Strategies & Market Trends : Cemex
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From: Glenn Petersen11/23/2012 8:51:42 PM
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Mexico's Cemex seen on path back to profitability

Tue Nov 20, 2012 2:16pm EST

* Reuters poll of analysts projects profits in 2013

* Poll shows 40 percent upside in stock target price

By Gabriela Lopez

MONTERREY, Nov 20 (Reuters) - Mexico's Cemex is seen on course to return to profitability as soon as 2013, as it overcomes a debt crunch that forced one of the world's biggest cement makers to shelve aggressive expansion in the aftermath of the U.S. housing crash.

Analysts bet the company will be able to revert losses it has posted since 2008, when Cemex became swamped shortly after paying $16 billion to buy Australian peer Rinker, as tough cost cutting decisions pay off.

The path to recovery has been drawn out for 106-year-old Cemex, one of a handful of Mexican companies with international presence in dozens of countries.

The company just refinanced $6.7 billion in debt, gaining much-needed room to push back looming payments for up to four years. It was the second such refinancing since 2009.

"Cemex has taken the right steps to cut losses and we expect to see it generating positive flows in two to three quarters," said analyst Fernando Bolanos with Monex brokerage in Mexico City.

Four out of six analysts consulted by Reuters see Cemex posting a net profit next year, with annual earnings seen ranging from $28 million to $235 million. The other two analysts expect the cement maker to turn profitable in 2014.

Cemex has also managed to lure back investors, who feel more at ease with the company's recent measures, which have also included a commitment to pay down $1 billion in March of next year, revised financial covenants, and a debt swap.

In October, Cemex tapped again the debt market by issuing $1.5 billion in 10-year bonds, which it used to prepay some debt and cut its interest rates by 25 basis points.

Additionally, the Mexican company just floated its Cemex Latam Holdings unit on the Colombian stock market, raising some $1.1 billion, enough to cut down around 6 percent of its total debt, which stood at $17.651 billion as of the end of September.


Despite Cemex improved results and a slow recovery of cement volumes in the United States - Cemex's biggest market - analysts do not rule out further asset sales or debt refinancing to lower financial costs.

"We will still see (them exploring) alternatives to raise more cash," said Carlos Hermosillo, an analyst with Banorte brokerage.

Cemex shares have gained around 60 percent so far this year, and while some market watchers believe they are now trading at fair value, others still see upside potential.

The year-end average target price of the six analysts polled for Cemex's New York-traded stock is seen at around $12, which would mean a 40 percent gain from Friday's close at $8.54.

By easing pressure on its debt payments, analysts hope Cemex's management will now focus efforts on improving operations and piggy backing on increased U.S. cement demand.

While the fiscal cliff - a combination of U.S. government spending cuts and tax rises due to be implemented under existing law in early 2013 that might tip the economy back into recession - still looms over Cemex, market watchers think there are signs that the situation can be averted.

Cemex's "stock is trading at 8.5 times enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization) reflecting the significant growth potential from a U.S. recovery (already on track) and the positive construction sector dynamics for Mexico," said Credit Suisse in a report.

Credit Suisse analysts said a U.S. highway funding bill that could boost Cemex sales was not likely to be affected by fiscal negotiations in Washington.

Credit Suisse recently upgraded by 3 percent its Cemex EBITDA (earnings before interest, tax, depreciation and amortization) forecast for 2013 to $3.06 billion.
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