Argentina Construction Recovery And Cement Demand Will Improve Efficiency

Key Takeaways

• Economic growth and increased cement demand in Argentina will likely boost revenues and support revenue growth.
  
• Focus on operational efficiencies and energy cost improvements are expected to enhance profitability and financial flexibility.
  
• Economic challenges and construction downturns could negatively impact Loma Negra's revenue and profitability amid competitive pressures and potential cost fluctuations.

Catalysts

Manufactures and sells cement and its derivatives in Argentina.

• The anticipated recovery in the construction industry and economic growth in Argentina is expected to drive a significant increase in cement demand in 2025, which should positively impact revenues.
  
• Improvements in energy input costs and a continued focus on operational efficiencies are likely to sustain or enhance EBITDA margins and profitability.
  
• Renewed interest in large-scale projects, private sector initiatives, and public infrastructure spending are projected to support volume growth, positively influencing revenue growth.
  
• Completion of the 25-kilogram bag project by mid-2025 is expected to create operational efficiencies and potentially enhance margins by optimizing distribution and sales processes.
  
• With lower maintenance CapEx and available capacity for growth without major capital investments, cash flow is likely to improve, which could further strengthen financial flexibility and support earnings.

Loma Negra Compañía Industrial Argentina Sociedad Anónima Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Loma Negra Compañía Industrial Argentina Sociedad Anónima's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.1% today to 20.7% in 3 years time.
• Analysts expect earnings to reach ARS 199.7 billion (and earnings per share of ARS 1718.18) by about August 2028, up from ARS 96.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, up from 19.8x today. This future PE is greater than the current PE for the US Basic Materials industry at 20.3x.
• 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 21.29%, as per the Simply Wall St company report.

Loma Negra Compañía Industrial Argentina Sociedad Anónima Future Earnings Per Share Growth

Risks

• The downturn in the construction industry and reduced demand for products could negatively impact Loma Negra's future revenues and profitability.
  
• Economic challenges have led to a suspension of many public works, which may further impact construction-related revenues if the projects do not resume.
  
• The potential lack of significant growth in private and public construction projects could limit revenue growth and affect financial performance.
  
• Competitive pressures in the concrete and aggregates segments, showing margin contractions, could adversely affect net margins if competition intensifies or pricing pressure increases.
  
• While improvements in energy input costs and efficiencies are expected, any unexpected increases in these costs could negatively affect net margins and overall earnings.

Valuation

• The analysts have a consensus price target of ARS14.84 for Loma Negra Compañía Industrial Argentina Sociedad Anónima based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS963.7 billion, earnings will come to ARS199.7 billion, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 21.3%.
• Given the current share price of ARS12.33, the analyst price target of ARS14.84 is 16.9% higher.
• 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.