock could bag again in the years ahead.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.