UBS started covering Italy's two largest cement producers, Italcementi and Buzzi Unicem, as they struggle against a backdrop of a construction recession and declining cement demand.
The analysts expect cement sales in Italy to slump 20 per cent this year. Pricing, on the other hand, seem to offset this trend but competition is solid and the pressure on Italcementi is strong, UBS said. It added that Italcementi's EBITDA are bound to drop further in 2012 after the fall in 2011.
Italcementi is strongly affected by the current recession in Italy and its stock could resume to rise only if signs of recovery occur, which, however, is not expected in two or three years, UBS said.
On Buzzi Unicem, it notes that the company is facing weaknesses such as low liquidity, scarce diversification and unstable corporate governance. Yet, Buzzi Unicem is exposed to North America, Mexico and Europe's most important markets, which allows it to eye an eight per cent EBITDA growth this year. However, the market in Italy suffers enormously, UBS said.
Buzzi Unicem's EBITDA dropped a combined 60 per cent between 2007 and 2012. Fortunately, the company is not heavily indebted (with a debt/EBITDA ratio of 2.4). Therefore, UBS expects Buzzi Unicem to return to the investment-grade category in 2013 despite the scarce cash flow. The analysts see the company's free cash flow yield at 5.6 per cent in 2012 and at 8.6 per cent in 2013. (Source: SeeNews Italy)
