EUR 850.00 For Business Accounts Only

Morningstar | LafargeHolcim’s Performance Accelerates in 4Q; Shares Fairly Valued. See Updated Analyst Note from 07 Mar 2019

LafargeHolcim’s strong performance continued into the fourth quarter, as recurring EBITDA rose 2%, or 6.5% on a like-for-like basis, to CHF 1.7 billion. For the full year, recurring EBITDA totaled CHF 6 billion, 0.4% higher than 2017, or 3.6% on a like-for-like basis. Latin America and Middle East Africa, weighed on by softening demand and a challenging price environment, respectively, dragged on overall company performance. Asia Pacific and Europe saw very good performance in 2018, with low-double-digit and high-single digit gains in recurring EBITDA, respectively. North America saw another year of good performance, though challenging weather conditions limited full-year recurring EBITDA growth to less than 3%.

For 2019, management has guided to like-for-like net sales growth of 3% to 5% and recurring EBITDA growth of at least 5%. We’ve updated our model and forecast the company to hit the lower end of its sales growth target. However, we think EBITDA growth will come below guidance at about 3.5%, as we think relatively low capacity utilizations and cost inflation will weigh on margin expansion. Nevertheless, we still think the company’s Strategy 2022 annual targets of 3% to 5% net sales growth, 5% recurring EBITDA growth, 40% free cash flow conversion, and 8% return on invested capital are achievable, albeit underwhelming.

As a result of our model updates, we’ve lowered our fair value estimate to CHF 55 per share from CHF 60 for narrow-moat LafargeHolcim. As shares have rallied more than 20% year to date, risk-adjusted upside seems limited at this time.