EUR 300.00 For Business Accounts Only

Titan Cement | At a good entry point

Trading update for the 5M 2020 suggests resilient operations – As per the recent trading update for the 5M 2020, the impact from the pandemic so far was milder than initially feared. During this period, the group's sales stood at €641.8mn, lower by 2% y/y, EBITDA came in at € 97m, up by 5.5% y/y, while net income stood at € 3.5mn vs € 3.8mn during the same period a year ago. Net debt stood at € 866mn, higher by € 30mn vs YE 2019, FCF at € 19mn vs € 9mn in 2019, while the group maintained a strong liquidity position in excess of € 400mn (in cash and committed bank credit facilities).

Nevertheless we adopt a cautious stance for the short-term – While indications so far are encouraging for the company and the sector as a whole, we remain cautious about the short-term trends due to the uncertainty relating to the economic implications of the pandemic. While consensus estimates suggest a strong recovery starting in 2021, we believe there is high uncertainty embedded in these estimates given the unpredictable evolution of the pandemic.

… but we believe long-term prospects remain intact - Despite the short-term uncertainties, we believe the longer-term outlook remains positive given: i) the nature of the business, as construction is an essential human activity, ii) Titan’s excellent track record in dealing with crises, and iii) the anticipated economic recovery starting from 2021. In addition, large infrastructure projects are likely to be put on track in order to support the economic recovery over the coming years, thereby improving the prospects for construction activity.

Change in estimates – Our new revenue estimates are reduced by 8% on avg for the 2020-22 period, while our EBITDA estimates are revised down by 20%. We have also adjusted our estimates for CapEx, after management’s guidance, expecting a lower figure for 2020 but higher spending for the subsequent years. Accordingly, this year’s FCF is expected resilient due to curtailed CapEx, but lower in 2020-21 due to the downward revision to our EBITDA estimates and the different CapEx phasing.

Upgrade to ‘Buy’ – We have lowered our 12m TP to €14.8 vs €19.1 previously, mainly as a result of the downward profit revisions. While the short-term outlook is subject to elevated uncertainties due to the pandemic, we believe long-term prospects remain intact. Titan trades at >20% discount to its 5yr avg EV/EBITDA and at par with international peers vs a ca 10% long-term premium. Weighing the short-term uncertainties against the long-term prospects and the current valuation, we believe the current level offers a good entry point for long-term investors and we thus upgrade our recommendation to ‘Buy’ from ‘Hold’ previously.