Wagners Holding Company Limited (Wagners, the Company, ASX: WGN) listed on the ASX in December 2017, and has been in business since 1896 when the Wagner family established a stone masonry business in Toowoomba. The Company produces and sells construction materials and is the largest independently owned cement manufacturer and supplier in South East Queensland, supplying about one third of the market’s cement requirements.

Vertically integrated business model

The key to appreciating Wagners’ sustained history of profitable growth over a lengthy period is to understand the Group’s vertically integrated business model.

The business comprises three segments: Construction Materials, Project Services, and Composite Fibre Technologies. Each segment complements and supports the other two, by working together to provide a reliable and broad service offering to customers. This integrated business structure provides security of supply and superior service quality that enhances profit margins. This positions the Group to earn higher shareholder returns in the years ahead.

The Construction Materials segment delivers about 44 percent of revenue and 57 percent of EBIT and includes cement, concrete and quarries, aggregates and reinforcing steel businesses.

Project Services accounts for 42 percent of revenue and 33 percent of EBIT and is a contracting business that encompasses bulk haulage, precast, mobile crushing, and concrete services. These businesses are subject to more revenue variability than the Construction Materials segment.

Composite Fibre Technologies is an innovative composite product that is sought by customers seeking to reduce input construction costs, increase energy efficiency and improve environmental sustainability. This segment accounts for 14 percent of Group revenue and less than 1 percent of FY24 EBIT as it incurs development costs to establish its presence in the US market. The segment is performing well in the domestic market but was negatively impacted by an unfavourable custom-built project in New Zealand in FY24, resulting in a material project loss.

Expanding concrete plant network

The concrete business, which sits within the Construction Materials operating segment of the Wagners Group, is currently doing record volumes in response to the robust civil infrastructure pipeline in South East Queensland. Demand for concrete is being driven by sustained population growth and the 2032 Olympic games which will require significant construction materials to deliver on the infrastructure requirements for the games.

Wagners have identified sites for 2 new concrete plants in South East Queensland. This is in addition to the 8 currently operating plants. The new plants are in various stages of development and are expected to be in operation post FY25.

Significant capital upgrades at Wellcamp and Castlereagh Quarries are in train and are expected to result in improved margins as the production capacity and related efficiencies are realised. Wagners is also expanding its transport fleet that enables efficient and reliable delivery of cement and aggregates to its concrete plants.

International manufacturing facilities

Wagners has established itself as an international supplier of construction materials and services and now has international manufacturing facilities in the US and the UK. In FY24 Wagners delivered 25 Composite Fibre Technology (CFT) projects in the US, Canada and UK, using its proprietary fibre technology in the civil engineering construction industry.

These Wagners CFT products will not rust or corrode and ensure a superior strength-to-weight ratio and are a cost-effective and durable solution for civil engineers, especially when facing environmentally sensitive or challenging terrain.

Medium-term outlook

Deep value investors, when shopping for share market opportunities, look for value rather than glamour. This means they choose their investments the way they would buy groceries for example, and not the way they would buy perfume.

There is nothing particularly glamorous about concrete.

The sustained future demand for significant volumes of concrete, quarry materials and transport services to deliver them to site, should result in steady growth in Wagners earnings for at least the next five years.

Wagners is well positioned to benefit in the lead-up period to the 2032 Olympic games and from the continuing favourable resources environment across Queensland and the Northern Territory. These factors combined with an active housing construction market should provide support to the Wagners share price over the medium term.