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Titan Cement | Building on solid grounds

Q2 affirmed Titan remains on solid footing – Titan reported a better than expected set of results, especially at EBITDA level, with all geographic regions exceeding estimates. Revenues shaped at € 450mn, (+12% y/y) reflecting strong volume growth and better pricing, while EBITDA came in at € 86.5mn (-10% y/y) affected by energy, freight and maintenance costs (of ca €10mn, which usually take place in Q1). Overall, the data released confirmed that the group’s operations remained on solid footing in H1 despite some headwinds (energy costs and unfavorable FX moves).

Market dynamics favorable in most regions – The outlook for the group’s operating performance remains positive, in our view, while we see potential for geographical diversification down the road. The US continues to be the key growth engine of the group, despite the adverse USD move, SE Europe is poised to sustain healthy growth rates, while Greece appears quite promising given the anticipated economic recovery over the medium-term. Management has also referred to some positive signs in Egypt but Turkey remains sensitive to macro imbalances and TRY weakness. Overall, our estimates point to a 3-year revenue and EBITDA CAGR of 3.5% and 5.3% respectively.

Good progress towards ESG targets – Some key milestones include: i) validation by the SBTi of Titan’s Scope 1 and 2 CO2 emissions targets for 2030, ii) Scope 3 CO2 emissions generated from transportation and distribution of cement externally verified, iii) 82% of the group’s production certified according to ISO 50001 Energy Management System or covered by energy audits, iv) more than 50% of its production across all geographic regions has been certified for ‘Zero Waste to Landfill’, iv) MSCI upgraded the group’s ESG rating to AA from A previously.

Limited changes to our estimates – We have lifted our revenue and EBITDA estimates for 2021-23 by 1.2% and 1.4% respectively on average, with upside revisions mainly due to Greece, US and East Med. We have also adjusted our CapEx estimates, taking into account management’s recent comments suggesting a potential upsizing in 2022 to take advantage of growth opportunities in the US. Overall, despite a lower figure for 2022, we have lifted our 3-year FCF estimates by 9% on average.

Reiterate ‘Buy’, PT at €20.0 – Our new 12m TP stands at € 20.0 vs € 19.6 previously mainly reflecting our upward EBITDA revisions. We retain a positive stance for Titan Cement as we anticipate a sustainable improvement of its operating performance on the back of a positive outlook in most geographic regions. Valuation-wise, Titan trades at 6.2x 2021e EV/EBITDA, namely 20% discount vs its own long-term average and c15% discount vs international peers. Our TP values the stock at 7.2x 2021e EV/EBITDA, namely still a discount vs the long-term average.