Morningstar | Momentum Continues in LafargeHolcim’s 1Q; Sells Asia-Pacific Assets at Favorable Price
LafargeHolcim provided a trading update that showed strong performance into the first quarter of 2019. On a like-for-like basis, net sales rose more than 6% and recurring EBITDA rose more than 20%. In addition, we were encouraged by the company’s progress on divestments in Indonesia, Malaysia, Singapore, and the Philippines. The company disclosed that it received about 21 times EV to EBITDA for its assets, much higher than multiples traditionally seen in the industry and reflecting the high growth of the region. Although the Asia-Pacific region tends to have high volume growth in developing nations, it’s comparatively easier to open new cement kilns there. As a result, oversupply has weighed on profitability in the region.With the strong start to the year, the company reaffirmed its full-year guidance of like-for-like net sales growth of 3%-5% and recurring EBITDA of at least 5%. The first quarter tends to be the weakest in the highly seasonal building materials industry, so the strong start to the year isn’t sufficient for us to raise our estimates.
However, our model now reflects the sale of $4.9 billion of its Asia-Pacific assets at the lofty 21 times multiple. We think this is a highly favorable price, leading us to raise our fair value estimate to CHF 61 per share from CHF 55. LafargeHolcim’s narrow moat rating is unchanged.
After raising our fair value estimate, shares trade at a roughly 13% discount. However, after considering the company’s high uncertainty rating, the risk-adjusted upside looks limited at this time.
LafargeHolcim is a producer of cement and aggregates. Co. also supplies ready-mix concrete, concrete products, asphalt and a range of services. Co. operates through three segments: cement, aggregates, and other construction materials and services. Co.'s cement segment provides a range of cementitious materials and also develops customized blends for special applications. Through its aggregates segment, Co. produces aggregates which include crushed stone, gravel and sand mainly used in the manufacture of ready-mix concrete, concrete products and asphalt, as well as for road building and railway tracks, with production centered on quarrying, preparing and sorting the raw material.
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