Weak Q1 results; we remain cautious on the name; reiterate 'underperform' rating
09 May 2012
FACTS: Holcim today reported Q1 2012 EBITDA of CHF745m versus the Davy forecast of CHF767m and consensus of CHF777m. This was down 1.1% yoy (+5.5% on a like-for-like basis). Sales were +2.2% yoy (+7.1% like-for-like), so the EBITDA margin of 15.7% is down 50bps versus the 16.2% recorded in Q1 2011 (we had forecast a 40bps yoy increase in EBITDA margin to 16.6%). This compares to Cemex and Lafarge EBITDA margins up 50bps yoy and HeidelbergCement down 210bp yoy.
ANALYSIS: Holcim was not able to fully pass on higher energy costs through higher selling prices in the quarter, although it notes that energy and transport costs "stabilised". The negative yoy EBITDA trends were mainly driven by the poor performance in Europe (EBITDA down 72% yoy to CHF21m) as the harsh weather resulted in temporary standstills in February. North American volumes were up 19% yoy, helped by weather, driving a 40% pick-up in EBITDA. FX also had a negative 5-6% impact on group EBITDA. The new CEO, Bernard Fontana, has not revealed a new cost-cutting programme today, but it has been announced that a new programme will be launched next week. Net debt came in at CHF11.8bn versus CHF11.5bn at December 2011 (ND/EBITDA was 2.7x). Holcim reiterated its guidance that it would achieve organic growth of operating EBITDA in 2012 (announced with its FY 2011 numbers). It expects demand for building materials to rise in Asia/Latin America while North America should see a slight improvement. In Europe, volumes should be "stable", although the group notes a significant increase in competition for publicly-funded projects, many of which face funding pressures. The group will focus on cost-cutting to drive growth.
DAVY VIEW: We believe this is seasonally a bad time to own Holcim. Inflation remains rampant in India (coal/diesel prices set to spike further) and cement prices have already started to fall into the monsoon (down 2-3%) as volume growth has slowed in April (ACC +1% yoy, Ambuja +1.6% yoy). Holcim still looks expensive, trading on 17x PE and 7.5x EV/EBITDA 2012, a significant premium to its peers. It has been a relative outperformer over the past month or so (relatively flat versus HeidelbergCement, down 11%, and Lafarge, down 9%). We reiterate our relative 'underperform' rating.