We lower our target price on Holcim Liban (HL) to USD 15.10 from USD 15.21 previously, maintaining a HOLD recommendation. HL appears to be undervalued with a price-to-earnings ratio of 13.62 compared to 15.65 for the average of the industry in the Middle East. However, we attribute the slight discount that HL trades at to the intensification of the conflict in Syria and its effect on Lebanese business activity.
Revenues at Holcim Liban returned to 2010 levels, declining by 4.5% in 2012 to reach $186.8 million, led by a slowdown in domestic sales amid an unstable political climate. HL’s production costs increased 6% to $137.6 million in 2012, driving down the gross margin from 33.7% in 2011 to 26.4%, its lowest level in the past seven years. However, we expect an improvement to this margin in the future as the Waste Heat Recovery power generation began in May 2013 and is estimated to reduce production costs by around $3 million per year. Similarly, earnings declined by 36.5% to reach $18 million compared to $28.3 million in 2011. We estimate 2013 earnings to increase by 14.8% to $20.6 million.
Click below for the full report: