Flying on one engine
Positive outlook underpinned by US operations – The outlook for the group’s operations in the quarters to come remains positive mainly driven by the anticipated strong performance in the US operations. More than 50% of the group’s revenues and profitability is expected to keep on being generated in the US despite USD weakness. In addition, most of the regional economies in SEE are growing at a decent pace (2-3%) which is reflected in the region’s construction activity, allowing for a more positive outlook. By contrast the group’s prospects in the other two regions of operations, namely Greece and Egypt remain weak or uncertain.
New growth initiatives may take time; liquidity more comfortable – Management remains committed to exploring new investment opportunities given the group’s strong balance sheet. Following last year’s acquisition in Brazil, some press reports during September suggested that Titan is also looking at PPC Group in S. Africa, however there were no news since then. Although, Titan has significant capacity to undertake new investments, by nearly doubling its net debt, it may take some time before we see any new steps given management’s cautious approach. A recent initiative to refinance an existing bond maturing in 2019 with a new 7yr bond at relatively low yield (2.375%) makes Titan’s debt maturity profile more comfortable, extending the weighted maturity to 4.6 yrs from 2.9yrs, while lowering average yield.
Change in estimates –Our new revenue estimates are lower by 3% on average for the next three years, while our EBITDA estimates are lower by 6% on average mainly driven by the downward adjustment in Egypt. Our estimates for the US have been positively revised but to some extent were contained due to the USD weakness. We have also adjusted our projections for the group’s net debt given the trend so far in 2017 and our lower EBITDA projections, while our CapEx projections remain largely unchanged.
Valuation – Our new 12m TP stands at EUR 22.7 vs EUR 24.6 previously mainly as a result of lower EBITDA estimates. Our TP price is derived by a combination of a standard DCF (50%) which generates a fair value of EUR 23.4 and peer valuation based on EBITDA (50%) which generates a EUR 22.0 per share. Titan trades 12% lower than our new TP, at 7.4x EV/EBITDA our 2018 estimates which is broadly in line with peers’ valuation vs a 10% 5yr historic premium. We thus see some upside from current levels however not enough to trigger an upgrade to our recommendation at the moment. We believe the lack of visibility in Egypt coupled with weak to moderate prospects in Greece still justify a ‘Hold’ rating for Titan.
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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