How is the Needle Moving on Two LSE Stocks - Breedon Group & Renew Holdings?

Summary

• Breedon Group's revenue declined by 25 percent year on year in H1 FY2020. The underlying EBIT loss was £0.6 million.
• The business performance was impacted by the shutdown of operations and halt in construction activities due to the pandemic.
• Renew Holdings highlighted an improvement in the business activity and thus expects the adjusted operating profit to be in the range of £39 million and £40 million in FY2020.
• It expects to earn net cash inflow for FY2020 that would be supported by the Engineering Services.

Construction Purchasing Manager's Index (CPI) in the UK was 54.6 in August 2020 against the expected PMI of 58.5. The index depicts the expansion and contraction in construction activity in the UK. Shares of Breedon Group and Renew Holdings were up by close to 0.13 percent and 0.11 percent, respectively from the previous closing price (as on 7 September 2020, before the market close at 10:00 AM GMT+1).

Breedon Group PLC (LON:BREE) - Acquired some assets of CEMEX

Breedon Group PLC is a UK based construction material group. The Group is engaged in the business of Aggregates, Asphalt, Cement and other construction material products. The Group categorizes the business under Great Britain, Ireland and Cement. It owns two cement plants, and it had reserves and resources of close to 900 mt.

Review and Acquisition of assets from CEMEX

On 26 August 2020, Competition and Markets Authority (CMA) announced the result of the Phase 1 review of Breedon Group's acquisition of few assets and operations of CEMEX. The outcome of the investigation is as per the Group's expectation, and some suggested changes would take several months to get implemented. On 3 August 2020, Breedon Group announced that it completed the purchase of assets and operations of CEMEX. The acquired assets would operate under an independent company named Pinnacle Construction Material, and it would be integrated with the Breedon Group once Competition and Markets Authority (CMA) would complete its investigation. Pinnacle Construction provides building materials such as ready-mixed concrete, asphalt and cement. The Company operates at 100 locations in England, Wales and Scotland and it had a mineral reserve of close to 170 tonnes.

H1 FY2020 results (ended 30 June 2020) as reported on 29 July 2020

(Source: Group website)

In H1 FY20, Breedon Group reported revenue of £335.3 million, which declined by 25 percent year on year from £447.4 million in H1 FY19. The underlying EBIT loss was £0.6 million in H1 FY20 against underlying EBIT of £49.5 million in H1 FY19. The loss per share was 10.1 pence. As on 30 June 2020, Breedon Group had net debt of 253.6 million. The Group's performance was resilient for the first 12-weeks in H1 FY20, but it was negatively impacted when the lockdown was imposed. Breedon Group closed the majority of its operations by the end of March 2020 that resumed operation in May 2020. The demand started to recover slightly in May 2020, and the recovery continued in July 2020.

Performance by Segment and Product Volumes in H1 FY2020

Great Britain division reported revenue of £214.9 million in H1 FY20, which fell from £298.1 million in H1 FY19. Ireland division's revenue declined from £93.5 million in H1 FY19 to £69.2 million in H1 FY20. Cement segment generated revenue of £75.6 million in H1 FY20. The Group produced 8.0 million tonnes of Aggregates that declined by 19 percent year on year in H1 FY20. Asphalt production fell by 28 percent year on year to 1.0 million tonnes. Production of Cement was 0.8 million tonnes, and Concentrate was 1.0 million m³. Cement and Concentrate fell by 36 percent and 22 percent, respectively year on year.

Share Price Performance Analysis

1-Year Chart as on September-7-2020, before the market close (Source: EODHD/Others, Thomson Reuters)

Breedon Group PLC's shares were trading at GBX 79.10 and were up by close to 0.13 percent against the previous closing price (as on 7 September 2020, before the market close at 10:00 AM GMT+1). BREE's 52-week High and Low were GBX 101.50 and GBX 56.00, respectively. Breedon Group had a market capitalization of around £1.33 billion.

Business Outlook

Breedon Group highlighted that as per the Construction Products Association (CPA) the construction activity in the UK is expected to decline by 25 percent; however, the activity would improve by 25 percent in 2021. The sales volume for all products is expected to fall in the range of 20 percent to 30 percent in 2020. The investment by the UK government in the infrastructure projects would support the recovery in the construction market going forward. The ongoing construction in the Republic of Ireland would decline by 38 percent in 2020, but it would improve by 18 percent in 2021. The Irish National Development Plan would support future construction output.

Renew Holdings PLC (LON:RNWH) - 80 percent of the activities remained operational during the pandemic

Renew Holdings PLC is a UK based group that provides maintenance and support services to the infrastructure projects in the UK. The Group categorizes the business under Engineering Services and Specialist Building. Some of the brands under the portfolio include Carnell, QTS, Lewis and Clarke Telecom.

Trading update as reported on 4 September 2020

The business activity had improved from May 2020 when the Group posted its half-yearly results. Given the uptick in the performance, in FY20, the Group expects the adjusted operating profit to be in the range of £39 million and £40 million. The new forecast is above the current market's expectation. The Engineering services provided by the Group to the rail and infrastructure projects were considered essential by the UK Government, and hence they were not impacted. The demand in the Engineering services division was resilient. The operations at the Sellafield and Springfields facilities were suspended in March 2020, and they would not be fully operational before 2H FY21. The Group acquired Carnell in January 2020, and the business has integrated well with the existing business. Renew Holdings expects to generate a net cash inflow at the end of FY20.

H1 FY2020 results (ended 31 March 2020) as reported on 19 May 2020

(Source: Group website)

In H1 FY20, Renew Holdings reported revenue of £313.6 million, which improved from £301.0 million in H1 FY19. Based on segment revenue, Engineering services was up by 4 percent year on year to £293.1 million, and Specialist Building revenue was up by 6 percent year on year to £20.5 million in H1 FY20. During the pandemic, 80 percent of the activities remained operational. The adjusted operating profit was £19.9 million, with an operating margin of 6.4 percent in H1 FY20. The adjusted earning per share improved from 19.2 pence per share in H1 FY19 to 20.1 pence per share in H1 FY20. As on 31 March 2020, Renew Holdings had net debt of £16.1 million, and it suspended the interim dividend for H1 FY20. The order book was £690.0 million at the end of March 2020, of which Engineering services included £591.0 million.

Share Price Performance Analysis

1-Year Chart as on September-7-2020, before the market close (Source: EODHD/Others, Thomson Reuters)

Renew Holdings PLC's shares were trading at GBX 464.50 and were up by close to 0.11 percent against the previous closing price (as on 7 September 2020, before the market close at 10:00 AM GMT+1). RNWH's 52-week High and Low were GBX 570.00 and GBX 304.00, respectively. Renew Holdings had a market capitalization of around £364.50 million.

Business Outlook

Renew Holdings highlighted a slight uptick in the business performance, and thus it expects the adjusted operating profit for FY20 to be above the market's current expectation. The Group is hopeful over the UK government's investment of £640 billion on the infrastructure projects over the next five years. It is currently re-mobilizing the non-operational activities in line with the government's recovery strategy.