Home Deep Analysis LafargeHolcim: Follow-up Notes on First Quarter Results (OTCMKTS:HCMLF)

LafargeHolcim: Follow-up Notes on First Quarter Results (OTCMKTS:HCMLF)

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The timing is against us, but we believe in the future of the construction business.At Mare Evidence Lab Towers, we reiterate our Positive View and Buy rating on LafargeHolcim (HCMLF, OTCPK:HCMLY) and for Heidelberg Cement (HLBZF, OTCPK:HDELY).

To recap briefly, our key takeaways from Holcim are:

Increased government spending on infrastructure to revive business post-pandemic; we see Holcim as a leader in the ESG environment; supportive mergers and acquisitions; and strong financial performance.

We were ecstatic to see the company’s performance and stock price appreciation. We got all of the above right and we confirmed our thesis.

first quarter results

From the fourth point, Holcim reported record revenue of CHF 6.44 billion, an increase of 20.1%. This was driven by strong demand, supportive acquisitions (point three) and pricing power. On the income statement, the company once again set a new record at the level of operating profit, with CHF 614 million in the first quarter and a total CET increase of +16.3%. Once again, the strong contribution is due to the latest acquisition, and in our latest article on Holcim, we highlighted Firestone’s multiple arbitrage opportunities. In fact, the roofing business contributed 17% to the operating margin.

Holcim Sales Trend

Holcim Sales Trends (Q1 Results)

Our second and third points

A picture depicts a thousand words, we can use some to see what Holcim is doing. Jan Jenisch Holcim, CEO, said: “With sustainability at the heart of our strategy, we have published our first climate report, sharing our journey to net zero and our science-based targets initiative-validated 2030 and 2050 goals. This is a first in our industry and it looks back on our decarbonisation actions, from green building solutions, all the way to circular buildings and next-generation technologies.”

In March 2022, ECOPact Green Concrete accounted for 10% of ready-mix concrete sales. Holcim is not only committed to net-zero emissions at the ESG level, but also takes advantage of the EU’s favourable legislation in the area of ​​green bonds (extremely low interest rates).

Holcim Environmental, Social and Governance

Holcim ESG (Q1 results)

Regarding this acquisition, we believe that Holcim is a true value player. Malarkey is a proven growth driver that complements the Firestone acquisition very well. Increased EPS from this year, $40 million in synergies by year three, and better sales diversification.

Malarkey M&A Details

Malarkey M&A Details (Acquisition Demo)

Conclusion and Valuation

Despite recent macro developments, Holcim has again raised the bar on 2022 guidance and we believe they will meet their internal outlook. Our internal team expects EBITDA to reach CHF 7 billion due to a better product mix, recent acquisitions and strong pricing power. We really like adaptable businesses, and Holcim is certainly one of them. From pure cement, aggregate and concrete players, they decided to move to more value-added products (below). We value the company based on our forecast of 6.5x EBITDA, and we arrive at a valuation of CHF 67 per share, implying a current upside of over 42%. In addition to the usual risks in the construction industry, we would like our readers to consider Syria litigation.

Holcim's business transformation

Holcim Business Transformation (Malarkey Acquisition Demo)

Previous reports from the construction/cement industry:

LafargeHolcim: Multiple Arbitrage Thanks to Firestone Acquisition of HeidelbergCement: The Best Is Yet to Come See HeidelbergCement in Russia Revealed

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