Holcim US spin-off attempts to lay foundation for boosting valuation

Can financial engineering lead to a sturdier company? Holcim AG, the Switzerland-based building materials group, thinks so. Its portfolio includes aggregates, cement, concrete and increasingly roofing products. On Sunday it announced that it would separate its ascendant US business, via spin-off, from the global group by mid-2025. Holcim’s current enterprise value is $56bn. 

Holcim thinks its standout US business, now currently 40 per cent of group sales, can command a higher valuation in line with American peers. Such gambits are not uncommon these days and aim to defy the physics of corporate finance.

Holcim will not immediately garner any cost efficiencies. Indeed, overheads may rise given duplicated management teams. Still, there is the lure of the US’s resilient economy and deep capital markets.

The US was just a quarter of Holcim’s business a few years ago. Its current US ebitda margin of 27 per cent exceeds the rest of the company. A US federal government that is borrowing and spending heavily in infrastructure, renewable energy and the reshoring supply chains helps.

Holcim has also cited the housing shortage as a driver of its newer roofing offerings. The US alone accounts for a significant 5 percentage points of the group’s overall organic growth, a boost that Holcim says could persist for a decade.

European industrial rivals CRH and Ferguson, both with substantial American divisions, have recently shifted or added a US listing in the hope of boosting their valuations. The gap between US companies and international ones remains significant.

As examples, the share prices of Martin Marietta Materials and Vulcan Materials have more than doubled in the past five years. Holcim’s shares, despite fine operational results, are only up 40 per cent. Martin and Vulcan each trade at about 15 times their forward ebitda, roughly double the multiple of Holcim.      

Holcim shares rose around 5 per cent on Monday. By 2030, the separated US business is forecast to be around 60 per cent of the broader Holcim group. At the valuation multiples of its US peers, this spin-off could be worth up to $35bn.

Holcim says it can avoid valuation leakage at the remaining company by attracting those investors who prefer cash flow directed towards buybacks and dividends, rather than just growth.

The US, at least in financial markets, is steadily drawing away from the rest of the world, and especially Europe. Engineering, financial or otherwise, can look attractive from without. But Holcim will need to be vigilant about the costs of its internal wiring and plumbing too.