Cementir Holding has reported a strong set of results that exceeded our initial expectations. Despite a decrease in volume, the company maintained stable revenue due to increased average selling prices, and improved its margins through an operational cost reduction and its presence in niche markets. The company has raised its guidance, but we believe it to be on the conservative side.
• Revenue: €1,295m (vs €1,288m in 9M 22)
• EBITDA: €326.2m (vs €238.3m in 9M 22)
• Outlook upgraded: EBITDA now around €380m (previously €365m)
Cementir Holding has released a favorable set of 9-month results, with stable revenue and a rise in EBITDA. Despite a challenging macroeconomic landscape marked by high interest rates and elevated energy costs, which led to a decline in sales volumes, the company still achieved a robust performance. Cement volumes decreased by 3.1%, ready-mix concrete (RMC) by 10% and aggregates by 11%. However, through the effective execution of price increases, the company managed to report an impressive 37% increase in EBITDA to €326.2m, including non-recurring income of €13.5m mainly related to a gain on asset sales.
Developed countries, which account for 72% of the group’s EBITDA, were more significantly affected by the decline in volume. However, in all geographical markets, except the US, EBITDA showed an upward trend. In the Nordics, EBITDA increased by 22.6% and, in Belgium, there was a 22.4% increase, while in the US, price increases were insufficient to fully offset the volume decrease and increased variable costs. Thus, EBITDA decreased by 12.5%.
Nonetheless, sales volume in Turkey and China remained robust while Malaysia and Egypt experienced a market slowdown. Turkey’s contribution to EBITDA has steadily risen from 14% in 2022 to 18% today, driven by strong demand following the earthquakes in the country. The company has shifted its focus from cement exports, which have declined by 34%, to the more profitable domestic market. Investments in earthquake-resistant projects have boosted demand, resulting in a 32% increase in revenue. Note that the 43% devaluation of the Turkish Lira (TRY) against the Euro had an impact on the Q3 results and is expected to continue affecting the company’s results in Q4. In China, despite a 15% increase in volumes, pricing pressure due to competition offset the volume growth. As a result, the company maintained stable revenue but achieved higher EBITDA, which increased by 11.6%. In Malaysia and Egypt, although volumes declined, both regions managed to achieve EBITDA growth, with a substantial increase of 64.2% in Malaysia and 8.2% in Egypt. It is worth noting that, like Turkey, there was a significant devaluation of the Egyptian pound, amounting to a 74% decrease in value relative to the Euro.
Overall, the company’s strategy, based on geographical balance, underscored its importance as, when the construction market is declining in one region, it can remain resilient or even grow in another. The company’s impressive performance is also due to its prudent management of operational costs. Like many of its peers, Cementir Holding has demonstrated its ability to pass on the carbon price to customers, which has contributed to the management’s confidence in cost control.
Conservative forecast in 2023
Despite this robust performance, the company is adopting a cautious stance. Although Cementir has already achieved an EBITDA of €320 million in the first nine months, the management has revised its EBITDA guidance to €380 million, which is lower than our estimate of €399 million. The prevailing macroeconomic uncertainty has led the company to exercise prudence regarding the outlook for 2023. The conflict in Gaza could potentially impact the operational performance in Egypt, and this is compounded by the monetary policy being pursued in Turkey, which might affect both demand and exchange rates. The management appears to have a relatively accurate handle on forecasting in developed markets, but predicting outcomes in emerging and volatile markets remains challenging. Nonetheless, the company has effectively managed costs and improved margins throughout the year, thanks to its robust cost management. We anticipate that Cementir will maintain this efficient cost management throughout the remainder of the year.
The company has raised its FY23 guidance and now expects EBITDA to be around €380m. Despite a robust quarter in a challenging environment, the management has adopted a cautious approach due to the uncertainties related to the devaluation of the Turkish lira and the ongoing demand slowdown in the Nordics. We have integrated the Q3 results into our model and project further growth in Turkey for Q4, factoring in the devaluation. We do not expect costs to exert extreme pressure on EBITDA in Q4. Consequently, our estimates are higher than the company’s guidance. Therefore, we reaffirm our buy recommendation on the stock.
