USA: Credit Suisse revises Cemex forecast

Byrebecca3360

Updated Thu, 28 Aug 2014 09:50:52 GMT

Credit Suisse says its forecast for US operations may be a little conservative.  Analysts Vanessa Quiroga, Maria Madrazo and Nicole Hirakawa write that Mexican cement producer Cemex must invest to revamp imports and comply with new environmental regulations.

They say Cemex should also see price volume and price increases. "We now see upside risk in our forecasts for Cemex US operation, mainly from better pricing. Our current assumption is 1% sequential price increase in the second half of 2014 and 3% in 2015, compared to Cemex’s planned price increases of 4-8% for the second half of 2014 and 23-27% for 2015."

"At the pace at which Cemex sees its volumes growing in the next 18-24 months, it will likely have to accelerate  imports to meet its customers’ needs. Looking at historical cement-industry data, there are two recent periods (’93-’99 and ’03-’06) where current levels of domestic production at 80mn tons have clearly been the starting point of an increase in imports, followed by a US$20/ton jump in cement prices.

"The great recession caused imports to plummet by 81%. To be able to increase imports from these levels we believe cement players will need to invest in revamping import infrastructure, purchasing equipment and enhancing distribution."

We measured the potential upside in our ’15 Ebitda numbers under different pricing scenarios. Assuming that by end-2015 cement prices are 20% higher vs. June ’14 levels, and using a conservative Ebitda mg of 19% for FY15, we estimate 28% higher Ebitda for Cemex USA compared to our current forecast. Our current model sees CX trading at 9.0x EV/Ebitda ’15.”

Credit Suisse has a target price of $16.03, implying 24% upside from the current price. The stock  up 0.7% in early trading at $12.97.