EUR 300.00 For Business Accounts Only

Titan Cement | To the right direction

Positive outlook and increasing geographic diversification – The outlook in three out of the four geographic regions, namely US, SEE and Greece appears positive, raising optimism for the group’s prospects ahead but also paving the way for a more diversified mix of revenues and profitability in the coming years. That said, our estimates conservatively incorporate 3yr revenue and EBITDA CAGR of 3.2% and 4.8% respectively. Diversification should be particularly evident in the EBITDA mix over the next 3 years, with our numbers envisaging SEE to account for 33% of group EBITDA (from 20% in 2016-17), Greece to make up 10% (from below 5% in 2018-19) and US to contribute c57% of the mix from nearly 70% in 2017-19.

Year-to-date data point to a positive 2021 - Monthly indicators (construction spending & confidence, pricing) suggest a strong start to 2021, pointing to a better year ahead. Our estimates call for a mere 1% revenue growth in 2021 filtering through to a 4% increase in EBITDA, partly reflecting the weaker USD (est 1.20 vs 1.14 in 2020) which affects the largest part of Titan’s revenue and EBITDA and higher energy costs.

ESG at the forefront – The group has placed ESG targets at the core of its strategic initiatives, with a new set of targets recently announced: 1 De-carbonisation and digitalization, 2. growth-enabling working environment, 3. positive local impact, and 4. responsible sourcing. Management has committed to continuously improving their sustainability performance while the ratings received thus far from MSCI, Sustainanalytics, and Refinitiv appear quite positive, underpinning a further re-rating.

4% EBITDA upgrades – We have lifted our revenue estimates by 1.5% on average for the 2021-23 period mainly driven by Greece and SEE, while leaving our estimates for the US little-changed due to FX. We have raised our EBITDA by 4% on average for the same period, with the positive operating leverage effect partly diluted by higher fuel prices. We have also recalibrated our CapEx assumptions taking into account management’s recent guidance. All in all, we have raised our 2021 FCF c10% while making small changes post 2021.

Reiterate ‘Buy’ – Our new 12m TP stands at € 19.6 vs € 17.6 previously mainly reflecting higher EBITDA estimates and a rerating of peers. Our TP price is derived by a combination of a standard DCF (50%) at 8.8% WACC and peer EV/EBITDA valuation (50%). We retain a positive stance for Titan as we anticipate a sustainable improvement of its operating performance on the back of a positive outlook in most geographic regions. On our numbers, Titan trades at c6.5x EV/EBITDA on our 2021 est, c18% discount vs peers. Our TP values the company at 7.3x 2021e EV/EBITDA, namely still small discount vs the peer group, in line with the LT average relative valuation.