Cemex – mixed rating from analysts

Cemex – mixed rating from analysts
Published: 28 October 2010

Cemex posted worse-than-expected results on Tuesday but won more flexibility from its bankers to pay back debt, leaving analysts divided on whether to buy or sell.

Cemex is depending on a comeback in the US market to pay back the US$9.7bn it owes its banks after buying Australia’s Rinker just as the U.S. housing market tanked in 2007. But that recovery has still not taken hold. The company is also grappling with weak sales in Spain.

Of the nine analysts consulted by Reuters, two have a "buy" or "outperform" recommendation on Cemex, five have a "hold" or "neutral" rating, and two have a "sell" or "underperform" rating.

"In the medium term, Cemex is very attractive. It faces some near-term headwinds, but its potential for growth is significant," said Alan Solis at Credit Suisse, which has an "outperform" rating on the stock, adding that now is a good time to buy the stock, just before the expected recovery.

Cemex’s increasing cement volumes in Mexico in the third quarter and strong growth in Africa and the Middle East, notably in Egypt, are all good signs, he said.

The company’s announcement on Tuesday that it had renegotiated debt covenants with its bankers for a one-time fee of 25 basis points was also positive. Total outstanding debt under a 2009 financing agreement that saved Cemex from default stands at US$9.7bn, and Credit Suisse sees the company meeting the new required debt ratios.

Deutsche Bank said it is sticking to its "hold" recommendation even as Cemex’s Executive Vice President of Planning and Finance Fernando Gonzalez said on Tuesday that the fourth quarter would mark a turning point in global sales.

Even if sales started to pick up, Deutsche Bank’s Esteban Polidura said he was concerned the covenant renegotiation could be too good to be true.

"We remain cautious on such an attractive renegotiation," he wrote. "A very low one-time fee could imply an agreement for equity issuance soon, and the ample difference between old and new covenants could point toward materially weaker-than-anticipated results going forward."

Source: Reuters