CX-Cemex

[biaggio]

http://www.gurufocus.com/stock/CX

 

Picked up this idea from Longleaf. Appears to be held by other respectable money managers.

 

Can buy for $5 today. At one point sold for $35. http://stockcharts.com/freecharts/gallery.html?CX

 

Seems awfully cheap if you can believe the gurufocus financials-selling at 2 x FCF. I tried to look over the last 20F SEC filing but in pesos.

 

Has a lot of debt ~$21B

 

Enduring competitive advantage?

-I would think that it would be difficult or unappealing for others to start up new cement factory. Environmentally I would think it would be similar to starting up a refinery.

-they own factories all over the world

 

Anyone looked at this or own this?

[Evolveus]

Biaggio,

 

I recently posted a Longleaf audio link in the "general" thread that you might find helpful.  They specifically discuss CX there and based on their sum of parts valuation, they believe they are getting the US assets for free. I tend to agree with the comp advantage notions of economies of scale, country specific diversification, and prohibitive costs/red tape in regards to opening new plants and pits.

 

I put a link below to Longleaf's discussion. Cemex comes up around the 2:36 mark.

 

 

http://www.longleafpartners.com/media/SFL2011/SAM-SFLunch-04.mp3

[PlanMaestro]

Biaggio,

 

I recently posted a Longleaf audio link in the "general" thread that you might find helpful.  They specifically discuss CX there and based on their sum of parts valuation, they believe they are getting the US assets for free. I tend to agree with the comp advantage notions of economies of scale, country specific diversification, and prohibitive costs/red tape in regards to opening new plants and pits.

 

I put a link below to Longleaf's discussion. Cemex comes up around the 2:36 mark.

 

 

http://www.longleafpartners.com/media/SFL2011/SAM-SFLunch-04.mp3

 

I have not looked at CEMEX in painful detail but this is what I could gather on a rapid read of their recent financials and years of following the company. There was a recent debt restructuring with significant dilution so I do not think you can look at the historic price for a valuation reference.

 

Their peak performance was in 2006: $3B operating income (16% margin), $2.6B net income, $4.5B cash from ops, with $7B of debt. You can say that is the best that the non-US assets can perform. Come back to 2011 and I understand why Longleaf might think the US operation is for free considering the debt  is equal to 5x peak cash from ops of a cyclical company.

 

Are the US operations worth the bet? 17M tons of cement plus aggregates. That is a lot but it also means that at most CX is a 3x from here at 400 per capacity ton, and most of the upside comes from the high leverage. But in the current environment, I don't think it justifies buying a cyclical company that is barely breakeven and with a management that made such a mess. If you buy it, I think an investor should get more than just the US operations for free ... and I am open ears if there is more.

 

People I talk in Monterrey has always, and that means the last 15 years, commented on the black box nature of CEMEX financial endeavors (they are big traders and not hedgers) and their aggressive use of debt. That they cut their fingers in their last acquisition is not surprising. What is surprising is that it has not happened before. The maturity of the financing for the US acquisition was short term ... that was very stupid. And it was not like nobody knew about the housing bubble.

 

Other concerns are that they have financed most of their international expansion on the back of Mexican consumers and paying very little in taxes. Prices in Mexico are twice the US prices. How long can that be sustained?

 

 

 

 

[biaggio]

Biaggio,

 

I recently posted a Longleaf audio link in the "general" thread that you might find helpful.  They specifically discuss CX there and based on their sum of parts valuation, they believe they are getting the US assets for free. I tend to agree with the comp advantage notions of economies of scale, country specific diversification, and prohibitive costs/red tape in regards to opening new plants and pits.

 

I put a link below to Longleaf's discussion. Cemex comes up around the 2:36 mark.

 

 

http://www.longleafpartners.com/media/SFL2011/SAM-SFLunch-04.mp3

 

yes, I got it from your link that I listened to last night-thanks for posting

[biaggio]

PlanMaestro, thanks for reply.

 

Have not looked at it in great detail...tried to read the 20F this am...your reply will save me some time.

[PlanMaestro]

Cemex: a step closer to asset sale

http://blogs.ft.com/beyond-brics/2012/10/19/cemex-a-step-closer-to-asset-sale/

 

Cemex has come a long way since then. This week, it said that operating earnings before interest, taxes, depreciation and amortisation (Ebitda) during the third quarter of this year grew 9 per cent compared with last year to reach US$730m.

 

That figure represents the highest Ebitda generation in three years, and marks the fifth consecutive year-on-year increase in a sign that the company is inching back to financial health after at least three tough years.

 

Recently, the company also announced that it had surpassed the minimum acceptance requirements to push ahead with a plan to refinance a US$7.3bn loan due in 2014. Under the plan, creditors agreed to extend maturities on the loan by three years to 2017 in a move that substantially increases Cemex’s wiggle room.

 

So where does the spin off of its LatAm assets fit in to all of this? Nobody knows what percentage of the assets, which include operations in Brazil, Colombia and several countries in Central America, Cemex intends to sell. Nor has the company revealed a price range for the shares.

 

But in an August research note, Scotiabank said that it thought the company could raise more than US$1bn by placing as little as 20 per cent of the operations’ equity. “These transactions and rising US cash flows should hasten the deleveraging efforts”, it concluded.