DB European Building Construction 2019 Outlook_watermark
.pdf
vk.com/id446425943
AG/London Bank Deutsche |
2018 December 3 Materials Building Construction & Building European |
Company Section (A-Z)
41 Page
vk.com/id446425943
3 December 2018
Building Materials
European Building & Construction
Rating |
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Company |
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Research Analyst |
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Buy |
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Buzzi Unicem |
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Xavier Marchand |
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+44-20-754-51400 |
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Europe |
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xavier.marchand@db.com |
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Italy |
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Building & Construction |
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Price at 28 Nov 2018 (EUR) |
16.80 |
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Reuters |
Bloomberg |
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Price Target (EUR) |
21.00 |
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Building Materials |
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BZU.MI |
BZU IM |
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52-week range (EUR) |
24.44 - 15.69 |
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Buzzi Unicem (BUY)
Self-help and market restructuring to provide most of EBITDA growth in 2019E While since 2012, Buzzi’s EBITDA growth has been mainly driven by the US
market recovery, we see now >80% of EBITDA growth excl. FX impact in 2019E coming from Italy and Germany. With conservative volumes assumptions in these two countries (resp. -3% and 0%), the improvement comes exclusively from selfhelp and positive impact from restructuring on prices. In the US, we include in our forecasts another year of margin decrease for 2019E - we believe this could prove conservative as Ash Grove acquisition by CRH should have a positive impact on the Mississippi region cement prices (>70% of Buzzi US cement sales). In spite of these prudent assumptions, DB FY 19E EBITDA forecasts are in line with consensus. With potential upside to our forecasts and consensus and attractive valuation (5.1x 2019E EV/EBITDA, e.g. 25-30% discount vs. cement peers), we see value in the stock: BUY.
Buzzi at a glance
Figure 93: 2018E Sales and EBITDA by geography
Ukraine |
Russia |
Ukraine |
Russia |
Italy |
Poland 3% |
6% Italy |
Poland 1% |
8% |
0% |
3% |
16% |
5% |
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Czech |
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Czech |
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6% |
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8% |
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Lux + |
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Netherlands |
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Lux + Netherlands |
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7% |
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4% |
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Germany |
US |
Germany |
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US |
22% |
37% |
16% |
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58% |
Source: Deutsche Bank estimates, Company data. Note: Total may not equal to 100% due to Group / Corp activities.
Figure 94:Buzzi Unicem EBITDA bridge
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2018E |
2019E |
FX |
One-offs |
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EUR m |
EBITDA |
EBITDA |
2018 |
Scope |
lfl |
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US |
327.5 |
347.0 |
13.5 |
-6.0 |
0.0 |
0.0 |
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Italy |
0.0 |
13.2 |
0.0 |
-2.8 |
0.0 |
10.5 |
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Germany |
89.7 |
106.1 |
0.0 |
-6.0 |
4.0 |
6.4 |
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Lux + NL |
22.6 |
22.3 |
0.0 |
0.0 |
0.0 |
-0.3 |
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Czech Republic |
46.0 |
47.9 |
-0.5 |
0.0 |
0.0 |
2.3 |
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Poland |
28.1 |
29.5 |
-0.2 |
0.0 |
0.0 |
1.7 |
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Ukraine |
5.9 |
4.1 |
0.1 |
0.0 |
0.0 |
-1.9 |
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Russia |
45.0 |
46.9 |
-1.2 |
0.0 |
0.0 |
3.1 |
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GROUP |
564.8 |
617.0 |
11.7 |
-14.8 |
4.0 |
21.8 |
Source:Deutsche Bank estimates
Key changes |
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TP |
25.50 to 21.00 ↓ -17.6% |
Source: Deutsche Bank |
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Price/price relative
30 |
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20 |
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10 |
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2016 |
2017 |
2018 |
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Buzzi Unicem |
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DJ (.STOXXE) (Rebased) |
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Performance |
1m |
3m |
12m |
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(%) |
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Absolute |
6.1 |
-5.9 |
-24.2 |
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DJ |
0.9 |
-9.3 |
-10.6 |
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(.STOXXE) |
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Source: Deutsche Bank |
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Key indicators (FY1) |
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ROE (%) |
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10.2 |
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Net debt/equity (%) |
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28.5 |
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Book value/share (EUR) |
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15.7 |
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Price/book (x) |
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1.1 |
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Net interest cover (x) |
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107.5 |
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EBIT margin (%) |
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12.1 |
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Source: Deutsche Bank |
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Stock & option liquidity data |
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Market cap (EUR)(m) |
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3,335.3 |
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Shares outstanding (m) |
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212 |
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Free float (%) |
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0 |
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Option volume (und. shrs., 1M avg.) |
1,653 |
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Source: Deutsche Bank |
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Page 42 |
Deutsche Bank AG/London |
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December 2018 |
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vk.com/id4464259433 |
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Building Materials |
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European Building & Construction |
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Forecasts and ratios |
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Year End Dec 31 |
2016A |
2017A |
2018E |
2019E |
2020E |
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Revenue (EURm) |
2,669 |
2,806 |
2,833 |
2,995 |
3,117 |
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EBITDA (EURm) |
551 |
508 |
565 |
617 |
667 |
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EBITA (EURm) |
348 |
286 |
343 |
395 |
445 |
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PBT DB (EURm) |
281 |
417 |
429 |
505 |
579 |
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PBT stated (EURm) |
281 |
349 |
429 |
505 |
579 |
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DB EPS (EUR) |
0.67 |
2.14 |
1.43 |
1.68 |
1.93 |
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OLD DB EPS (EUR) |
0.72 |
1.53 |
1.91 |
2.22 |
2.56 |
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% Change |
-8.0% |
39.5% |
-24.9% |
-24.3% |
-24.6% |
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DB EPS growth (%) |
13.6 |
220.7 |
-33.0 |
17.6 |
14.7 |
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P/E (DB EPS) (x) |
25.7 |
10.6 |
11.7 |
10.0 |
8.7 |
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DB EV/ DB EBITDA (x) |
7.6 |
9.0 |
5.8 |
5.0 |
4.0 |
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EV/EBITA (x) |
12.0 |
15.9 |
9.6 |
7.8 |
6.0 |
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DPS (EUR) |
0.10 |
0.12 |
0.14 |
0.20 |
0.27 |
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Yield (%) |
0.6 |
0.5 |
0.9 |
1.2 |
1.6 |
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Source: Deutsche Bank estimates, company data |
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Deutsche Bank AG/London |
Page 43 |
vk.com/id446425943
3 December 2018
Building Materials
European Building & Construction
Model updated: 29 November 2018
Running the Numbers
Europe
Italy
Building Materials
Buzzi Unicem
Reuters: BZU.MI Bloomberg: BZU IM
Buy
Price (29 Nov 18) |
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€ 16.80 |
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Target price |
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€ 21.00 |
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52-week Range |
€ 15.69 |
– 24.44 |
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Market Cap |
€ 2,842m |
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US$ |
3,207m |
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Company Profile
Buzzi Unicem is an Italian company focused on cement, ready-mix and aggregates. The company has a total production capacity of c.40m ton of cement and a wide geographic diversification. It has leading positions in Italy (n.2 cement producer, 16% market share), US (n.5 cement producer,9% market share), Mexico (n.4 cement producer, 11% market share), and Germany (n.2 cement producer, 15% market share).
1yr Price Performance
26 |
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24 |
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22 |
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20 |
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18 |
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16 |
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14 |
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12 |
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10 |
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Nov-17 |
Feb-18 |
May-18 |
Aug-18 |
BZU.MI |
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EURO STOXX PRICE (Rebased) |
Margin Trends
25 |
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20 |
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15 |
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10 |
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5 |
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0 |
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15 |
16 |
17 |
18E |
19E |
20E |
EBITDA Margin |
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EBIT Margin |
Growth & Profitability
7 |
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16 |
6 |
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14 |
5 |
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12 |
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10 |
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4 |
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8 |
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3 |
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6 |
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2 |
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4 |
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1 |
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2 |
0 |
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0 |
15 |
16 |
17 |
18E |
19E |
20E |
Sales growth (LHS) ROE (RHS)
Solvency
40 |
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120 |
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30 |
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100 |
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80 |
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20 |
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60 |
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10 |
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40 |
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20 |
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0 |
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0 |
15 |
16 |
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17 |
18E |
19E |
20E |
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Net debt/equity (LHS) |
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Net interest cover (RHS) |
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Xavier Marchand
+44(207)545-1400 xavier.marchand@db.com
Fiscal year end 31-Dec |
2015 |
2016 |
2017 |
2018E |
2019E |
2020E |
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Financial Summary |
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DB EPS (€) |
0.59 |
0.67 |
2.14 |
1.43 |
1.68 |
1.93 |
Reported EPS (€) |
0.57 |
0.67 |
1.79 |
1.43 |
1.68 |
1.93 |
DPS (€) |
0.08 |
0.10 |
0.12 |
0.14 |
0.20 |
0.27 |
BVPS (€) |
12.42 |
13.50 |
13.85 |
15.73 |
17.40 |
19.27 |
Weighted average shares (m) |
206 |
206 |
206 |
199 |
199 |
199 |
Average market cap (€m) |
2,335 |
2,824 |
3,745 |
2,842 |
2,842 |
2,842 |
Enterprise value (€m) |
3,143 |
3,485 |
3,635 |
2,797 |
2,580 |
2,178 |
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Valuation Metrics |
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P/E (DB) (x) |
24.1 |
25.7 |
10.6 |
11.7 |
10.0 |
8.7 |
P/E (Reported) (x) |
24.8 |
25.8 |
12.7 |
11.7 |
10.0 |
8.7 |
P/BV (x) |
1.34 |
1.67 |
1.63 |
1.07 |
0.97 |
0.87 |
FCF Yield (%) |
1.6 |
4.8 |
7.1 |
7.2 |
9.2 |
10.3 |
Dividend Yield (%) |
0.5 |
0.6 |
0.5 |
0.9 |
1.2 |
1.6 |
EV/Sales (x) |
1.18 |
1.31 |
1.30 |
0.99 |
0.86 |
0.70 |
EV/EBITDA (x) |
6.6 |
6.3 |
7.2 |
5.0 |
4.2 |
3.3 |
EV/EBIT (x) |
11.9 |
10.0 |
12.7 |
8.2 |
6.5 |
4.9 |
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Income Statement (€m) |
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Sales revenue |
2,662 |
2,669 |
2,806 |
2,833 |
2,995 |
3,117 |
Gross profit |
473 |
551 |
508 |
565 |
617 |
667 |
EBITDA |
473 |
551 |
508 |
565 |
617 |
667 |
Depreciation |
209 |
203 |
222 |
222 |
222 |
222 |
Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
EBIT |
264 |
348 |
286 |
343 |
395 |
445 |
Net interest income(expense) |
-105 |
-147 |
-35 |
-3 |
10 |
24 |
Associates/affiliates |
57 |
80 |
96 |
90 |
100 |
110 |
Exceptionals/extraordinaries |
6 |
0 |
2 |
0 |
0 |
0 |
Other pre-tax income/(expense) |
0 |
0 |
0 |
0 |
0 |
0 |
Profit before tax |
222 |
281 |
349 |
429 |
505 |
579 |
Income tax expense |
94 |
132 |
-46 |
122 |
144 |
165 |
Minorities |
3 |
3 |
3 |
3 |
4 |
4 |
Other post-tax income/(expense) |
0 |
0 |
0 |
0 |
0 |
0 |
Net profit |
125 |
146 |
391 |
304 |
357 |
410 |
DB adjustments (including dilution) |
3 |
0 |
77 |
0 |
0 |
0 |
DB Net profit |
129 |
146 |
469 |
304 |
357 |
410 |
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Cash Flow (€m) |
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Cash flow from operations |
350 |
384 |
500 |
456 |
508 |
543 |
Net Capex |
-305 |
-215 |
-170 |
-215 |
-200 |
-200 |
Free cash flow |
45 |
169 |
330 |
241 |
308 |
343 |
Equity raised/(bought back) |
0 |
0 |
0 |
-126 |
0 |
0 |
Dividends paid |
-10 |
-16 |
-22 |
-26 |
-27 |
-38 |
Net inc/(dec) in borrowings |
0 |
0 |
-114 |
146 |
-281 |
-306 |
Other investing/financing cash flows |
-3 |
-66 |
-194 |
-235 |
0 |
0 |
Net cash flow |
32 |
88 |
0 |
0 |
0 |
0 |
Change in working capital |
14 |
-93 |
1 |
-42 |
-41 |
-31 |
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Balance Sheet (€m) |
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Cash and other liquid assets |
525 |
611 |
823 |
823 |
823 |
823 |
Tangible fixed assets |
3,114 |
3,230 |
3,023 |
3,216 |
3,194 |
3,172 |
Goodwill/intangible assets |
585 |
608 |
592 |
592 |
592 |
592 |
Associates/investments |
375 |
369 |
354 |
354 |
354 |
354 |
Other assets |
921 |
991 |
992 |
1,109 |
1,253 |
1,387 |
Total assets |
5,521 |
5,809 |
5,783 |
6,094 |
6,215 |
6,327 |
Interest bearing debt |
1,500 |
1,438 |
1,490 |
1,716 |
1,435 |
1,130 |
Other liabilities |
1,441 |
1,564 |
1,265 |
1,281 |
1,296 |
1,307 |
Total liabilities |
2,941 |
3,002 |
2,755 |
2,997 |
2,731 |
2,437 |
Shareholders' equity |
2,553 |
2,774 |
2,846 |
3,123 |
3,454 |
3,826 |
Minorities |
26 |
32 |
6 |
8 |
10 |
12 |
Total shareholders' equity |
2,579 |
2,807 |
2,852 |
3,131 |
3,464 |
3,838 |
Net debt |
974 |
827 |
667 |
894 |
613 |
307 |
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Key Company Metrics |
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Sales growth (%) |
na |
0.3 |
5.1 |
0.9 |
5.7 |
4.1 |
DB EPS growth (%) |
na |
13.6 |
220.7 |
-33.0 |
17.6 |
14.7 |
EBITDA Margin (%) |
17.8 |
20.6 |
18.1 |
19.9 |
20.6 |
21.4 |
EBIT Margin (%) |
9.9 |
13.0 |
10.2 |
12.1 |
13.2 |
14.3 |
Payout ratio (%) |
12.3 |
14.1 |
6.3 |
9.3 |
11.2 |
13.1 |
ROE (%) |
4.9 |
5.5 |
13.9 |
10.2 |
10.9 |
11.3 |
Capex/sales (%) |
11.4 |
8.9 |
6.5 |
8.5 |
6.7 |
6.4 |
Capex/depreciation (x) |
1.5 |
1.2 |
0.8 |
1.1 |
0.9 |
0.9 |
Net debt/equity (%) |
37.8 |
29.5 |
23.4 |
28.5 |
17.7 |
8.0 |
Net interest cover (x) |
2.5 |
2.4 |
8.2 |
107.5 |
nm |
nm |
Source: Company data, Deutsche Bank estimates
Page 44 |
Deutsche Bank AG/London |
vk.com/id4464259433 December 2018
Building Materials
European Building & Construction
Rating |
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Company |
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Buy |
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Cemex |
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Xavier Marchand |
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Research Analyst |
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+44-20-754-51400 |
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Latin America |
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xavier.marchand@db.com |
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Mexico |
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Price at 28 Nov 2018 (USD) |
4.92 |
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Reuters |
Bloomberg |
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Target price |
6.00 |
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CX.N |
CX US |
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52-week range |
8.45 - 4.56 |
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Cemex (BUY)
Resilient Mexico and superior US footprint not reflected in valuation
Due to political uncertainty in Mexico and disappointing sets of results, Cemex’s share price has struggled YTD (-36% vs. –22% for other cement stocks). After a tough 2018 we forecast however 11% lfl EBITDA growth in 2019E, of which half is driven by the costs savings program (DB assumes $120m in 2019E out of the $150m target). While political uncertainty in Mexico continues to weigh on the stock, we remain confident on the industry ability to o set currency depreciation by local prices increases – decreasing petcoke prices should also be a tail wind for Cemex as it is a key input cost in Mexico. Macro concerns are mounting in the US, however our analysis shows that Cemex’s footprint still has robust growth ahead. At 6.9x 2019E EV/EBITDA, Cemex trades now at a discount vs. European cement peers for the first time since 2009 while it continues to o er by far the highest FCF yield in the sector (c.13% in 2019): maintain Buy.
Cemex at a glance
Figure 95: 2018E Sales and EBITDA by geography
AMEA |
Others |
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AMEA |
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2% |
Mexico |
8% |
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10% |
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24% |
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Mexico |
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SCAC |
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SCAC |
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14% |
41% |
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12% |
|
|
|
|
|
|
Europe |
|
|
|
|
14% |
|
|
Europe |
|
US |
US |
|
26% |
|
26% |
||
|
|
|
23% |
Source: Deutsche Bank, Company data. Note: Total may not equal to 100% due to Group / Corp activities.
Key changes |
|
TP |
8.40 to 6.00 ↓ -28.6% |
Source: Deutsche Bank |
|
Price/price relative
15 |
|
|
|
10 |
|
|
|
5 |
|
|
|
0 |
|
|
|
Jan '17 |
Jul '17 |
Jan '18 |
Jul '18 |
|
|
Cemex |
|
|
Mexico IPC Index (Rebased) |
|
|
|
|
|
|
||||
Performance |
|
1m |
3m |
12m |
|||
(%) |
|
|
|
|
|
|
|
Absolute |
-6.6 |
-31.1 |
-37.2 |
||||
Mexico |
-10.5 |
-18.1 |
-13.2 |
||||
IPC Index |
|
|
|
|
|
||
Source: Deutsche Bank |
|
|
|
|
|
||
|
|
|
|||||
Key indicators (FY1) |
|
|
|||||
ROE (%) |
|
|
|
|
9.4 |
||
ROA (%) |
|
|
|
|
2.8 |
||
Net debt/equity (%) |
|
85.7 |
|||||
Book value/share (USD) |
|
6.02 |
|||||
Price/book (x) |
|
|
|
|
0.8 |
||
Net interest cover (x) |
|
1.5 |
|||||
EBIT margin (%) |
|
|
|
|
11.1 |
||
Source: Deutsche Bank |
|
|
|
|
|
||
Figure 96:Cemex 2018-19E EBITDA bridge (USD)
|
EBITDA |
2018E |
2,552 |
Scope |
0 |
2018E lfl |
2,552 |
Vol |
83 |
Price vs. costs |
62 |
Costs savings |
130 |
2019E lfl |
2,827 |
FX |
-106 |
2019E |
2,721 |
lfl EBITDA growth |
10.8% |
Source:Deutsche Bank estimates, Company data
Deutsche Bank AG/London |
Page 45 |
vk.com/id446425943
3 December 2018
Building Materials
European Building & Construction
Figure 97: YoY % YTD US building permits on companies’ US footprints
12% |
10.7% |
|
|
|
|
|
|
|
|
|
9.9% |
|
|
|
|
|
|
10% |
|
|
|
|
|
|
|
|
8% |
|
|
6.5% |
|
|
|
|
|
|
|
|
5.8% |
|
|
|
||
6% |
|
|
|
|
|
|
||
|
|
|
|
4.2% |
|
|
||
|
|
|
|
|
|
|
||
4% |
|
|
|
|
|
2.7% |
2.4% |
|
|
|
|
|
|
|
|
||
2% |
|
|
|
|
|
|
|
|
0% |
|
|
|
|
|
|
|
|
Titan Cement |
Cemex |
Average US |
Heidelberg |
CRH |
Buzzi Unicem |
LafargeHolcim |
||
|
Source: Deutsche Bank estimates, Company data
Figure 98: YoY change in trailing 12m highway awards dollars
30%
25% |
22% |
20%
15%
10%
5%
5% 0% 
-5% -10% -15% -20%
Sep-16 |
Oct-16 |
Nov-16 |
Dec-16 |
Jan-17 |
Feb-17 Mar-17 Apr-17 May-17 |
Jun-17 |
Jul-17 |
Aug-17 |
Sep-17 |
Oct-17 |
Nov-17 |
Dec-17 |
Jan-18 Feb-18 Mar-18 Apr-18 May-18 |
Jun-18 |
Jul-18 |
Aug-18 |
Sep-18 |
|
|
|
|
|
|
|
All other markets |
|
|
|
|
|
|
|
Vulcan markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Source: Deutsche Bank, US DoT
Figure 99: Cemex has strong overlap with key Vulcan states
Figure 100: Cemex currently trades at a discount to its peer group avg on 12m forward P/E basis
|
LTM |
VMC |
|
|
|
|
|
|
80% |
|
|
awards |
revenues |
Buzzi |
Cemex |
CRH |
Heidelberg |
LafargeHolcim |
Titan |
|
|
California |
66% |
17% |
0% |
22% |
0% |
15% |
0% |
0% |
60% |
|
|
||||||||||
Texas |
23% |
17% |
35% |
17% |
6% |
14% |
15% |
0% |
40% |
|
Tennessee |
43% |
10% |
6% |
6% |
2% |
0% |
1% |
0% |
||
|
||||||||||
Virginia |
172% |
10% |
0% |
0% |
1% |
4% |
3% |
20% |
20% |
|
|
|
|
|
|
|
|
|
|
||
Georgia |
-45% |
10% |
0% |
6% |
0% |
3% |
3% |
0% |
|
|
Total |
|
64% |
41% |
51% |
9% |
37% |
23% |
20% |
0% |
|
|
|
|
|
|
|
|
|
|
-20% |
|
Jan-16 |
Apr-16 |
Jul-16 |
Oct-16 |
Jan-17 |
Apr-17 |
Jul-17 |
Oct-17 |
Jan-18 |
Apr-18 |
Jul-18 |
Oct-18 |
Source: Deutsche Bank estimates, US DoT, Company data |
Source: Deutsche Bank, Factset |
|
|
|
|
|
|
|
|
|
||
Forecasts and ratios |
|
|
|
|
Year End Dec 31 |
2016A |
2017E |
2018E |
2019E |
Revenue (USDm) |
13,403 |
13,672 |
14,458 |
14,790 |
EBITDA (USDm) |
2,746 |
2,572 |
2,553 |
2,720 |
EBITDA margin (%) |
20.5 |
18.8 |
17.7 |
18.4 |
EBIT ($[report_currency}m) |
1,796 |
1,523 |
1,504 |
1,671 |
Net Income (USDm) |
750 |
806 |
454 |
691 |
EPS (USD) |
0.37 |
0.42 |
0.30 |
0.46 |
OLD EPS (USD) |
0.37 |
0.42 |
0.37 |
0.54 |
% Change |
0.0% |
0.0% |
-19.8% |
-14.9% |
P/E (x) |
18.8 |
11.8 |
16.4 |
10.8 |
EV/EBITDA (x) |
7.9 |
6.9 |
6.7 |
5.9 |
DPS (USD) |
0.00 |
0.00 |
0.00 |
0.00 |
Dividend yield (%) |
0.0 |
0.0 |
0.0 |
0.0 |
Source: Deutsche Bank estimates, company data |
|
|
|
|
Page 46 |
Deutsche Bank AG/London |
vk.com/id4464259433 December 2018
Building Materials
European Building & Construction
Model updated: 29 November 2018
Running the Numbers
GEM
Mexico
Building and Construction
Cemex
|
Reuters: CX.N |
Bloomberg: CX US |
|
|
|
|
Buy |
|
|
Price (29 Nov 18) |
$ 4.92 |
|
||
|
|
|
|
Target price |
$ 6.00 |
|
|
|
|
52-week Range |
$ 4.56 – 8.45 |
|
|
|
|
Market Cap |
$ 7,463m |
|
|
€ 6,614m |
|
|
|
Company Profile
Cemex is a global building materials company that produces, distributes, and sells cement, ready-mix concrete, aggregates, and related building materials in more than 50 countries throughout the Americas, Europe, Africa, the Middle East, and Asia. The company's vertically integrated portfolio of products-tailored to each market's needsprovides it with the opportunity to manage its assets as one integrated business rather than as distinct businesses, further improving its operational efficiency and profitability.
1yr Price Performance
9 |
|
|
|
8 |
|
|
|
7 |
|
|
|
6 |
|
|
|
5 |
|
|
|
4 |
|
|
|
Nov-17 |
Feb-18 |
May-18 |
Aug-18 |
CX.N |
|
MEXICO IPC INDEX (Rebased) |
Margin Trends
25 |
|
|
|
|
|
20 |
|
|
|
|
|
15 |
|
|
|
|
|
10 |
|
|
|
|
|
5 |
|
|
|
|
|
0 |
|
|
|
|
|
14 |
15 |
16 |
17E |
18E |
19E |
EBITDA Margin |
|
EBIT Margin |
Growth & Profitability
10 |
|
|
|
|
15 |
5 |
|
|
|
|
10 |
0 |
|
|
|
|
5 |
-5 |
|
|
|
|
0 |
10 |
|
|
|
|
-5 |
15 |
|
|
|
|
-10 |
14 |
15 |
16 |
17E |
18E |
19E |
Sales growth (LHS) |
|
ROE (RHS) |
Solvency |
|
|
|
|
|
140 |
|
|
|
|
3 |
120 |
|
|
|
|
2 |
100 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
2 |
60 |
|
|
|
|
1 |
40 |
|
|
|
|
1 |
20 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
0 |
14 |
15 |
16 |
17E |
18E |
19E |
Net debt/equity (LHS) Net interest cover (RHS)
Xavier Marchand
+44(207)545-1400 xavier.marchand@db.com
Fiscal year end 31-Dec |
2014 |
2015 |
2016 |
2017E |
2018E |
2019E |
|
|
|
|
|
|
|
Financial Summary |
|
|
|
|
|
|
DB EPS ($) |
-0.52 |
0.12 |
0.37 |
0.42 |
0.30 |
0.46 |
Reported EPS ($) |
-0.39 |
0.05 |
0.52 |
0.53 |
0.30 |
0.46 |
DPS ($) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
BVPS ($) |
6.81 |
5.92 |
5.66 |
6.02 |
6.32 |
6.78 |
Weighted average shares (m) |
1,306 |
1,407 |
1,431 |
1,517 |
1,517 |
1,517 |
Average market cap (US$m) |
16,412 |
11,853 |
10,037 |
7,463 |
7,463 |
7,463 |
Enterprise value (US$m) |
30,032 |
24,750 |
21,772 |
17,771 |
17,068 |
16,177 |
|
|
|
|
|
|
|
Valuation Metrics |
|
|
|
|
|
|
P/E (DB) (x) |
nm |
68.8 |
18.8 |
11.8 |
16.4 |
10.8 |
P/E (Reported) (x) |
nm |
157.7 |
13.4 |
9.3 |
16.4 |
10.8 |
P/BV (x) |
1.50 |
0.94 |
1.42 |
0.82 |
0.78 |
0.73 |
FCF Yield (%) |
8.7 |
13.8 |
23.4 |
25.0 |
19.8 |
21.0 |
Dividend Yield (%) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
EV/Sales (x) |
1.96 |
1.80 |
1.62 |
1.30 |
1.18 |
1.09 |
EV/EBITDA (x) |
11.1 |
9.6 |
7.9 |
6.9 |
6.7 |
5.9 |
EV/EBIT (x) |
23.9 |
16.9 |
12.1 |
11.7 |
11.3 |
9.7 |
|
|
|
|
|
|
|
Income Statement (US$m) |
|
|
|
|
|
|
Sales revenue |
15,288 |
13,788 |
13,403 |
13,672 |
14,458 |
14,790 |
Gross profit |
6,370 |
5,768 |
5,706 |
5,742 |
5,723 |
5,889 |
EBITDA |
2,696 |
2,588 |
2,746 |
2,572 |
2,553 |
2,720 |
Depreciation |
1,437 |
1,121 |
950 |
1,049 |
1,049 |
1,049 |
Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
EBIT |
1,259 |
1,467 |
1,796 |
1,523 |
1,504 |
1,671 |
Net interest income(expense) |
-1,583 |
-1,217 |
-1,124 |
-1,004 |
-897 |
-772 |
Associates/affiliates |
22 |
46 |
37 |
31 |
35 |
35 |
Exceptionals/extraordinaries |
8 |
80 |
55 |
185 |
0 |
0 |
Other pre-tax income/(expense) |
166 |
-97 |
215 |
174 |
0 |
0 |
Profit before tax |
-137 |
199 |
923 |
723 |
642 |
933 |
Income tax expense |
296 |
146 |
165 |
28 |
115 |
168 |
Minorities |
82 |
58 |
63 |
75 |
72 |
74 |
Other post-tax income/(expense) |
0 |
0 |
0 |
0 |
0 |
0 |
Net profit |
-507 |
75 |
750 |
806 |
454 |
691 |
DB adjustments (including dilution) |
-166 |
97 |
-215 |
-174 |
0 |
0 |
DB Net profit |
-673 |
172 |
535 |
633 |
454 |
691 |
|
|
|
|
|
|
|
Cash Flow (US$m) |
|
|
|
|
|
|
Cash flow from operations |
2,123 |
2,393 |
3,052 |
2,673 |
2,278 |
2,370 |
Net Capex |
-689 |
-761 |
-699 |
-810 |
-800 |
-800 |
Free cash flow |
1,434 |
1,632 |
2,353 |
1,863 |
1,478 |
1,570 |
Equity raised/(bought back) |
0 |
0 |
0 |
0 |
0 |
0 |
Dividends paid |
0 |
0 |
0 |
0 |
0 |
0 |
Net inc/(dec) in borrowings |
-1,334 |
-1,150 |
-985 |
-821 |
-696 |
-571 |
Other investing/financing cash flows |
109 |
146 |
63 |
1,289 |
0 |
0 |
Net cash flow |
209 |
628 |
1,431 |
2,331 |
782 |
999 |
Change in working capital |
-15 |
291 |
605 |
350 |
0 |
-50 |
|
|
|
|
|
|
|
Balance Sheet (US$m) |
|
|
|
|
|
|
Cash and other liquid assets |
854 |
887 |
558 |
699 |
699 |
699 |
Tangible fixed assets |
13,767 |
12,428 |
10,961 |
11,815 |
11,566 |
11,317 |
Goodwill/intangible assets |
13,126 |
12,787 |
11,922 |
11,955 |
11,955 |
11,955 |
Associates/investments |
649 |
705 |
506 |
436 |
471 |
506 |
Other assets |
6,540 |
4,665 |
4,998 |
3,980 |
3,980 |
4,010 |
Total assets |
34,936 |
31,472 |
28,944 |
28,885 |
28,670 |
28,486 |
Interest bearing debt |
13,964 |
13,311 |
11,401 |
9,873 |
9,132 |
8,203 |
Other liabilities |
10,920 |
8,657 |
8,049 |
8,304 |
8,304 |
8,284 |
Total liabilities |
24,884 |
21,967 |
19,450 |
18,176 |
17,436 |
16,487 |
Shareholders' equity |
8,894 |
8,327 |
8,097 |
9,137 |
9,591 |
10,282 |
Minorities |
1,158 |
1,178 |
1,397 |
1,571 |
1,643 |
1,717 |
Total shareholders' equity |
10,052 |
9,505 |
9,494 |
10,708 |
11,234 |
12,000 |
Net debt |
13,110 |
12,424 |
10,843 |
9,173 |
8,433 |
7,504 |
|
|
|
|
|
|
|
Key Company Metrics |
|
|
|
|
|
|
Sales growth (%) |
0.4 |
-9.8 |
-2.8 |
2.0 |
5.8 |
2.3 |
DB EPS growth (%) |
33.5 |
nm |
205.4 |
11.6 |
-28.2 |
52.2 |
EBITDA Margin (%) |
17.6 |
18.8 |
20.5 |
18.8 |
17.7 |
18.4 |
EBIT Margin (%) |
8.2 |
10.6 |
13.4 |
11.1 |
10.4 |
11.3 |
Payout ratio (%) |
nm |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
ROE (%) |
-5.3 |
0.9 |
9.1 |
9.4 |
4.8 |
7.0 |
Capex/sales (%) |
4.5 |
5.5 |
5.2 |
5.9 |
5.5 |
5.4 |
Capex/depreciation (x) |
0.5 |
0.7 |
0.7 |
0.8 |
0.8 |
0.8 |
Net debt/equity (%) |
130.4 |
130.7 |
114.2 |
85.7 |
75.1 |
62.5 |
Net interest cover (x) |
0.8 |
1.2 |
1.6 |
1.5 |
1.7 |
2.2 |
Source: Company data, Deutsche Bank estimates
Deutsche Bank AG/London |
Page 47 |
vk.com/id446425943
3 December 2018
Building Materials
European Building & Construction
Rating |
|
Company |
|
|
|
|
|
|
|
|
|
|
|
||
Hold |
|
CRH |
|
|
Xavier Marchand |
|
|
|
|
|
Research Analyst |
|
|||
|
|
|
|
+44-20-754-51400 |
|
||
Europe |
|
|
|
|
xavier.marchand@db.com |
|
|
Ireland |
|
|
|
|
|
|
|
Building & Construction |
|
|
|
|
Price at 28 Nov 2018 (EUR) |
24.31 |
|
|
Reuters |
Bloomberg |
|
|
|
|
|
|
|
Price Target (EUR) |
28.00 |
||||
Building Materials |
|
|
|
|
|||
|
CRH.I |
CRH ID |
|
|
|
|
|
|
|
52-week range (EUR) |
32.62 - 23.48 |
||||
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRH (HOLD)
With this note, we transfer primary coverage of CRH from Glynis Johnson to Xavier Marchand with immediate effect.
US infrastructure pick-up unlikely to o set residential slowdown risks: maintain Hold
With c65% of 2019E EBITDA growth coming from the US, we believe CRH shares could continue to be impacted by investors' perception of the US construction cycle. The strong pick-up of highways contracts awards is an encouraging sign pointing at a prolonged infra improvement in the US (ltm contracts awards are up c15% YoY in Sept. 18). We believe however that labor constraints and company's lack of exposure to key US Southern states should limit the benefit of it on CRH volumes. Our analysis on a ordability also suggests US housing slowdown may be now more a structural issue than a temporary phenomenon. In addition, with the self-help e orts only materializing from end of 2019, we see limited scope for upside surprise on the stock. After the recent de-rating on US macro concerns, CRH trades now at 7.1x 2019E EV/EBITDA - slightly below large-cap peers. However with lack of near-term catalysts and risks skewed to the downside on US housing, we remain neutral on the stock: Hold.
CRH at a glance
Figure 101: 22018E Sales and EBITDA by division
Asia |
Europe |
America |
Asia |
Europe |
|
America 1% |
Products |
1% |
|||
Heavyside |
|||||
Heavyside |
|||||
Products |
17% |
|
|||
27% |
|
||||
|
26% |
||||
17% |
|
|
|||
|
|
|
|||
|
|
|
|
||
|
|
|
|
Europe |
|
|
Europe |
|
|
Lightside |
|
|
|
|
4% |
||
|
Lightside |
|
|
||
|
|
|
|
||
America |
6% |
|
|
|
|
|
America |
|
Europe Dist |
||
Materials |
Europe Dist |
|
|||
Materials |
|
6% |
|||
36% |
13% |
|
|||
46% |
|
|
|||
|
|
|
|
Source: Deutsche Bank, Company data. Note: Total may not equal to 100% due to Group / Corp activities.
Key changes |
|
TP |
34.80 to 28.00 ↓ -19.5% |
Source: Deutsche Bank |
|
Price/price relative
40 |
|
|
30 |
|
|
20 |
|
|
10 |
|
|
2016 |
2017 |
2018 |
|
|
CRH |
|
|
DJ (.STOXXE) (Rebased) |
|
|
|
|
|
|
|
|||
Performance |
1m |
3m |
12m |
||||
(%) |
|
|
|
|
|
|
|
Absolute |
-0.1 |
-15.2 |
-17.3 |
||||
DJ |
0.9 |
-9.3 |
-10.6 |
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(.STOXXE) |
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Source: Deutsche Bank |
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Key indicators (FY1) |
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ROE (%) |
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9.3 |
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Net debt/equity (%) |
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43.5 |
|||
Book value/share (EUR) |
|
19.3 |
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Price/book (x) |
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1.3 |
|||
Net interest cover (x) |
|
5.1 |
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EBIT margin (%) |
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8.6 |
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Source: Deutsche Bank |
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Stock & option liquidity data |
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Market cap (EUR)(m) |
|
19,771.2 |
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Shares outstanding (m) |
|
813 |
|||||
Free float (%) |
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– |
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Option volume (und. shrs., 1M avg.) |
0 |
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Source: Deutsche Bank |
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Page 48 |
Deutsche Bank AG/London |
vk.com/id4464259433 December 2018
Building Materials
European Building & Construction
Figure 102:CRH 2017-19E EBITDA bridge (Em)
|
2018E |
2019E |
EBITDA N-1 |
3,310 |
3,358 |
FX |
-91 |
79 |
Allied (Building Distribution US) |
-164 |
|
DIY NL (Europe Distribution) |
-25 |
-30 |
Other divestments |
-10 |
|
Ash Grove |
200 |
150 |
Florida |
60 |
|
Lime Fels (Germany - Europe Heavyside) |
55 |
|
US bolt-ons Americas Materials |
35 |
10 |
US bolt-ons Americas Products |
15 |
10 |
Pension Gains Switzerland |
-81 |
|
Synergies / costs savings |
|
40 |
Organic FY |
54 |
138 |
EBITDA N |
3,358 |
3,756 |
lfl EBITDA growth |
1.6% |
5.3% |
Source:Deutsche Bank estimates, Company data
Highways contracts awards point at dynamic US infrastructure
Among our stocks, CRH is the most leveraged to the US infrastructure, notably through its Americas Materials division. We estimate that close to 24% of Group Sales and c34% of Group EBITDA are leveraged to US Infra. In this context, strong highways contracts awards in the US are an encouraging sign for the company: ltm highways contracts awards are up 15% YoY in Sept. 18: this should lead to a prolonged improvement of infrastructure works in the US as there is usually a 18m lag between a contract award and the start of the construction work.
Figure 103:YoY change in 12m trailing highway awards
20% |
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15% |
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10% |
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14% |
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5% |
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0% |
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-5% |
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-10% |
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-15% |
|
Sep-16 |
Oct-16 |
Nov-16 |
Dec-16 |
Jan-17 |
Feb-17 |
Mar-17 |
Apr-17 |
May-17 |
Jun-17 |
Jul-17 |
Aug-17 |
Sep-17 |
Oct-17 |
Nov-17 |
Dec-17 |
Jan-18 |
Feb-18 |
Mar-18 |
Apr-18 |
May-18 |
Jun-18 |
Jul-18 |
Aug-18 |
Sep-18 |
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|||||||||||||||||||||||||||
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Source: Deutsche Bank, US DoT
Growth could however be limited by CRH footprint and labour constraint
A closer analysis shows however that the infra contracts awards are very uneven in the US. Vulcan flags that ltm contracts awards are up 22% YoY vs. only +5% in non Vulcan states. Our analysis shows limited overlap between Vulcan and CRH US footprints: top 4 Vulcan states (c65% of Group Sales with very strong contracts awards) account for just 10% of CRH US sales. As such we see risks that contracts awards on CRH footprint are closer to mid-single. In the meantime, our analysis shows that US labor constraints could slowdown US construction output as productivity by construction worker in real-terms is back to 2006 peak while the employment market is very tight.
Deutsche Bank AG/London |
Page 49 |
vk.com/id446425943
3 December 2018
Building Materials
European Building & Construction
Figure 104: YoY change in trailing 12m highway awards dollars - Vulcan vs other markets
30% |
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22% |
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20% |
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10% |
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5% |
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0% |
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-10% |
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-20% |
|
Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 |
Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 |
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All other markets |
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Vulcan markets |
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Source: Deutsche Bank, US DoT
Figure 106: Productivity is near peak while labor market remains tight
260 |
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256 |
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246 |
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15% |
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240 |
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10% |
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220 |
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5% |
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200 |
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0% |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
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||
Unemployment rate (rhs)
USD construction spend per employee (2018 USD, lhs)
Source: Deutsche Bank, US Census, Factset
Figure 105: CRH's overlap with Vulcan footprint states
|
LTM |
VMC |
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|
awards |
revenues |
Buzzi |
Cemex |
CRH |
Heidelberg |
LafargeHolcim |
Titan |
California |
66% |
17% |
0% |
22% |
0% |
15% |
0% |
0% |
Texas |
23% |
17% |
35% |
17% |
6% |
14% |
15% |
0% |
Tennessee |
43% |
10% |
6% |
6% |
2% |
0% |
1% |
0% |
Virginia |
172% |
10% |
0% |
0% |
1% |
4% |
3% |
20% |
Georgia |
-45% |
10% |
0% |
6% |
0% |
3% |
3% |
0% |
Total |
|
64% |
41% |
51% |
9% |
37% |
23% |
20% |
Source: Deutsche Bank, US DoT, Company data
US resi slowdown may be here to last
Our analysis confirms that housing a ordability has become an issue in the US: medium home price / medium income for new homes is back to 2006 as home prices have consistently increased above wages increase since the start of the US recovery in 2012. As a result, the share of high risk mortgages has also increased to levels close to 2006. In a context of rising rates in the US and an unlikely catchup of wage with homes prices, we believe that the housing slowdown could be here to last and see downside risks to US housing forecasts.
Figure 107: A ordability based on median home prices by median household income, since 1974
6.0 |
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5.5 |
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5.2 |
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5.2 |
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5.0 |
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4.5 |
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4.0 |
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3.5 |
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3.0 |
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2.5 |
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2.0 |
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1974 |
1976 |
1978 |
1980 |
1982 |
1984 |
1986 |
1988 |
1990 |
1992 |
1994 |
1996 |
1998 |
2000 |
2002 |
2004 |
2006 |
2008 |
2010 |
2012 |
2014 |
2016 |
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New Home |
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Existing Home |
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Source: Deutsche Bank, US Census, NAR, Haver
Figure 108: House price growth vs. wage growth gap gets wider
8% |
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7.0% |
7% |
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6% |
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5% |
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4% |
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2.8% |
3% |
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2% |
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1% |
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0% |
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-1% |
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-2% |
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-3% |
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-4% |
Mar-13 |
Jun-13 |
Sep-13 |
|
Mar-14 |
Jun-14 |
Sep-14 |
|
Mar-15 |
Jun-15 |
Sep-15 |
|
Mar-16 |
Jun-16 |
Sep-16 |
|
Mar-17 |
Jun-17 |
Sep-17 |
|
Mar-18 |
Jun-18 |
Sep-18 |
Dec-12 |
Dec-13 |
Dec-14 |
Dec-15 |
Dec-16 |
Dec-17 |
||||||||||||||||||
|
US median home price increase (Zillow) |
|
|
Private industry weekly wages |
increase |
|
|||||||||||||||||
Source: Deutsche Bank, Zillow, US Census
Page 50 |
Deutsche Bank AG/London |