RMC swept higher by lure of east

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The Independent Online
RMC is a bellwether for the UK building materials sector, dominating the ready-mixed concrete market as well as areas as diverse as sand and gravel and builders' merchanting.

But it takes more than a favourable climate for building and construction to explain the near 33 per cent outperformance of the shares against the sector in the past year. Despite a 22p fall to £10.24 yesterday, they remain near their all-time high.

RMC's profits have stood up well during the recession and yesterday's results bear witness to RMC's continuing qualities. Pre-tax profits up 59 per cent to £283m were struck on turnover that advanced just short of 19 per cent to £4.16bn in the 12 months to December.

As RMC is a large player, the effect of the industry's recovery from its trough in 1993 was always going to be substantial. In the UK, profits more than doubled to £71.6m. Margins benefited from a virtuous circle of price increases of between 6 and 7 per cent across the range of products, allied with much higher volumes. In concrete and sand and gravel, these were typically 10 to 11 per cent higher.

But Germany remains the powerhouse of the group and where the most promise lies. The company will have invested around £500m over a period of five years when the giant Rudersdorf cement works near Berlin comes fully on stream later this year.

One of the largest operations in Europe, it will put the company in prime position to cash in on the boom in construction in eastern Germany that has followed the collapse of the Berlin Wall.

Last year, a capacity-constrained RMC raised cement volumes by nearly a fifth in eastern Germany, where demand rose a quarter. That helped drive German profits ahead by £27.1m to £173m. The new plant will not necessarily solve the capacity problem this year, according to RMC's chairman, Jim Owen. Volumes are expected to increase around 10 per cent against a 15 per cent rise in the market, while prices continue to suffer from cheap dumping from Poland.

That is likely to make growth less spectacular in 1995. The company is also cautious about the home market. It is early days to see if recently posted price rises of up to 7 per cent will stick and the gloomier housing market is likely to restrain volume growth in the UK market this year.

With David Mathers of James Capel forecasting profits of £338m for 1995, the shares stand on a prospective multiple of around 12.5. That looks high enough for now, but the shares should be held for the good long-term growth prospects in Germany.