Breedon

There are many metrics investors can use to gauge value. But based on expected earnings, I feel building materials supplier Breedon (LSE:BREE) could be a brilliant bargain.

Okay, its price-to-earnings (P/E) ratio of 13.3 times isn’t much to write home about. However, the expected 23% bottom-line jump for 2025 also leaves it on a P/E-to-growth (PEG) ratio of 0.5.

Any reading below one implies that a share is undervalued.

Breedon operates a vast network of plants and quarries, giving it 1.4bn tonnes of reserves (almost 50 years of supply) in categories like aggregates and asphalt. This has been achieved through a steady stream of acquisitions that leave it positioned to exploit long-term growth opportunities like a new housebuilding boom and infrastructure renewals.

It’s true that acquisition-based growth strategies also create significant risks. Shareholder value can be eroded if revenues from new units disappoint or cost synergies fail to deliver.

Yet Breedon’s long record of success here helps soothe any concern I may have. Underlying earnings have increased at a compound annual growth rate of 24% since 2011.

I also like the company’s decision to make acquisitions in the US in recent years. Its acquisition of BMC Enterprises in March 2024 and Lionmark a year later (for $300m and $238m, respectively) reduces the company’s dependence on the UK and Ireland. And the Stateside market also offers substantial growth opportunities in the near term and beyond.

Lion Finance

Like HSBC and Standard Chartered, Lion Finance (LSE:BGEO) has considerable growth potential thanks to its focus on emerging markets. For this FTSE 250 operator, that means tapping into surging demand for financial services in Georgia.

Lion’s adjusted pre-tax profits have grown at an annual average rate of 43.8% over the last five years. In that time, the number of monthly active customers has risen from 1.3m to 2.4m.

The stock — which traded under the name Bank of Georgia until February — is thriving thanks to a blend of historically low product penetration and strong economic growth. This is tipped to continue: for 2025 and 2026, the European Bank for Reconstruction and Development (EBRD) is forecasting Georgian GDP growth of 6% and 5%, respectively.

As an added bonus, Lion Finance faces significantly less pressure than other UK-listed banks in other markets, giving it additional scope to grow earnings. Along with TBC Bank, the company controls around three-quarters of Georgia’s banking industry.

I don’t believe the bank’s considerable profits potential is reflected in its cheap share price. Today it trades on a P/E ratio of just 5 times for 2025.

On top of this, it trades on a corresponding PEG multiple of 0.5.

Earnings could come under pressure if Georgia’s economy encounters unexpected turbulence. But over the long term I expect it to deliver excellent returns.

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Still, they all have their place in any portfolio and it’s necessary to explore their value from time to time. Growth, dividend, and defensive stocks each play a distinct role in a diversified investment portfolio, and their interplay helps balance risk and return across different market conditions.

Driving capital appreciation

Typically, growth stock companies are expected to increase earnings at an above-average rate (compared to the broader market). They usually reinvest profits back into the business rather than paying dividends and often operate in dynamic sectors such as technology, healthcare, or consumer services. They can help a portfolio grow faster than other stocks but their volatility adds a higher level of risk, as growth can quickly turn into losses.

This is in contrast to the stable, slow growth of defensive stocks or the reliable income from dividends. How to balance all three comes down to the individual investor’s goals, financial situation, and age. 

Here’s two FTSE 250 growth stocks that look promising and I think investors should consider.

Chemring Group

Chemring Group (LSE: CHG) is a defense technology firm that’s capitalising on increased global defence spending. In the 12 months to October 2024, revenues rose 9% to £510.4m and its order book surpassed £1bn for the first time.

This represents a year-on-year increase of 13%.

My one concern would be its balance sheet, with debt exceeding its cash and near-term receivables, which puts it at risk of defaulting – especially if cash flows are disrupted. Its operations are influenced by geopolitical dynamics, including defence spending patterns and international relations. Changes in government policies or international tensions could affect demand for its products and services, reducing cash flow.

Still, analysts project earnings growth of 28% for the current fiscal year and an additional 12% in 2026. And with a price-to-earnings-to-growth (PEG) ratio of 0.6, the stock appears sufficiently undervalued. Plus, it’s investing heavily to reach its target of £1bn in annual revenues by 2030, expanding manufacturing in the UK, US, and Norway.

That is just the kind of thing I look for in a growth stock!

Breedon Group

Breedon Group (LSE: BREE) is a major UK building materials group and a strong growth stock. It focuses on expanding the business through strategic acquisitions, including a recent move into the US market with the $300m purchase of Missouri-based BMC Enterprises.

When considering growth stocks, it pays for look for companies that are actively expanding. The group’s desire to increase its US market presence is a promising sign, especially as it aims to account for about a fifth of cash profits by 2026.

At the same time, it also introduces risks related to integration challenges, cultural differences, and potential overextension. If badly managed, new businesses can lead to operational inefficiencies and financial strain.

Its financials aren’t spectacular but reasonably good. In its latest FY2024 results, revenue rose 6% to nearly £1.6bn, with an 11% increase in adjusted cash profits to £270m. Analysts remain optimistic, with the average 12-month forecast expecting the share price to climb by 26%. Despite potential increased debt from acquisitions, the company’s leverage remains reasonable and its rising dividend policy exhibits a solid commitment to shareholder returns.

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I always use my own intel before buying any stock, and would never rely on the artificial kind. But I’m also curious. So I asked ChatGPT to name two FTSE 250 stocks it felt had the ability to recover after struggling for some time.

Can Marshalls shares fight back?

Its first pick was UK-based landscaping and building products supplier Marshalls (LSE: MSHL). It’s certainly been struggling. The shares are down 18% over one year, and 60% over five.

My first thought is that it’s been struggling a bit too much for my liking. Yet it’s undeniably cheap, with a price-to-earnings (P/E) ratio of just 7.57.

ChatGPT said Marshalls has posted “significant growth during previous economic upturns, reaching a market value of £1.5bn”. The cost-of-living crisis has inevitably hit it hard.

2024 revenues fell 7.7% to £671m, which “reflects lower demand from housebuilders and continued subdued activity in private housing repairs, maintenance and improvements”, according to Marshalls.

The board did cut net debt by 23% to £134m, and expects adjusted 2024 pre-tax profit for 2024 to be within markets expectations of £52m to £53.7m. The trailing yield has climbed to 3.38%.

Do I agree with AI? I’m afraid not. Inflation and interest rates to remain stubbornly high, which will hit housing market activity. Marshall has to absorb employer’s national insurance and minimum wage hikes from April. I think there’s a recovery play here, just not yet.

Breedon shares are bouncing

ChatGPT’s second pick was in the same sector, so I assumed it would be subject to the same challenges. But instead, its shares have been on a tear.

Building materials company Breedon Group (LSE: BREE) doesn’t fit the criteria I gave ChatGPT at all. Its shares are up 27% over the last year, and a staggering 545% over five. It’s a momentum stock, rather than a recovery play. ChatGPT responses remain as erratic as ever.

Breedon has “grown significantly over 17 years through strategic acquisitions”, my unreliable robot buddy tells me. It’s defied the domestic UK gloom by expanding into the US, acquiring BMC Enterprises for $300m and Lionmark Construction for $238m.

Today, it’s the US stock market that’s struggling, although Breedon has avoided the recent sell-off. Its share price is up 7% in the last month. Yet the P/E is a relatively modest 13.88.

Breedon was boosted by full-year 2024 results, published on 5 March, which showed underlying EBITDA up 11% to £270m. However, volumes fell 6% due to the weaker UK market (made worse by our dodgy weather).

Another concern is that net debt increased by £235m to £405m, mostly due to the BMC acquisition. Breedon is a banger, but I wouldn’t call it a recovery stock. Also, I feel like I’ve missed out on the excitement.

ChatGPT’s picks are a curious brace. They’re at very different stages of their growth cycles. Both are worth considering, but I wouldn’t buy any stock based on AI’s web trawling. I’ll do my own research, and see what human beings think too.

The post I asked ChatGPT to name 2 cheap FTSE 250 stocks with huge recovery potential. I got these! appeared first on The Motley Fool UK.

The index comprises 250 companies with a combined market cap of over £300bn and they can be hard to keep track of.

So I have picked out three FTSE 250 stocks that I think are worth considering for the future.

Soaring construction materials group

Breedon Group (LSE: BREE) is one of the first on my radar. The construction materials provider has seen its share price soar 591% in the last five years to 462p, including a 33.7% gain in the last 12 months.

For the half-year ended 30 June, Breedon posted a 3% increase in revenue to £764.6m despite a tough operating environment in the UK and Ireland.

Buoyed by the UK government’s plan to build 1.5m new homes in the next five years, combined with a strategic entry into the US market via its recent BMC acquisition, I think Breedon is positioned for growth.

Of course, there are risks. A cyclical downturn in the industry or major regulatory changes could knock the company’s strategy off course.

IT services company seeking growth

Softcat (LSE: SCT) is an IT infrastructure and services group that has seen its share price climb 22.5% in the last 12 months to 1,577p.

The current price to earnings (P/E) ratio of 26.5 is a significant premium to the 14.2 average for the FTSE 250. P/E ratios do vary by industry and I think the recurring nature of IT services justifies a premium over, say, financial services.

Softcat has delivered an impressive 19 consecutive years of organic profit growth. However, there are signs that it’s being challenged. 2024 revenue declined by 2.3% to £962.6m driven by lower hardware sales and a shifting software mix.

I think management’s strategy execution is key. Acquiring more customers and doing more with its existing base could help drive long-term growth in key areas like cloud computing and boost the share price higher.

Active investment manager

Man Group (LSE: EMG) is another that I am considering buying. The FTSE 250 group is a leading active investment manager with various strategies in both liquid and private markets.

The last couple of decades have seen a trend towards passive investing. However, a changing geopolitical and macroeconomic environment, as well as a significant influx of capital, has created opportunities for active investors once again.

Man has a number of hedge fund strategies and a stable investor base. With a technology-led approach to portfolio management, I think the investment manager could be a big winner from ongoing volatility in global markets.

Of course, active investing is a tough game. It only takes a bad year or two to see investors head for the exit and reduce funds under management which impacts on scale and profitability.

Under the microscope

These are just three FTSE 250 stocks that I am looking to add to my portfolio and hold for the long run. Each stock has a clear strategy and strong market position, with the potential for growing end markets. This gives me confidence that I can start adding them to my portfolio and test my investment thesis along the way.

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Today I’m looking for mid-cap stocks with long-term growth potential — those I believe will remain profitable for decades to come.

Here are two that I think have great potential in that respect.

Beloved British food brands

Premier Foods (LSE: PFD) owns many of the nation’s favourite food brands, like Mr Kipling and Bisto. This type of brand recognition creates a powerful foundation that helps to promote stability even in a rocky economy. Just what I’m looking for.

But with inflation pushing up grocery prices lately, consumers have been looking for lower-cost alternatives to famous brands. 

In response, Premier has been working hard to find ways to cut costs and direct savings towards benefitting consumers. This is one area where I feel it’s doing better than some major competitors like Unilever, which has struggled to keep costs down. However, the company is tiny by comparison and still faces tough competition from other big players in the fast-moving consumer goods industry.

One downside is that it mostly markets cakes and desserts, so sales have declined recently as consumers prioritise more critical food concerns. Fortunately, they’re likely to rise again during the holiday season. And the share price is up 361% in the past five years, representing annualised returns of 35.7%. This gives me confidence in the stock’s lasting resilience.

Looking at the firm’s financials, the price-to-earnings (P/E) ratio, at 14.7, is on par with the industry average of 15. This suggests there may be limited room for the price to grow further from here in the short term. But earnings per share (EPS) have grown at a rate of 39% for the past three years, backing up my thesis of long-term profitability.

A major player in construction

Based in Leicestershire, Breedon Group (LSE: BREE) is a major supplier of construction materials to the UK building industry. This is typically a stable and reliable industry to be in and the company is a dominant player.

In May 2023, it undertook a share consolidation at a ratio of five to one, so it’s difficult to gauge past price performance accurately. However, the share price is up 13% following the consolidation almost a year ago. And at £3.82, it’s estimated to be trading at 44% below fair value using a discounted cash flow model.

With a debt-to-equity ratio of 22.4% and 20 times interest rate coverage, it has a solid balance sheet with no apparent concerns. Another bonus is the 3.5% dividend yield that’s well-covered by earnings.

However, it’s heavily reliant on a strong economy that maintains a demand for new housing and buildings. The current economic climate remains questionable and a downturn could hit Breedon’s bottom line hard. But with little debt and a strong brand, I believe it could weather such a storm and the share price would recover in the long term.

Overall, I’m confident these both represent good defensive stocks which I’d strongly consider buying today if I had the spare cash. While they may briefly ebb and flow in line with the wobbly economy, I believe their long-term growth prospects are solid and they’d both make a great addition to an ISA.

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Two stocks that caught my eye recently are Barclays (LSE: BARC) and Breedon Group (LSE: BREE). Here’s why I reckon they’re bargains, and why investors should be considering them now for long-term growth and returns!

Barclays

Banking stocks haven’t really recovered from the 2008 global financial crash, if you ask me. Since that time, they’ve had to navigate more than one issue. Some of these include Brexit, the pandemic, and now, the current economic malaise. So I’m not surprised to see one of the so-called big four, Barclays, trading cheaply.

The shares are on a decent run over the past 12 months. They’re up 18% in this period, from 154p at this time last year, compared to current levels of 182p.

Despite being up in recent months, Barclays’ current valuation on a price-to-earnings ratio of just 7 is hard to ignore. This is especially the case when you consider the firm’s vital position in the banking ecosystem in the UK. Furthermore, its diverse operations — including retail banking, its Barclaycard credit card, and investment arm — offer it a layer of protection, in my view.

Finally, a dividend yield of 4.4% is an attractive prospect for passive income. However, I do understand that dividends aren’t guaranteed.

From a bearish view, continued volatility could spell bad news for earnings, returns, and investor sentiment. The business could see this dented by loan impairments, and bad debts. Furthermore, the business has a track record of issues, such as the huge PPI scandal that cost it millions a few years back. Hopefully, it can avoid such issues going forward, but I’ll be watching closely.

Breedon Group

Similarly to banking stocks, the recent economic issues have hurt the construction industry, so Breedon shares also look cheap to me.

The business is an asset-rich construction materials provider and contractor with its core operations in the UK and Ireland.

Breedon shares are up 3% over a 12-month period from 363p at this time last year, to the current levels of 375p.

Inflationary pressures — as well as economic shocks — have held back lots of construction, including house building, and infrastructure projects. Continued issues could begin to dent performance and returns, and hurt profitability in the future.

What I like about the business is the fact it owns assets that actually create materials it sells, rather than buying and reselling. This gives it better pricing power and margins, which could boost performance and growth.

Furthermore, the business recently acquired a US business to try and grow in this lucrative market. If it pays off, the business could see performance and returns soar to new heights.

Looking at fundamentals, the shares trade on a price-to-earnings ratio of 11, and offer a dividend yield of 3.6%, which is attractive.

For me, Breedon is a great example of a business that could thrive once volatility dissipates.

The post 2 tempting cheap shares to consider buying for long-term returns and growth appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Breedon

What it does: it’s a construction materials company supplying aggregates, cement, asphalt, concrete and specialist building products.

By Kevin Godbold. With the share price near 381p (26 March), Breedon’s (LSE:BREE) numbers look attractive. City analysts predict a double-digit percentage advance in earnings for 2025, and the dividend looks set to yield almost 3.9% that year.

Solid full-year results on 6 March suggest further dividend progress ahead.

Trading in the UK and Ireland markets has been good, and I’m optimistic about the gathering strength of both economies.

Breedon announced the completion of an acquisition on 7 March aimed at expanding the business into the “fragmented and growing” US construction materials market.

Chief executive Rob Wood expects the acquisition to be earnings enhancing while allowing

a conservative and flexible balance sheet. That should enable further dividends and more bolt-on acquisitions as opportunities arise.

I’m keeping in mind that Breedon operates in cyclical markets capable of presenting challenges for the business at some point. However, the growth and income opportunity looks attractive to me here.

Kevin Godbold does not own shares in Breedon.

J.D. Wetherspoon

What it does: J.D. Wetherspoon is a UK pub chain. It’s known for consistent food, decent beer, and low prices.

By Stephen Wright.J.D. Wetherspoon (LSE:JDW) shares fell 8% after the company’s most recent trading report. But I think this is a buying opportunity. 

Others are concerned that the reduced number of pubs is a headwind for growth. That’s certainly a risk, but I think there’s more going on with this business. 

As I see it, the company is disposing of its weakest assets to focus on its strongest ones. And that’s a strategy several other businesses – including Unilever and GSK – have been employing recently.

Meanwhile, sales increased by around 8% and widening margins meant operating income almost doubled. Both of these numbers look encouraging to me going forward

A drop in earnings per share was due to intangible or non-repeating items and a free cash outflow was the result of timing of supplier payments. So I’m looking past this and buying the stock.

Stephen Wright owns shares in J.D. Wetherspoon.

Prudential

What it does: Prudential offers insurance and asset management products in markets where there is low penetration.

By Andrew Mackie: The Prudential (LSE:PRU) share price has fallen 35% in the past year, making it one of the worst performers in the FTSE 100. As it languishes at levels barely above its Covid lows, I’m sniffing an opportunity to top up my holdings.

The company is exclusively focused on Asia and Africa, both high-growth markets. Its suite of products and services is offered through a multi-channel distribution network of agents and bancassurance.

Agents are the lifeblood of its business. A significant portion of its 68k monthly active agents are members of the prestigious Million Dollar Round Table association. Its Agency business had a fantastic 2023, with new business profit growth up 75% in 2023.

PRUForce, its technology-driven distribution platform for agents, is a key differentiator in attracting talent and increasing workforce productivity.

Of course there are risks. The company’s balance sheet assets is predominantly composed of government and corporate bonds. As the value of these assets is linked to interest rates, sustained higher rates may negatively impact their valuation.

Nevertheless, when I look at the opportunities across its key markets, I find it hard to believe that its share price will languish at these low levels for very long.

Andrew Mackie owns shares in Prudential.

Reckitt

What it does: Reckitt is a multinational fast-moving consumer goods manufacturer and marketer that owns brands including Finish and Gaviscon.

By Christopher Ruane. Blue-chip bargain or a falling knife – how best to describe Reckitt (LSE: RKT)?

The shares have moved down recently to their lowest price in over a decade.

There are good reasons for that, including a recent unfavourable legal judgement in the US relating to the company’s problematic infant nutrition formula business and sharply lower operating profit last year. Net revenue declined in the most recent quarter, due in part to accounting irregularities in a couple of Middle Eastern markets.

Clearly, management has a lot of work to do.

However, the business has a portfolio of attractive premium brands in categories likely to experience ongoing demand. It generates substantial free cash flow, is profitable with attractive margins and has been reducing net debt.

With a dividend of 4.4% and price-to-earnings ratio of 14, this FTSE 100 firm looks like offering good long-term value to me despite the risks.

Christopher Ruane does not own shares in Reckitt.

Trainline

What it does: Trainline is a UK digital rail and coach technology platform that has operations across Europe.

By Muhammad Cheema. Trainline’s (LSE:TRN) shares increased 21.2% last month when it published a trading statement ahead of its FY24 results.

The FTSE 250 company saw great growth. Net ticket sales grew by 22%, from £4.3bn to £5.3bn. This resulted in revenue growing by 21% to £397m.

What I like about it is its international opportunity.

Both Spain and Italy saw a combined increase of 43% in net ticket sales.

Yet, the firm currently generates only £1bn in net ticket sales from Europe. Compared to the £3.5bn it generates in the UK, it’s got a huge opportunity to grow significantly in this market. The signs of this happening are looking very optimistic as it’s currently Europe’s most downloaded rail app.

However, it needs carrier competition for its services to be useful. France and Germany are examples where growth has been hindered because of this.

Still, Trainline is sitting in a prime position to take advantage of the shift to paperless train tickets.

Muhammad Cheema does not own shares in Trainline.

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This is one of those rare UK companies having a crack at breaking into the American market. The good news is the firm’s growth story across the pond has only just started – kicked off by a promising acquisition completed on 7 March (read on for more about that).

However, let me sit down and calm my excitement. This isn’t some whizzy-dizzy tech outfit selling at vast multiples of earnings. This is a muck-under-the fingernails, mundane kind of a business – often the best kind to target for building wealth via shares.

A decent dividend yield

In its own words, Breedon is a leading vertically-integrated construction materials group with operations in Great Britain, Ireland and – as of very recently – the USA.

In down-to-earth language, that means the business owns mineral reserves and resources. It also operates concrete and asphalt plants. Then it produces and sells products such as aggregates, cement, ready-mixed concrete and specialist building items. The company’s also one of the UK’s biggest surfacing and asphalt contractors.

When economies are chugging along well, it’s a good way to make a living. Right now, City analysts expect normalised earnings to improve by a modest single-digit percentage this year and by about 11% next year.

Predictions are for increases in the shareholder dividend too. With the share price near 382p (27 March), the forward-looking yield is almost 4% for 2025 – that strikes me as decent income for shareholders to collect.

Trading well

However, one of the risks with this stock is the inherent cyclicality of the underlying industry. We can see its effects in Breedon’s trading and financial record. Earnings and dividends have previously been volatile, and may become so again if the general economic environment deteriorates.

Under such harsher conditions, investors could easily lose money with Breedon shares.

Nevertheless, despite challenging general economic conditions, the company recently delivered a solid set of full-year results for 2023. The directors expressed cautious optimism about the outlook for the business.

However, the most exciting development is the acquisition in the US. The company paid $285m cash and $15m-worth of Breedon shares for a business called BMC Enterprises.

An agenda for growth

Chief executive Rob Wood said BMC represents a “compelling” opportunity to launch in the US.  It’s a “high-quality” aggregates and concrete business that has grown “at pace”, organically and via acquisitions.

At first glance, the outfit looks like a good fit with the existing operations this side of the pond. Breedon plans further bolt-on acquisitions ahead as part of its growth strategy. However, it drew the purchase cash price for this deal from its revolving credit facility, so the bulk of the cost was funded with debt.

Borrowings look under control right now, but that’s one indicator to keep an eye on. Nevertheless, Breedon looks well worth the time needed for further research and consideration now. I’d aim to pick up a few of the shares to hold as growth hopefully rolls out in the coming years.

The post This FTSE 250 firm aims to conquer America! I’d consider the stock now appeared first on The Motley Fool UK.

But, thankfully, in this case, the firm looks undervalued to me based on future earnings forecasts. What I like about this is it adds a level of security to the investment. But as I will explain, it’s not all roses.

Building wealth

Breedon Group (LSE:BREE) is a notable construction company in the UK and Ireland, and it provides materials like concrete and gravel. Its business strategy includes the acquisition of other companies and, recently, an expansion into the US.

It marked its entry into North America through the acquisition of BMC Enterprises for $300m. But at the moment, 87.2% of its revenue comes from the UK and 12.6% comes from Ireland. Only 0.2% is from other parts of the world.

I particularly like that the company is asset-backed, which means it has high levels of tangible resources and property. That includes cement plants, quarries, and asphalt plants.

Why I consider it cheap

First of all, the shares have a price-to-earnings ratio of just 12, as I write. Over the past 10 years, the norm has been more like 27.5. That means there’s a potential discount at this time of roughly 56%.

However, I also looked at its future earning potential to get a more grounded understanding of its value. Over the next four years, analysts are expecting a compound annual growth rate for earnings of around 5.3%. That’s slower than usual, and as the British economy improves, I expect that to go up to around 10% on average annually over the next decade.

By putting my forecast into a discounted cash flow model, I estimate the company is trading at around 33% less than its worth. However, even if the firm only manages to grow its net income at 5% over the next 10 years, it’s still 7% undervalued based on my model.

Expectations and risks

While the company has a healthy dividend yield of 3%, over the past 10 years, the shares have only gained 64% in price. That equates to a compound annual growth rate of 5%. Let’s compare that to its broader index, the FTSE 250, but also to America’s S&P 500, which I consider one of the greatest index investments in the world. As we can see, Breedon does quite well:

But the investment is also subject to quite a bit of volatility. Notably, its market is heavily influenced by broader economic pressures. Housing market declines can also result in construction companies having less business. So, I wouldn’t want too much of my money in the shares.

Additionally, because its gross margin and operating margin have been declining for a while, I think we could see the firm’s earnings take a hit if this isn’t rectified. Suppliers are raising prices at the moment, so I can see why Breedon has been struggling.

While I don’t consider this one of the best investments for high returns, it certainly seems good and stable to me, with a promising future. So, it’s on my watchlist, but I won’t be investing in it at the moment.

The post These cheap shares look 33% undervalued with good future growth to me appeared first on The Motley Fool UK.

Company overview

The firm is a leading construction materials company in the UK and Ireland. It provides a range of products and services to the building industry, with core operations in quarrying, production, and sale of aggregates, ready-mixed concrete, asphalt, and cement. It also offers surfacing and contracting services.

Breedon has more than 100 quarries, over 50 asphalt plants, 170+ ready-mixed concrete plants, and two cement plants. It also employs 3,700 people, and management has a focus on generating high levels of profitability.

Long-term growth

Breedon has pulled off significantly strong financial results for over a decade, and my research on the company convinces me this is likely to continue.

_{In £ – Net Income, Yellow – Revenue, Blue – Net Margin, Green – Source: TradingView}

With its balance sheet having more equity than liabilities, that means the firm isn’t over-leveraged, and its growth in the future shouldn’t be overly inhibited by debt repayments.

Also, this investment has a healthy 3% dividend yield right now. And while the share price is down roughly 35% from its high after the pandemic struck, I think this could be the best time for me to buy in.

Exceptional value

I think Breedon Group offers wonderful value for the price it is presently selling at. On the surface, its price-to-earnings ratio is just 12 right now, which is appealing to me.

But also, on a deeper look, I consider the company 38% undervalued based on my discounted cash flow analysis. This takes into account future predicted earnings for the firm and discounts it back to what I estimate as today’s value for the stock.

Over the past 10 years, Breedon Group has maintained 22.5% earnings growth as an annual average. For my calculation, I only need the firm to hit 11% as an annual average for the next decade. I consider that a relatively safe bet.

Investment risks

Now, although I have a favourable view of the organisation’s future earnings potential, I have been made aware of a risk to its profitability.

The firm’s gross and operating margins have been in decline for more than five years. This could in turn have a negative effect on the earnings of the business. Therefore, I know I need to continue to carefully evaluate the firm’s profitability potential on a regular basis if I become a shareholder.

Also, with all of the firm’s revenues coming from the UK and Ireland, there’s some risk that if these countries face an economic downturn, Breedon Group could be severely affected. Compared to other construction companies that are diversified around the world, this is a significant weakness.

I might buy it soon

I am actively looking for great investments outside of the technology sector at the moment. Breedon Group certainly seems like a stable and prosperous choice for me to consider.

This business is high up on my watchlist. I think it’s likely I’ll buy a stake in the group when I next make some investments in March.

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