Energy Efficiency Upgrades And Carbon Capture Projects Will Improve Sustainability By 2029

Key Takeaways

• Investment in energy efficiency, production capacity, and carbon projects is set to enhance cost savings, operational margins, and long-term profitability.
  
• Expansion in key markets and projects is anticipated to drive revenue growth, increase EBITDA, and mitigate external challenges.
  
• Persistent foreign currency volatility and external factors threaten revenue and earnings stability, while high operating costs and capital expenditures pressure margins and cash flow.

Catalysts

Manufactures and distributes grey and white cement, ready-mix concrete, aggregates, and concrete products in Nordic and Baltic, Belgium, North America, Turkiye, Egypt, and Asia Pacific.

• Cementir's recent investment in the Belgium Kiln 4 upgrade, which focuses on increasing energy efficiency and reducing fuel costs by transitioning to alternative fuels, is expected to provide significant cost savings and enhance operating margins.
  
• The company's involvement in the Fehmarn Belt project between Denmark and Germany is anticipated to increase cement demand and contribute positively to revenue growth and EBITDA in 2025.
  
• The carbon capture and storage project in Denmark, supported by a substantial €220 million EU grant, aims to reduce CO2 emissions significantly. This initiative could lower operational costs and potentially enhance profitability by 2029.
  
• In Egypt, the restart of a second production line, which increases their production capacity, is expected to contribute additional revenue by allowing for increased sales and exports, thereby enhancing EBITDA.
  
• Cementir's expansion in Türkiye, including new plant openings and a new quarry, is projected to boost revenue with higher cement, ready-mix, and aggregates volume in the coming years, possibly offsetting forex headwinds.

Cementir Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cementir Holding's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 11.7% in 3 years time.
• Analysts expect earnings to reach €221.7 million (and earnings per share of €1.32) by about February 2028, up from €170.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, down from 11.1x today. This future PE is greater than the current PE for the GB Basic Materials industry at 9.7x.
• 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 6.87%, as per the Simply Wall St company report.

Cementir Holding Future Earnings Per Share Growth

Risks

• Foreign currency headwinds, particularly in Türkiye and Egypt, significantly impacted revenues and EBITDA, leading to a decline in both metrics. This suggests ongoing risks if currency devaluations continue, which could further affect revenue and net margins.
  
• Declining sales volumes and intense competitive pressures in key markets like Belgium, France, and China highlight potential ongoing challenges in maintaining or growing revenue and EBITDA, despite operational efficiencies.
  
• High operating costs in certain regions, compounded by inflation and foreign exchange rate volatility, have already eroded EBITDA margins, raising concerns about future net margins if such cost pressures persist.
  
• The impact of external factors such as harsh weather, stagnant markets in Denmark, and geopolitical issues like Türkiye's export embargo to Israel, can disrupt operations and financial performance, specifically affecting revenue and earnings stability.
  
• Significant capital expenditures, such as those for the Belgium Kiln 4 upgrade and carbon capture projects, while essential for sustainability, may constrain free cash flow in the short-term, affecting net cash and potential future investment capacities.

Valuation

• The analysts have a consensus price target of €12.558 for Cementir Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €14.25, and the most bearish reporting a price target of just €10.4.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €221.7 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of €12.22, the analyst price target of €12.56 is 2.7% 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.