Vulcan Materials (VMC) produces construction aggregates and other construction materials. Sellers Capital thinks the company is worth US$85 a share, compared to a current share price of US$75 (compared to US$70 when the original analysis (pdf) was done).
The US$85 estimate is the expected value from three scenarios
- Pessimistic: US$60 a share with 30% probability.
- Most likely: US$90 a share with 55% probability.
- Optimistic: US$105 a share with 15% probability.
Summary of their investment thesis:
- Aggregate is a wide moat business.
- America’s infrastructure is poor and needs a investment of US$1.6 trillion according to the Society of Civil Engineers.
- Worst case is flat growth for building infrastructure.
- Demand for aggregates not dependent on residential housing.
- The last three decades has seen growing volumes in aggregates.
- Scarcity = increased pricing.
Perceived Problem: Volumes will decrease due to lower public expenditures and bad housing and commercial markets, and prices will decline.
Sellers Capital View: Volumes will decline slightly, pricing will be stable to increasing.