Thursday newspaper share tips: Cement company on the block makes Breedon worth a buy

Breedon Aggregates’ proposed purchase of Hope Construction Materials has got The Times’ Tempus interested.

The company agreed to take over its retail rival for £336m from current owner Cortolina Investments, a Mittal family compant, in a conditional agreement announced on Wednesday. Breedon said it will create the UK’s leading independent producer of cement, concrete and aggregates.

Tempus reminded readers that it is not the first time Breedon has been looking at these particular assets that fell away from the merger of Anglo-American and Lafarge. The company was small but growing fast, but didn’t match the £285m that Mittal Investments was prepared to pay for it in late 2012.

Speed forward to 2015, and this deal is structured so that Mittal gets an 18% stake in the company, having participated in a placing to raise £41m to keep borrowings low. Breedon gets the company’s cement assets, including a Derbyshire works linked to the rail network, which allows access to a strong southeast market.

With the deal in the works for a number of years now and the new ability for Breedon to compete with bigger players, Tempus recommended it is a share to buy.

In The Telegraph, Questor advised it’s worth holding on to shares in Avon Rubber as orders for gas masks from emergency services and the military increases.

The company, which is a specialist in designing and manufacturing gas masks and breathing systems, is the sole provider to the US Department of Defense. Questor noted the 10-year deal, which it is halfway through, provided steady revenues and helped group revenue jump 8%.

While gas masks a generate around 80% of the company’s profit, Questor couldn’t ignore the other side of the business – dairy. Avon Rubber makes rubber suction systems used to milk cows, and that side of the business had a resilient year, despite farmers’ budgets being under pressure.

After recommending traders buy shares in the company as one of its tips of the year in January and with more dividends on the way, Questor believes it’s worth holding on to these shares.

And in The Financial Times, Lex had a look at the impact of Energy Secretary Amber Rudd’s new policy to phase out coal power by 2025 and how it might affect Drax.

The minister said the move is part of the Government’s determination to cut carbon emissions and will make the UK one of the first developed countries to commit to taking coal power offline.

“It cannot be satisfactory for an advanced economy like the UK to be relying on polluting, carbon intensive 50-year-old coal-fired power stations," she said.

Lex noted that shares in Drax, the owner of Europe’s largest coal-fired power station, fell 4% on the news after already losing nearly two-thirds of its value this year. It pointed out the Government’s move away from coal has been obvious for some time now, which is why Drax has been converting its power plants to biomass-fuelled.

Two of their three converted units are also eligible for “renewables obligation certificates” which pay around £45 per mWh for the next 12 years. The third plant could be eligible for the “contracts for difference” regime, valued at around £95 per mWh.

Lex said that the company isn’t doomed despite falling profits this year and next year, and if Drax can navigate state aid obstacles and persuade the Government to support biomass, then earnings and the share price will rise.