In the Initial Coverage Report of the Interacciones brokerage, they state that Corporacion Moctezuma® is one of the most profitable companies of the BMV (Mexican Stock Exchange).
Brief overview of the Company:
Our Corporacion Moctezuma® is a company with 72 years of experience in the construction industry; We are devoted to the production, sales, and distribution of Portland cement and ready-mixed concrete, as well as the extraction and sales of aggregates.
It currently we have three cement plants located in Tepetzingo Morelos, Cerritos San Luis Potosí and Apazapan Veracruz. We have an installed cement capacity of 6.4 million tons per year.
At Corporacion Moctezuma® we have maintained a constant double-digit annual growth rate per quarterly operation from 4T14. In 2015 it reached record sales (P$11,026.3 million, +20% a/a) and important foundations in operating profit (+42.9% a/a), EBITDA (+36.6% a/a) and consolidated net profit (+41.1% a/a). In the 1T16 it recorded the best historic margins, so in numbers 12M, reached an EBITDA margin of 42.53% (vs 40.9% at the closing of 4T15) and a net margin of 27.4%.
- We are starting the coverage of de Corporacion Moctezuma®, S.A.B de C.V., (CMOCTEZ*) with a target price of P$63.50 at the closing of 2T17, with an estimated dividend of P$2.53 per share; the potential total yield is 14.8% so we assigned a PURCHASE recommendation.
- Excellent growth perspectives: we expect the company to generate a significant short and long-term growth due to their production capacity increase for the next year, as well as due to the efficiency generated thanks to the high profitability approach, the low energy costs and its high cash flow generation.
- High profitability: according to our profitability analysis , based on ROIC and ROE in the Mexican Stock Exchange (BMV), Corporacion Moctezuma® continues to be one of the most profitable companies (in terms of ROIC), in our sample of 90 companies during five consecutive quarters from 1T15. This is due to a high capital turnover (1.27x to 1T16) and a high EBITDA margin. In terms of the ROE, it is placed in the second place.
- Free cash flow generation: this has allowed the company to have a solid financial structure with a Net Debt to EBITDA of -0.7x. Additionally, the growth is financed with its own cash generation. In fact, we are estimating that for the expansion of the Veracruz plant, their own flow generated for the duration of the investment will suffice.
- Dividend payment: the company has maintained a policy of constant payment of dividends. We estimate a dividend yield of 4.45% for the next 12 months.
- Multiples valuation below the industry: the shares of CMOCTEZ are listed at an estimated U/P of 16.5x, which is -3% under the multiples of the industry.
- Main risks: i) Dependency of only one sector and one economy; ii) low marketability; iii) high sensitivity to energy costs and iv) foreign exchange exposure.