Here’s how you can buy one of Thatcher’s buccaneering businesses

Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest

Saying goodbye to a successful listed company is something the London market has had to do all too regularly over the past couple of years.

Abcam, the protein research firm; logistics group Wincanton; video services company Keyword Studios; gold miner Centamin – take your pick from the clutch of businesses that have been snapped up by predators, even in the short time since the pandemic.

But quickfire takeover deals are not a new phenomenon and are arguably par for the course when the pound is weak and the dollar, often the acquisition currency, is strong. What has changed, though, is the wide availability of and relatively cheap costs associated with buying into foreign shares.

It now means that, if an overseas acquirer is listed, investors can more easily follow the money when their company falls prey to a foreign bid.

Take Heidelberg Materials as a case in point. Way back in 2007, the Germany-based building materials group, then known as Heidelberg Cement, splashed out £8bn buying Hanson, a former conglomerate that had become legendary for its buccaneering spirit during the Thatcher years.

The acquisition marked the departure of what was then the last remaining significant heavy materials group on the London market and a huge supplier of raw materials to the construction industry. For Heidelberg, it was a big expansion and turned it into the world’s largest producer of aggregates, a key component in concrete and asphalt.

Faced with the same takeover today – no matter that it was a cash deal – and investors could much more easily stick with their prized asset: the shares are available through the UK’s main stockbrokers, though buyers should check for additional charges and taxes.

Unsurprisingly, the latter-day Heidelberg Materials has moved on substantially since the Hanson deal, expanding in key markets, including Asia and Africa, and making a further notable acquisition – a large stake in Italian group ItalCementi. As well as being number one in aggregates, the group is the number two in cement and number three worldwide as a producer of ready-mixed concrete.

With its main listing in Germany, it has a market value of €22.3bn (£18.5bn) and last year made pre-tax profits of more than €2.8bn on revenues of nearly €21.2bn.

Luiz Sauerbronn, director of investments at Brandes Investment Partners, has held shares for several years. He says: “We believe the company has changed its focus from empire-building to a more consistent and rational allocation of capital with a steadily improving return on invested capital.

“The company has low financial leverage, generates strong free cash flow and trades at modest multiples of mid-cycle flows that do not seem to reflect its strengths and opportunities.”

Sauerbronn is also betting demand for building materials will be bolstered by heavy spending on infrastructure, particularly in North America, and reckons Heidelberg Materials will gain from the significant initiatives it has undertaken to reduce its carbon emissions, in what is a CO2-intensive sector.

Sauerbronn is among the world’s best-performing fund managers, sitting in the top 3pc of more than 10,000 monitored by financial publisher Citywire. He is one of nine top investors that back Heidelberg Materials, helping to give it a AAA rating from Citywire Elite Companies, which rates businesses based on their ownership by the world’s best investors.

He has a point about the company’s valuation. Shares in Heidelberg Materials trade at just 9.7 times this year’s forecast earnings. The shares also offer a forecast 2.9pc dividend yield for the coming year rising to 3.3pc the year after.

Earnings are also growing at a clip, despite the ebbs and flows of a construction sector that is notoriously exposed to the fluctuations of economic cycles. Annualised earnings per share (EPS) growth of 12pc is predicted over the next two years. That puts the shares on a price-to-earnings-growth (PEG) ratio of just 0.8. Normally PEGs of 1 and lower are considered cheap.

Net debt meanwhile is falling and represents just 1.3 times earnings before interest, tax, depreciation and amortisation. This looks like a worthwhile long-term play that is worth venturing to foreign shores for.

Questor says: buy
Ticker: ETR:HEI
Share price: €122.55

Miles Costello is a contributing journalist to Citywire Elite Companies

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