Titan Cement | Growth cast in concrete
Profitability step-up confirmed; where do we go now? – Titan Cement reported FY’23 EBITDA of €540mn, delivering 63% yoy growth on the back of 3.5% volume growth, double-digit pricing and c7pps margin expansion. With FY’23 EPS at €3.4, Titan has effectively beaten its FY’26 target three years earlier, rendering the communicated business plan obsolete. Going forward, mgmt echoed a positive outlook but refrained from updating the guidance, something we believe reflects more management conservatism rather than softening fundamentals. Considering the robust demand backdrop and strong pricing, we expect 5% EBITDA CAGR through 2026, positioning Titan among the fastest-growing peers in its sector.Robust demand backdrop; on track for >€300m net profit in 2024… – Demand dynamics remain favorable, supported by the imminent cement consumption rebound in US in FY24e (helped by IRA and IIJA) and the c€8bn Greek construction backlog budgeted mainly for large infrastructure projects. Meanwhile, pricing shows no signs of ebbing, with US cement PPI +4% YTD. Pricing in other regions looks more modest, but the overall 2024 price/mix will also be amplified by the full-year effect of 2023 pricing action. Cost-wise we incorporate moderate inflationary pressures, less volatile energy prices (following the new PPA in Greece) and cost savings through digitalisation and enhanced vertical integration (following alt. cementitious materials M&As). The aforementioned comfort us in raising our EBITDA estimates by 5-6%, now envisaging FY24e EBITDA of €573mn (+6% yoy) rising to €628mn in FY26e, with the latter implying 0.7pps margin expansion (to c22%). As a result, net profit is set to exceed €300m from FY24 onwards, effectively tripling vs FY22.
…redefining Titan’s free cash flow profile – The new level of profitability has reset Titan’s FCF to >€100mn, a trend we expect to persist, considering the strong operating CF generation (>€350mn) given EBITDA >€570m, coupled with annual capex of c€250mn through to 2026 (c42% of EBITDA on average). As such, we estimate net debt to drop to c€430mn by 2026, translating to a Net Debt/EBITDA of just 0.7x. This offers Titan plenty of optionality for capital allocation, although mgt has echoed a somewhat conservative message pointing to a smooth trajectory of dividend growth. We reflect this in our assumption for a stable payout ratio of 24%, but the resulting deleveraging indicates scope for value-accretive bolt-on acquisitions or more generous returns to shareholders.
Valuation – Filtering through our higher estimates, we raise our PT to €31.0 (based on a blended valuation using DCF and multiples) reiterating our Buy but removing the stock from our top picks following the 31% rally in the last 4 months. Effectively, we expect the stock to move in tandem with fundamentals ahead of the next catalyst, namely an update to the guidance, which we anticipate in H2’24. Our PT places the stock at 4.9x 1-year fwd EV/EBITDA, still 7.5% lower than the median peer Group valuation, which effectively points to a positive risk-reward skew, especially given Titan’s higher growth profile.
Titan Cement Co. and, its subsidiaries (collectively, the Group) are engaged in the production, trade and distribution of a range of construction materials, including cement, concrete, aggregates, cement blocks, dry mortars and fly ash. The Group operates primarily in Greece, the Balkans, Egypt, Turkey and the U.S. The Group operates in 14 countries in Europe, North America and the Eastern Mediterranean and is organized in the following four operating (geographic) segments: Greece and Western Europe, North America, South East Europe, and Eastern Mediterranean.
Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.
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