More on Aggregate Industries
Aggregate Industries
Construction company Aggregate Industries reported a 14% growth in turnover and a 4% growth in operating profits for the year to December 2005.
Aggregate Industries is primarily involved in the supply of construction aggregates (primarily crushed stone, sand and gravel). The company also supplies building materials (ready-mixed concrete and precast concrete products) as well as asphalt and contracting services.
The Company’s primary markets are the United Kingdom and the United States. The Company operates 142 quarries with over 5.1bn tons of reserves, 164 ready-mixed concrete plants, 90 asphalt plants and 32 precast concrete factories across the United Kingdom and the United States. The UK accounts for 58% of operating profits, the rest coming from America.
Mineral reserves are the life blood of any aggregates based company. The company’s mineral reserves stand at 5.1bn tonnes of which 3.65bn tonnes are consented, the majority of which are freehold. This represents an average life of more than 50 years.
Market conditions in the US were generally positive although this was balanced by weaker demand in the UK. A number of acquisitions in the UK and the purchase of Frehner Construction Company in the US (which serves the buoyant Las Vegas market) have helped sales growth. The US market accounted for almost 43% of operating profits last year and the weakness of the dollar is estimated to have cost the company £9m.
Sales in the UK have been particularly slow (profits in the UK business grew by only 1.3%) and Aggregate depends heavily on the US market for growth. While the housing market in the US is better than in the UK the possibility of a crash in the US market cannot be ruled out, given the relatively high level of house prices. The US business faced increases in costs, particularly in cement and hydrocarbons (due to high oil prices) although much of this was passed on to customers.
Riding the back of a housing boom and bolstered by acquisitions (17 last year at a cost of £98m), Aggregate has performed well recording several years of growth. Cashflows are strong and can fund future acquisitions. With the construction market slowing, the company is focusing on cost control and further acquisitions to maintain growth. A takeover offer by Holcim, the world’s second-largest cement maker (at a price of 138p plus a dividend of 2p) has pushed the share price to its current level.
Trading on a PE of 16.3x (at 139.75p) the stock is at the top end of the sector range but the takeover by Holcim may open some trading opportunities. The yield is 2.2%
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