Davy Morning Equity Briefing
Jul 26, 2024
Holcim
Margins continue to expand
Against a difficult volume backdrop in many of its markets, Holcim has delivered credible margin improvements and maintains positive momentum in that respect. In our view, full-year recurring EBIT estimates are unlikely to change materially but investors will appreciate the business’ higher margin profile.
Saint-Gobain Group
Maintaining a positive price-cost spread
The maintenance of positive price-cost spreads at Saint-Gobain is reflective of a favourable cost backdrop and a more commercially-minded entity. On top of this organic momentum, we have been impressed by the speed and quantum of Saint-Gobain’s M&A in the first half, which should provide benefits into 2025.
discoverIE
Q1 tough, as expected, but improving orders are encouraging
Q1 has proved to be tough, as flagged at the prelims in June, and destocking at the largest OEM customers looks to be continuing into the summer. However, the book-to-bill returning to >1.0 and orders returning to growth give us confidence in H2 recovery, and the Board has reiterated its FY25 expectations. We are therefore leaving our forecasts unchanged and reiterate our ‘Outperform’ rating and 915p price target.
IMI plc
Hitting the (growth) target
IMI has delivered interim results in line with our expectations. The 5% organic revenue growth hit its target rate and continues the recent trend of steady improvement. Full year guidance has been maintained despite increased FX headwinds, partly aided by the benefit of a new £100m share buyback announced today. CFO Dan Shook to leave in mid-2025 was the surprise news. We reiterate our ‘Outperform’ rating and see scope for minimal movement in consensus FY expectations. A results webcast will take place at 08:00.
Greencoat Renewables
Continued strong delivery in Q2
While its peers’ portfolio valuations have been in ‘reset mode’ of late following stronger-than-expected net asset value (NAV) growth in 2021 and 2022, Greencoat Renewables (Greencoat) has created value along a steadier and more predictable trajectory. This is the case again in Q2, with NAV increasing by 0.5c/share to 112.1c/share. The portfolio continues to deliver as it is designed to do. The investment case looks strong for several other reasons. Firstly, NAV growth is supported by strong cash generation (2.4c/share on an underlying basis in the Q2 period). Secondly, its recent data centre power purchase agreement highlights the strategic value of the portfolio as demand growth for renewable power generation outstrips the growth in supply. Finally, at the current share price, it offers a sector-leading returns opportunity – its levered portfolio discount rate corresponds to an equity risk premium of 8.0% (sector average 6.5%).
