Cemex heading towards strong earnings rebound

Cemex is expected to post a significant rebound in pretax earnings for the full year, driven primarily by the US recovery and an anticipated pick-up in Mexican volumes and pricing, according to JP Morgan forecasts.

In a largely positive report on Latin American cement companies, JP Morgan notes: "We like the Cemex story on the back of strong growth in EBITDA…especially from the US and Mexico. Also, growing free cash flow should help to un-leverage its balance sheet. Propelled principally by a recovery in volumes off the back of the recovery of the US economy and construction sector, we expect EBITDA to be US$979bn in 2016, a 2013-2016 compound annual growth rate of 57 per cent.”

The research house believes that despite headwinds in the first half of 2014, it expect prices to be 3.5 per cent higher and volumes up by 7.4 per cent in 2014, driving EBITDA to US$501bn (+96 per cent YoY).

It adds that in Cemex's domestic market of Mexico, volumes are expected to pick up in the second half and pricing environment is strong.  JP Morgan states that for the year to-date, the Mexican government has spent MXP117bn (US$9bn) on infrastructure (excluding energy), an increase of 43 per cent YoY.  “Although this has yet to affect volumes – in part because we believe local governments are using these federal funds to pay payables associated with previous infrastructure projects – we expect volumes to be positively impacted in the second half of 2014,” it states.