Davy Research |
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Italcementi
ITAI.MI
Key Western European markets remain under pressure; cutting forecasts; retain 'underperform' rating
10 August 2012
Robert Gardiner |
Tim Cahill |
| Closing Price: 341c | Rating: | UNDERPERFORM | Issued: | 05/02/10 | Previous: | NEUTRAL | Issued: | 04/09/09 |
Reducing forecasts to reflect tough H1; more to come in H2
We have cut our FY 2012 and FY 2013 forecasts for Italcementi (IT) to reflect the weaker-than-expected out-turn in Q2 and a more cautious outlook for many of the group's key markets.
For FY 2012 and FY 2013, we now expect EBITDA of €680m (previously €724m) and €739m (previously €793m) respectively. This implies that FY 2012 EBITDA margins fall 60bps (H1 -90bps, H2 -30bps).
Group sales are forecast to decline by 4% yoy to €4.45bn in FY 2012 having declined by 6% yoy in H1. We see a modest rebound in sales in FY 2013 (+3% yoy like-for-like), driven by continued recovery in North America and a return to growth in Egypt.
Europe to weigh; underperformance likely to continue
IT has an above-average exposure to markets with large over-capacity and depressed construction activity. Improved shipments in North America and India are unlikely to fully compensate.
The group's markets in Western Europe in particular are likely to remain challenging. While cement prices have increased in Italy, the outlook remains poor. In France, recent activity has been weak and margins are slipping. The fourth quarter will also likely face a difficult comparison given mild weather in Q4 2011.
Management is taking corrective action by cutting costs, improving operational efficiency and streamlining the business portfolio. Combined with easing energy costs, these actions can help offset the margin squeeze.
IT is also working to reduce debt. The group's debt metrics remain stretched and leave little room for manoeuvre. Net debt at end-June was €2.28bn, implying net debt/LTM EBITDA of 3.5x.
Based on our new forecasts, the stock trades on FY 2012 EV/EBITDA of 5.8x versus the long-term average of 5.1x. This is still expensive in both an absolute and sector context. We expect the stock to continue to underperform the broader European cement sector.