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TITAN CEMENT | Cementing value through US IPO

As the listing of the local business in the US approaches, we expect the market to gradually adopt a SOTP approach in valuing Titan, something which on our estimates could help crystallise value >€700mn or €9/share, given the lower risk premia attached on US assets. This should eventually move the valuation debate to the €40 area. We have reflected this in our model early on, now basing our valuation on a SOTP (US vs rest) lifting our PT to €40.5 (from €31), placing the stock at 6.3x 1-yr fwd EV/EBITDA, still c15% discount vs the global median peer group valuation.

Titan intends to list US business in New York... – The Group recently announced its intention to proceed with the IPO of a minority stake (likely between 15-25%) of its US business, aiming to raise funds that will facilitate growth and unlock new opportunities. Given the wide valuation gap between EU and US peers (with the former trading 4-6x EV/EBITDA and the latter at >9x), this IPO looks primed to unlock significant value catalyzing a re-rating of the shares, which are still trading at a depressed c5x EV/EBITDA, at the low end of the historic range, despite the stock’s impressive performance in the last 2 years. The SEC application for Titan America’s IPO is scheduled for Q3’24, with the transaction likely to be completed by early 2025.

…aiming to raise up to €600mn – Regarding the potential IPO valuation, Heavyside US-listed peers currently trade near c8-11x EV/EBITDA, while precedent transactions have been sealed at low-double digit multiples. Incorporating a c30% discount on the aforementioned precedent transaction multiples to reflect the lack of control in Titan America’s case, one comes up with an indicative multiple near 8x. The latter would effectively correspond to a >15% discount to the current valuation of Titan’s US-listed peers, warranted in our view by the smaller size. On its turn, this would point to potential IPO proceeds between c€270-600mn, assuming a 15-25% stake sale. On the use of proceeds, management pointed to more bolt-on green acquisitions and improvements in capital structure, however considering the underleveraged balance sheet (c1.1x Net Debt/EBITDA) we argue that there is plenty of scope for the deal to be followed by a sizeable capital return.

Q1’24 results underpin FY’24 numbers; Investor Day 2.0 scheduled for late 2024 – The Group reported Q1'24 EBITDA of €110mn (+2% yoy), driven by resilient US figures and a rebound in SEE activities. Moving ahead we see easier comps yoy in the US, considering adverse weather conditions in Q1'24, earlier-than-usual maintenance in local units (typically conducted in Q2) as well as further price hikes YTD, suggesting stronger performance in upcoming quarters. Greece will also face easier cost comps in H2’24, considering the new more expensive three-way PPA in effect since Q3’23, while the rest of Europe will continue to enjoy an improved cost structure and lower energy prices. We are therefore confident in reiterating our FY'24 EBITDA of €573mn (+6% yoy), with risk lying on the upside. In the light of the US IPO, Titan has scheduled a new Investor Day for late 2024 to provide updated targets for 2026 since the outstanding FY’23 performance has rendered the previous guidance obsolete.