Infrastructure Pipeline And Carbon Projects Will Shape A Cautious Yet Supportive Outlook

Catalysts

About Vicat

Vicat is an international cement focused group with vertically integrated operations across cement, concrete and aggregates.

What are the underlying business or industry changes driving this perspective?

• Although the TELT Lyon Turin tunnel and the wider French infrastructure pipeline offer multi year volume visibility, any delay in project execution or public works budgeting could slow cement and aggregate offtake. This may limit the uplift to group revenue and operating earnings.
• While the French residential market has room to recover from a 25 year low and government housing measures are in place, a slower than expected rebound in permits and starts after 2026 could keep plant utilization subdued and cap margin expansion in Vicat's largest revenue region.
• Despite the ramp up of Kiln 6 in Senegal, which is designed to eliminate clinker imports and target savings of €20 per ton, a more gradual improvement in energy efficiency or alternative fuel use than planned would temper expected cost reductions and keep African net margins closer to current levels.
• Although low carbon products already account for roughly one quarter of group cement volumes and enjoy commercial traction in France, Switzerland, California and Brazil, a slower adoption curve or weaker pricing power for these products could moderate the contribution to revenue mix and EBITDA margin over the medium term.
• While the VAIA carbon capture project in France has secured around €340m in subsidies and is being studied with a potential decision by the end of 2027, any change in CO2 pricing, permitting or partner readiness could push back implementation timelines. This would delay expected emissions cost savings and the associated effects on long term earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Vicat compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Vicat's revenue will grow by 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.1% today to 7.4% in 3 years time.
• The bearish analysts expect earnings to reach €302.5 million (and earnings per share of €6.98) by about June 2029, up from €274.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.3x on those 2029 earnings, up from 10.3x today. This future PE is greater than the current PE for the GB Basic Materials industry at 10.3x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A sustained recovery in the French residential market from a 25 year low, helped by the Relance Logement plan and lower interest rates, could lift cement volumes and pricing more than expected, which would support revenue and EBITDA.
• The TELT Lyon Turin tunnel and wider French infrastructure pipeline, including nuclear projects and the PANG aircraft carrier, could convert into higher and more persistent demand than anticipated, which would support volumes, pricing power and earnings.
• The ramp up of Kiln 6 in Senegal, with the goal of eliminating clinker imports and targeting savings of €20 per ton, could progress more efficiently than expected, which would improve unit costs, net margins and group earnings from the African region.
• Faster adoption of low carbon cements in France, Switzerland, California and Brazil, together with subsidies of around €340m for the VAIA carbon capture project, could support pricing and create new revenue streams, which would improve EBITDA margin and long term earnings.
• Continued strong free cash flow generation, with free cash flow of €324m in 2025 and a leverage ratio of 1.49x EBITDA, could give the company more room to invest and return capital than expected, which would influence earnings and cash flow per share.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Vicat is €65.0, which represents up to two standard deviations below the consensus price target of €85.6. This valuation is based on what can be assumed as the expectations of Vicat's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €97.0, and the most bearish reporting a price target of just €65.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €4.1 billion, earnings will come to €302.5 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 8.8%.
• Given the current share price of €63.3, the analyst price target of €65.0 is 2.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.