Barclays Recommendation: Most Worthwhile Building Materials Stocks to Buy Amid Return of Energy Inflation

Investing.com – Rising energy costs and soaring inflation expectations are reshaping the investment landscape for European building materials stocks, Barclays says. The old investment strategies are no longer applicable; investors need to be more selective, favoring companies with proven pricing power rather than entire sectors.

Rockwool is rated as “Overweight.” The company is in the energy-intensive end of the building materials sector, with energy costs accounting for 21% of revenue— the highest within Barclays’ coverage. However, this vulnerability is precisely the foundation of its pricing power.

During the 2022 natural gas crisis, Rockwool demonstrated its ability to pass cost increases onto customers, even overshoot. Today, the company is better positioned than most peers to replicate this feat.

About 75% of its natural gas and electricity exposure in the first two quarters has been hedged, providing near-term profitability visibility amid evolving energy conditions.

Holcim is rated as “Overweight.” It has the lowest energy exposure among cement companies, at around 8% of revenue, with a conservative hedging structure that locks in 60-70% of energy costs through long-term electricity contracts.

The company’s exposure in the Middle East is minimal, about 1.5%, limiting its direct vulnerability to current conflicts.

Barclays believes that even if a new wave of energy costs hits, Holcim can maintain the high pricing gains achieved after the 2022 inflation cycle.

Heidelberg Materials is also rated as “Overweight.” Its exposure in the Middle East is less than 2%, and it has no local operations in the region, reducing direct geopolitical risks.

The company hedges 50-60% of its energy exposure with forward contracts, with the rest based on spot prices. This means it remains somewhat sensitive to natural gas price fluctuations but has established meaningful buffers.

Like its cement peers, Heidelberg demonstrated its ability to actively pass through cost inflation in the last cycle. Barclays believes this pricing discipline has now been structurally reinforced.

Vicat is rated as “Overweight.” It typically engages in 6-9 month forward hedges but secures most of its energy needs through long-term contracts, giving it one of the most resilient cost structures among cement companies.

Its sales exposure in the Middle East is less than 5%, with no local operations there, making it relatively less affected by current geopolitical turmoil.

Barclays sees Vicat as a beneficiary of the structural pricing narrative across the cement sector, with its long-term supply arrangements providing additional security.

Saint-Gobain is rated as “Overweight.” Its focus on market share concentration in core product categories makes it one of Barclays’ preferred building materials stocks. The bank believes this enables it to maintain strong pricing power in key markets.

Natural gas accounts for about half of its energy bill, with over 50% of its exposure hedged for the year, providing meaningful near-term cost protection.

If current energy disruptions persist and accelerate Europe’s energy efficiency agenda, Saint-Gobain will also benefit from significant long-term demand tailwinds.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.