From Brink of Default to Fund Manager Favorite, Dutch Builder Deserves Notice

The Construction Sector in Europe: A Tale of Resilience and Recovery

The construction sector in Europe has experienced a rollercoaster ride over the years, much like its counterpart in the UK. This volatility is driven by similar challenges, including a high number of heavily indebted companies operating on very thin margins. Rising costs and uncertainty about government funding for new projects have further complicated the landscape.

Despite these challenges, the Stoxx Europe 600 Construction & Materials index has shown impressive growth, rising nearly 70% over the past three years, including dividends. This growth has been fueled by a growing belief that lower interest rates and stabilizing costs will lead to a recovery in both residential and commercial property markets. Additionally, government commitments to invest heavily in energy infrastructure have contributed to this positive trend.

Within this broader context, certain companies have stood out with exceptional returns. One such example is Heijmans, a Dutch construction and infrastructure company. Over the past three years, its shares have delivered a better-than-sixfold total return. While the supportive market environment has played a role in this success, the primary driver has been a self-help recovery program initiated over eight years ago when the company was in crisis.

At that time, Heijmans was struggling with four consecutive years of losses, primarily due to several large underperforming contracts. In 2017, the company faced the risk of breaching its banking covenants and had to engage in difficult negotiations with its lenders. However, Heijmans took decisive action. It sold off its businesses in Germany and Belgium, retrenched to its home market of the Netherlands, and focused on its core strengths: developing properties, building homes and offices, and infrastructure. The company also implemented measures to improve its returns and reduce debt.

The result of these actions is a company that is now performing at its best. Over the past three years, Heijmans has reported steadily increasing revenues and growing profit margins. It has virtually eliminated its debts and is expected to end 2025 with net cash. This improved financial position has allowed the company to increase cash returns to shareholders while also pursuing strategic acquisitions, such as the recent purchase of regional Dutch builder and developer Van Gisbergen.

Heijmans has attracted the attention of many top-performing investors. Ten fund managers, each among the top 3% of over 10,000 professional investors tracked by Citywire, hold stakes in the company. This level of institutional interest has led Citywire to award Heijmans its top AAA Elite Companies rating, highlighting the strong backing from top fund managers.

Investors interested in Heijmans can access its shares through UK stockbrokers. Prospective buyers should ensure they complete forms to minimize withholding tax and check with their provider for any additional dealing charges.

The Dutch property market shares similarities with the UK, including a chronic housing shortage where construction has not kept pace with demand. Rising wages and low unemployment have driven sharp increases in demand. Unlike the UK, however, house prices in the Netherlands are rising rapidly, with some analysts forecasting a near 9% increase this year. This is beneficial for Heijmans, which has a land bank capable of building 37,800 homes.

The Dutch commercial property market also showed signs of recovery last year, with experts predicting increased investment in offices over the next two years. Despite the significant rally in its shares last year, Heijmans remains relatively good value. The stock trades on a multiple of just over 11 times this year’s forecast earnings and offers a prospective dividend yield of 4.5%.

With analysts anticipating healthy increases in both revenues and profits, Heijmans continues to attract some of the world's best professional investors. This column sees strong potential in the company and recommends it as a buy.

Ticker: AMS
Share price: €55.85