We value Holcim Liban (HL) at USD 15.28 per share, maintaining our HOLD recommendation as the ongoing presidential vacuum on top of the deteriorating situation in Syria continue to threaten Lebanon’s internal stability, negatively impacting Holcim’s share price despite the attractive 6% in dividend yield. When comparing HL to its regional peers, we find that with a P/E ratio of 13.9, the cement producer may be undervalued against its peers which hold an average P/E of 14.7. However, we believe this slight discount is justifiable as it could be attributed to Lebanon’s shaky political and economic situations in addition to the intensification of conflict in neighboring Syria.
The Lebanese cement market continues to show strong signs of recovery, registering an impressive 5.2% y-o-y growth in H1 2014 to reach 2.8 million tons, of which HL captured a market share of 39.4%. HL benefited from the mounting demand and revenues came in line with our estimates, rising by 4.9% y-o-y to reach USD 93.2 million in H1 following a 5.7% jump in sales volumes to 1.1 million tons. Earnings followed suit, showing a 15.2% rise to USD 9.4 million, further supported by a USD 319,000 lower finance expenses as HL continues to reduce the amount of outstanding debt it carries on its balance sheet. Looking forward, we expect 2014 earnings to increase to USD 23.8 million, mainly due to slightly higher revenues, lower production costs and more efficient operations.
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Holcim H1 2014 Results Review