The construction sector survived the corona pandemic surprisingly well. Despite economic uncertainty and declining consumer confidence, demand for houses, for example, remained high and house prices rose to unprecedented levels.
But since a few months, concerns have started to arise among builders. Steel prices are rising, timber supplies from Eastern Europe are stagnating, cement is becoming scarce. And will it perhaps even be more lucrative for transport companies to transport coal instead of gravel for concrete?
The fall in share price of construction company Heijmans from Rosmalen, a Midkap fund, is therefore not unique. The geopolitical developments and economic uncertainties are reflected in the entire stock market.
And things finally went well for Heijmans, as analyst André Mulder of Kepler Cheuvreux calls it, a ‘black situation’. The lowest point was 2016, in which Heijmans suffered a loss of 118 million euros. “I thought for a moment: it’s over and over. The banks are taking over Heijmans,” says Mulder. But the company’s board convinced the banks that the builder would get out of trouble on its own. And it worked.
Various problem projects, such as the new construction for the National Institute for Public Health and the Environment and the Wilhelmina lock in Zaandam, were subsequently completed. At least, “one a bit more positive than the other”, according to Mulder. A conflict with Tennet is the last remaining headache for Heijmans. We are waiting for a possible damage claim from the power grid operator. Mulder does not expect the outcome of the conflict until next year. “If this last spot is gone, we can really speak of a clean operation again, because the results are recovering well and the balance is in order.”
Acquisition
The results are indeed good: last year Heijmans made a profit of 30 million euros. This gives air to the business operations and made the company decide to redeem cumulative preference shares. It had to pay a dividend of 7 percent on this relatively expensive form of financing.
In addition, Heijmans made an acquisition for the first time since the malaise – after divesting business units in Germany, Belgium and the United Kingdom. The builder takes over Dynniq Energy, a Dutch electrical company. This concerns a strategic acquisition with a view to the energy transition. Think of the construction of heat networks and increasing the capacity of electricity networks. “Thanks to the acquisition, we are even better positioned in this growth market”, said Chairman of the Board Bart Smolders of Heijmans Infra against it The Financial Times†
The various pillars under the construction company provide some stability in the current uncertain economic situation. Mulder: “Private construction in particular is responding strongly to the waves of the economy. Public construction, driven by longer-term government spending, is less volatile.”
Construction company Heijmans also relies on infrastructure projects. In general, the government is also the financier of this. As a result, this pillar is much more stable than the cyclical housing market. Mulder: “Infra can now quietly ripple through the government’s long-term projects.”
And what about the restrictions that the national nitrogen policy means for construction? “Still a point of attention,” says Mulder, “but to be honest, it has been pushed to the background. The current cost increases are a bigger problem.”
A version of this article also appeared in the newspaper of May 23, 2022