Build me a wall, boomed the US president. A murmur followed. Then a shout from the cement makers, how high? No wonder. Mr Trump’s wall would require about $1bn of concrete and cement, thinks Bernstein. Given its exposure to Mexican and US cement markets, more construction on either side of the border should help Cemex. Indeed, Mr Trump’s negative view toward Mexico has benefited Cemex’s share price, via a weaker peso. Though listed in Mexico, its income comes mostly from the US and Europe. Keep tweeting Mr President.
Cemex could use the cash. An expansionary strategy throughout the noughties, paid for with debt, ended with the global financial crisis. As cement orders in its main markets slowed, Cemex’s operating earnings slipped. Profits which thrice covered interest payments in 2007, did not fully cover them by 2010. By that time net debt was the equivalent of 7 times earnings before interest, tax, depreciation and amortisation — not even its peak.
Improving housing markets in the US and UK, coupled with the same trend in Mexico, led to better cement demand. In 2015 Cemex recorded its first after tax profit in six years. A spin out of some of its Latin American units in 2012 had helped, but a more serious attack on a persistently high debt pile was needed. It has sold off unwanted businesses and cut working capital, both of which boosted operating cash flow. Up to September, Cemex had cut about a tenth of net debt.
Its leverage target of 3 times ebitda — half of 2015 levels — means more must be done. If the US administration’s promised binge build does happen, that is a good thing. The US is Cemex’s largest market, over a quarter of ebitda. One region of strength for Cemex is Texas. Plus over half of group profits come from outside Mexico, so expect the tailwind from the weak peso to continue.
Barring an imminent collapse in private construction, Cemex’s profits should rise as lower interest payments from shrinking debt eat up less profit. Un-build it and the investors will come.
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