Ciments Français

Who’s behind recent stock movements at Italcementi's French subsidiary. Is Italcementi set to mop up the outstanding shares?

Ciments Français stock, which has been stuck in a €45/€52 trading range for three
years, has, since July, been on a very strong upward trend (breaking through its 200-day moving average) with far higher volumes since the beginning of September (with volumes of 60,000 shares on some days vs. less than 10,000 in July and August) – reports BNP Paribas.  It is worth pointing out here that Italcementi continues to pick away, acquiring an average of two per cent of the shares every year since end-1998 (it has since raised its shareholding from 63.5 per cent to 74.89 per cent as at 30 June 2003).

While a formal takeover is unlikely (Italcementi is known for taking things one step at a time), consider that Italcementi today generates annual free cash flow of over €200m but has ruled out any large-scale acquisition. Therefore, it has very few alternative ways of using this cash: either reduce debt – which is clearly among the its priorities, or gradually buy up Ciments Français shares from third parties (free float + Mediobanca, amounting to 25 per cent of total shares). This would mean spending €495m at current levels, or €560m if one includes a 13 per cent premium – note BNP analysts.

The group’s French cement operations are its main source of profitability and still represent 29 per cent of its operating profit and 35 per cent of its consolidated net earnings. They are expected to hold up well in 2003 and 2004.

But meanwhile who's buying those shares?