Stay long Holcim/Lafarge and their sector

Both Holcim and Lafarge are in our Reflation Recovery Basket (and Riccardo is a buyer of Lafarge), and assuming the deal gets through we see further upside. It seems a rather rational departure from their strategies of the past - to acquire at the top (remember Bluecircle?), and we welcome the news not least for the two names involved, but for the sector generally. The synergies generated from these types of deals can be significant and initial estimates pin them anywhere between €800m – 1.5bn, or on a NPV basis a quite significant percentage of market value (+15%). While the combined company would become global leader and could offer cost advantages should efficiencies emerge, consolidation is generally a good thing for a sector and we can’t help wonder if this signals to further acquiescence of French labour unions (if it does, buy more Peugeot). European construction recovery is one of our key themes for this year. In cement/aggregates we are already buyers of Buzzi Unichem, Heidelberger and CRH and elsewhere in the sector we still like St Gobain and Wolseley. Riccardo is a buyer of Vinci as well.