Exane downgrades Italcementi, Buzzi Unicem on weak Italian demand

Exane downgrades Italcementi, Buzzi Unicem on weak Italian demand
Published: 02 September 2011

In a report on the construction sector, Exane BNP Paribas lowered Wednesday the ratings and price targets on Italian cement makers Italcementi and Buzzi Unicem due to expected weak demand in Italy.

The French broker downgraded Italcementi’s recommendation to "underperform" from "outperform", slashing the price target to EUR 3.50 from EUR 7.50, and lowered Buzzi Unicem’s rating to "underperform" from "neutral" with the price target revised down to EUR 4.50 from EUR 9.00.

For Buzzi Unicem, Exane expects the US financing for infrastructure to drop 5% in 2012 and the private sector demand to remain flat, which will lead to a 2.3% fall in cement sales for the company. With the US market accounting for 23% of Buzzi Unicem’s sales, Exane expects the company’s sales to drop by EUR15m in 2011. A possible recovery for Buzzi Unicem would depend on the cement prices in Italy and a demand upsurge on the key markets, Exane said, adding it is optimistic on the prices in Italy, which are seen to return to the pre-crisis levels by 2015.

Unfortunately, this would not be enough to offset the stagnation of the demand in the mature markets, the broker commented.

Regarding Italcementi, Exane expects the prices in Egypt – which accounts for 30% of the group’s earnings before interest, tax, depreciation and amortisation (EBITDA)–  to drop 2% in 2012. Italcementi’s French subsidiary Ciments Francais is seen to book a 4% drop in EBITDA next year.

In the long run, the visibility on the prospects in Egypt is very low and the political risk is impossible to assess before the November elections, the French analysts said. If the new government decides to cut subsidies for natural gas used for cement production, this would put the profit margins in Egypt under pressure. Despite the forecast for a recovery of the cement prices in Italy to EUR75/t by 2015, neither Italcementi nor Ciments Francais would be capable of covering the costs by 2015, Exane said.