Holcim Ltd was downgraded to hold from buy at ING, which also cut its rating on Lafarge to sell from hold. ING said Holcim should be the core holding in the sector for the long-term investor, but after strong outperformance it looks fairly valued given the lack of visibility in the near term.
As for Lafarge, ING thinks that it’s the most highly geared stock in the sector and it’s very exposed to the risk of falling cement prices. "The downside risks are substantial and not captured in premium multiples," the broker said. ING maintained its underweight rating on the building materials sector.
"The market is pricing in trough earnings for 2010 and a recovery to peak margins next year," ING said. "We think this is too optimistic given zero visibility and the potentially disastrous impact on margins of negative operational gearing." Also, France’s Compagnie de Saint-Gobain was downgraded to sell from hold at ING. With over 80% sales in developed markets, the outlook for volumes is poor at Saint-Gobain and the shares look overvalued, ING said