Morgan Stanley has raised its rating on Italy's Buzzi Unicem to "overweight" from "equal weight", on a strong upside potential for the cement maker's stock which has underperformed the market since February amid uncertainty over Ukrainian and Russian markets.
Around 50 per cent of Buzzi Unicem's earnings per share (EPS) growth in 2015 will come from a double-digit rise in EBITDA, lower financial costs and higher earnings in Mexico, Morgan Stanley said.
The research house expect lower sales in Russia next year, which will be offset by higher figures in the Czech Republic and Ukraine, and lower amortisation costs and higher profits in Mexico.
Investors are concerned that the situation in Russia may bring about further sanctions that will ultimately affect the construction sector and the economy in general, Morgan Stanley said. Under the analysts' extreme-case scenario, Buzzi Unicem's sales in Russia are projected to drop 25 per cent and real prices by 30 per cent.
The United States and Italy are Buzzi Unicem's core markets for growth while Russia is not a key market for the order portfolio increase. In a base-case scenario, the US contributes with more than half to the EBITDA and the Italian market accounts for 20 per cent of it, according to Morgan Stanley.
Morgan Stanley does see some potentially weak links in Buzzi Unicem's capacity to grow. A lower business and consumer morale in Europe may lead to lower profits in Germany and to a further delay in Italian recovery, while even if it seems that the US business is in good shape, high interest rates may affect the company's growth.
