Breedon - on course for net zero

Summary

SBTi approved emission targets. In November 2024 Breedon announced SBTi validation for its near-term (2030) and net-zero (2050) GHG emission reduction targets.

Peak Cluster CCUS project. Breedon is a key partner in the highly significant Peak Cluster CCUS project which aims to decarbonise 40% of all UK cement and lime production. This project will be instrumental to Breedon and the UK cement industry reaching net-zero by 2050. 

Attractive investment proposition. We think investors should be encouraged by initiatives to eliminate GHG emissions and Breedon’s stretching SBTi approved emission reduction targets. Breedon offers balance sheet strength, exceptional free cash-flows, and reasonable stock valuation. The current share price of 323p gives a forward PER of 10.7x and dividend yield of 4.5% (using 2025 consensus forecasts) and a trailing free cash-flow (FCF) yield of 8%.

Investment proposition

Breedon has a long track record of management stability, efficient operations and profitable growth. Underlying EPS has grown by a CAGR of c.15% over 10 years (2014-2024), driven by organic market share gains and accretive acquisitions, most recently in the US.

Earnings have progressed well over the last 5 years with underlying EPS growing 36.5% between pre-pandemic 2019 and 2024. This is despite recessionary demand conditions over the last 2 years in Breedon’s largest market, Great Britain (53% of 2024 group revenues, pro forma to include acquisitions made this year).

The shares look inexpensive to us on a forward PER of 10.7x, particularly in light of the current downturn in UK construction demand, which is acting as a drag on revenues and profits.

Cement production makes up c.20% of group product revenues (2024 pro-forma) and accounts for the bulk of Breedon’s GHG emissions. This is clearly challenging; however, management has secured SBTi approval for its near-term (2030) and net-zero (2050) emission reduction targets with the latter exceeding the SBTi Corporate Net-Zero Standard.

We like Breedon’s growing use of alternative (i.e. non-fossil) fuels in cement production (48% penetration in 2024) and its commitment to CCUS as part of the Peak Cluster collaboration. We think Peak Cluster could be a game changer in eliminating GHG emissions at Hope Cement, Breedon’s sole UK cement plant and the largest in the UK, based in the Peak District.

source: MPA

SBTi approved net-zero targets

In November last year, SBTi validated and approved Breedon’s 2030 (near term) and 2050 (net-zero) GHG emission reduction targets.

From a 2022 base year, Breedon aims to reduce gross Scope 1,2 and 3 (purchased clinker and cement only) emissions by 23% by 2030. This is below the SBTi Corporate Net-Zero Standard of 50%, however we note that the cement industry has a sector specific standard which allows for a notably slower pace of decarbonisation. Progress has been impressive with emissions falling by 15.9% between 2022 and 2024, excluding acquisitions.

Breedon aims to reduce gross Scope 1,2 and 3 (purchased clinker and cement only) emissions by 95% by 2050, which exceeds the SBTi Corporate Net-Zero Standard of “over 90%”.

Most cement emissions are created by the chemical process of heating raw materials (limestone and clay) to c.1400 degrees centigrade in large rotary kilns, thus creating ‘cement clinker’. It is very difficult to reduce these emissions without physically replacing the raw materials with alternatives. Although low-carbon cements such as pozzolanic cement (click here) do exist they tend to be commercially limited and lack of universal suitability.

The chemistry and economics of cement manufacturing explains why Breedon’s decarbonisation drive really kicks in post-2030. We expect the targeted 95% emissions reduction (2022-2050) to be driven by a) a continual switching of energy supplies from fossil fuel to renewable sources, and b) the rollout of CCUS technology to capture and permanently store emissions generated by the clinker production process.   

What about post-2050? SBTi require organisations to plan for capture and storage of all residual unabated emissions in their value chains after their 2050 net zero emissions targets are achieved.  Only when this secondary mission is achieved can organisations claim to be truly net zero (source: SBTi Academy course 2, slide 46). Peak Cluster certainly goes a long way to help Breedon achieve this, and management has also stated that any remaining unabated emissions will be offset by the purchase of carbon credits and/or by utilising carbon negative operations within the Breedon Group.

Peak Cluster CCUS

Cement accounts for 7.5% of global man-made CO2. It is the primary component of concrete, the world’s most widely used building material. De-carbonising cement production is vital to global net-zero.    

The Peak Cluster CCUS project aims to decarbonise 40% of all UK cement and lime production and is forecast to handle 3m tonnes of CO2 per annum. It is a collaboration between industry (primarily Breedon, Holcim, Tarmac and Sigmaroc) and Spirit Energy, a company set up to repurpose expired gas fields in the Irish Sea to store c.1bn tonnes of captured carbon. As part of this project, Breedon will install carbon capture technology at its Hope Cement site.  

£60m of funding has been committed to Peak Cluster to date which covers costs associated with the initial design/engineering/planning works. Of this, £31m has been pledged by the industry partners and £29m by the UK government’s National Wealth Fund.

source: peakcluster.co.uk

Stock valuation and UK demand recovery

At the current share price of 323p, Breedon trades on a forward (2025) PER of 10.7x and dividend yield of 4.5% (using 2025 consensus forecasts of 29.9p and 14.6p for underlying EPS and DPS, respectively). This looks very reasonable to us and even more so given that earnings have been cyclically suppressed by recessionary conditions in UK construction markets.

Any sustained recovery in construction demand (e.g. from higher UK house build volumes) will inevitably instigate a new earnings upgrade cycle for Breedon (analysts nearly always underestimate the power of operational gearing when the cycle turns!) which could well catalyse share price performance.

Breedon excels in generating cashflow. Over the last three years (2022-2024) underlying FCF has averaged £92.5m per annum. At the current share price this implies a rather attractive trailing FCF yield of c.8%.    

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