UBS has initiated Italcementi at sell with a target of EUR3.40, reports from Dow Jones show. UBS cites a negative view of the cement maker's core Italian market, underwhelming cash flow generation, among other factors.
"We expect Italian cement volumes to fall 20% in FY12," it says. "Italcementi is trading at a near 15-year low, following a peak-to-trough EBITDA decline of circa 52%. The shares are highly leveraged (financially and operationally) to a stronger economic environment."
UBS says a reorganisation of the Italian market would likely take two to three years. "We believe that an improvement in profitability would require extensive asset swaps, followed by capacity reductions," UBS notes.
Last month, Italcementi – the fifth largest cement producer in the world – said it would sell its Pontassieve factory to local company Colacem and will shut down two mid-sized cement-making plants by 3Q12 to reorganise its domestic production capacity.
Italcementi also said it could announce by the end of the year another move to render the production structure more efficient to meet the changed market conditions.