EUR 300.00 For Business Accounts Only

Titan Cement | Resilient through the pandemic

Q3 results confirm resilience – Q3 2020 reported earnings confirmed that the group's operations remain quite resilient thus far, with revenues down just by 2% (at €416m) and EBITDA +7% yoy at €93m, underpinned by the solid top line and lower energy costs. Overall, the 9M 2020 performance has been much better than we had anticipated, thereby driving an upgrade to our near-term estimates.

Short-term outlook still uncertain… - The short-term outlook remains difficult to predict, as also admitted by management at the recent earnings call. The 2nd wave of the pandemic in EU and US has triggered a new round of restrictive measures, causing economic disruption once again and possibly operating challenges for the group. In addition, the operating backdrop in EastMed remains challenging given the macro imbalances in Turkey and oversupply of building materials in Egypt.

..but long-term prospects positive – Looking beyond the aforementioned challenges, we reiterate our view that the longer-term outlook for Titan’s operations remains promising given: i) recent positive news on the vaccine front which raises the prospect for a strong recovery next year, ii) fundamentals and demographics in most countries that Titan is present in remain solid, particularly in the US and SEE, iii) fiscal and monetary support are expected to underpin economic activity for the years to come and iv) management’s good track record in dealing with past crises.

Change in estimates – We have lifted our 2020 revenue estimates by 4% for 2020, while making limited changes post 2021. On the profit front, our EBITDA estimates are raised by 5% on average for the 2020-22 period, mainly feeding through from a 10% upward revision for 2020. Our CapEx estimates are broadly unchanged for 2020 and lower for the next couple of years, following management’s comments. Consequently, we have increased our 2020-22 FCF estimates by c€20-25m.

Reiterate ‘Buy’ – Our new 12m TP stands at € 16.8 vs € 14.8 previously, reflecting higher EBITDA and FCF estimates. Our TP price is derived by a combination of a standard DCF at 9.3% WACC (€ 15.8) and peer valuation based on EBITDA (€ 17.9). While the short-term outlook is subject to uncertainties, we keep focusing on the group’s long-term prospects which remain positive, in our view. Titan trades at ca 10% discount to its 5yr avg EV/EBITDA and at a 15% discount vs international peers vs a ca 5% long term discount. We believe that Titan’s valuation remains attractive at these levels when considering the cyclical upside, warranting a ‘Buy’ recommendation.