Holcim has announced a cash bid for the 31 per cent minority in its largest profit earner, Mexican Holcim Apasco worth US$749m. Analysts at Merrill Lynch estimate Holcim is paying 5.4x 04E EV/EBITDA, 11.7x P/E, or US$230/tonne of capacity not excessive given the high profitability of the Mexican market (EBITDA margins over 44 per cent including some ready-mix concrete volumes). This move as aimed at full control of Apasco¹s cashflow the group has net cash (US$70m at
end-03E) and generates more cashflow than it can easily deploy whereas Holcim¹s group debt is at the high end of credit limits in Merrill's view.
Merrill Lynch see this as a good deal strategically, at a reasonable (rather than cheap) price (only a 14 per cent premium to the closing Apasco price) the prospect of share issues and higher Mexican exposure (to an already high price/profit market) may counter the improved structure and modest enhancement. However the analysts remain negative on Holcim given its bias to lower growth Latin American markets, currency risk, and valuation at a par with Lafarge without compensating extra recovery potential.
