Davy Research |
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Lafarge
(LG FP)
Solid Q2 results; outlook maintained; key now delivery on costs and disposals
27 July 2012
Robert Gardiner
| Closing Price: | 3617c | Rating: | Neutral | 02/03/12 | Previous: | Underperform | 19/03/10 |
FACTS: Lafarge reported a solid set of Q2 2012 numbers, with EBITDA of €1.007bn (+8% yoy, +4% yoy lfl) versus the Davy forecast of €967m and consensus of €963m. Sales were up 5% yoy (up 3% like-for-like), which means that EBITDA margins were up 60bps yoy (the third quarter in a row of margin expansion).
ANALYSIS: The improved result was driven by strength in North America (EBITDA margins +160bps), Latin America (+240bps) and Asia-Pacific (+200bps). This offset weakness in Eastern Europe, where margins fell 690bps yoy. Both Western and Eastern Europe were under pressure in the quarter with volumes down sharply in Spain and Greece. The shipment results from both France and Poland were particularly weak in the quarter. Overall, the group's volume guidance was unchanged at 1-4%. The outlook has improved in North America (now 4-7% from -1% to +2%) but was cut sharply in Western Europe (now down 11-14% from down 6-9% with big cuts to France, Spain and Greece). The outlook was also cut sharply in CEE with Poland gone from -1% to +2% to down 10-13%. The group's targets are otherwise unchanged with the exception of energy inflation, which is now expected to grow 6% from 7% previously guided. The group still expects to divest €1bn of assets (€72m achieved in H1), cut €400m of costs (€170m in H1) while capex, cost of debt and tax rate targets were unchanged. Net debt at period-end was €12.55m, implying ND/LTM EBITDA of 3.8x.
DAVY VIEW: We had a reasonably positive view on Lafarge into Q2 numbers (versus peers) and think this is a decent enough set of numbers (helped by FX and costs). We are encouraged by three quarters in a row of margin expansion, although debt reduction on the other side is slightly disappointing. The story here is all about management delivering on promises – it needs to deliver on the cost cutting plan for H2 (€230m) and, more importantly, on its €1bn disposal programme (€72m in H1, leaves more than €900m for H2). If it can continue to deliver on costs (€350m of savings scheduled for 2013) and expand margins, then there is decent downside protection to numbers. With the stock on 11.6x P/E and 6.7x EV/EBITDA 2013, Lafarge is not as compelling as it was at €32, but we are still happy to hold it versus most of its peers.