Titan Cement: Trading at just 7x earnings (OTCMKTS:TTCIF)

introduction

I have been keeping an eye on some European cement producers as falling interest rates could spark new enthusiasm in the real estate and construction sectors. And of course, once the war in Ukraine is over, Eastern Europe will need a lot of resources. Building materials for the reconstruction of the eastern part of the country. That’s why I was primarily looking at cement producers with exposure to Eastern and South-Eastern Europe. Titan Cement (OTC:TTCIF) fits the bill. Although the company has a Belgian ISIN code and is listed on Euronext Brussels, it is actually a Greek company.

While the Greek listing is the most liquid, with an average trading volume of 45,000 shares per day, the Belgian listing trades only 9,000 shares per day, although most brokerage firms find Euronext Brussels more accessible. On both exchanges (other than the Athens Stock Exchange), Titan Cement’s ticker symbol is the same: TITC. The current stock price is 21.40 EUR, and there are approximately 74.3 million shares outstanding. Most Recent Share Buyback Updates Considering) the market capitalization is approximately 1.6 billion euros.

The company was founded in 1902 and has grown to become an important European player in the cement industry. Titan Cement has also expanded into the United States, where it owns and operates eight quarries and two cement plants.

This year’s financial performance is surprisingly good.

We started tracking cement producers in the first quarter of this year, but didn’t want to pull the trigger because we expected the slowdown in construction and real estate activity to have a bigger impact on cement producers. I was completely wrong. Not only did the entire sector perform well from a financial perspective, but stock prices rose accordingly. Titan Cement was able to announce record profits thanks to significant margin improvement.

The table above shows how EBITDA increased by approximately 64% despite revenue growth of only 5.9%. This means that EBITDA margins jumped from just over 15% to over 23% in the third quarter, which has clearly had a very positive impact on Titan’s bottom line as well.

Looking at its financial results for the first nine months of the year, Titan Cement reported total revenue of €1.9 billion and gross profit of €466 million. This is an increase of over €190 million compared to the first nine months of 2022. General and administrative expenses also increased at a double-digit rate, while EBIT was more than double the figure of €125.7 million at €286 million. It was reported in the first nine months of last year.

Of course, net interest expense continued to weigh on results, but the higher interest expense was more than offset by improved operating performance. As you can see below, net profit amounted to almost €199 million. Net profit attributable to Titan’s common shareholders, after deducting the portion of net profit attributable to non-controlling interests, was EUR 197.6 million, for EPS of EUR 2.64 per share. Certainly not bad results, just for the first three quarters of the current fiscal year.

And strong returns aren’t just “paper profits.” The cash flow statement confirms that the company is printing cash. As you can see below, total operating cash flow was €279.4 million, but this includes an investment of €102 million in working capital changes, before deducting a further €17 million in taxes and €33.8 million in interest payments. must be deducted. There were also some lease payments, although not shown in the cash flow statement below. A more detailed annual report shows that short-term lease liabilities amounted to €17 million at the end of last year. This equates to an average quarterly lease payment of €4.25 million, which will result in €13 million in lease payments being used in the first nine months of the current financial year.

This means that adjusted operating cash flow for the first nine months of 2023 was approximately €317.6 million. We had a total capital expenditure of €153 million (excluding acquisitions), which is a relatively high figure as Titan Cement continues to invest on its own. Capital expenditures of €153 million and lease payments of €13 million in September 2023 represent approximately 155% of depreciation and amortization expenses. And those investments may pay off, as the company revealed its 2026 plans at its recent investor day.

Strong cash flow results have clearly benefited the balance sheet as well. As of the end of September, Titan Cement’s balance sheet had cash of €86 million, financial liabilities and financial liabilities of approximately €850 million, and net debt of €765 million.

After filtering out lease liabilities, net financial liabilities are approximately €700 million. This compares very favorably to the €383 million EBITDA generated in September 2023, adjusted for lease amortization. Also worth mentioning is the company’s recent debt issues. Last month, it issued 150 million euros of six-year government bonds with a coupon of 4.25%. And that’s actually lower than the current average cost of debt.

The 2026 target is ambitious but appears achievable.

Titan Cement’s final quarter of the year could be quite volatile, so we might have to be a bit conservative when it comes to its fourth quarter earnings results. Having generated a net profit of just €20 million in the fourth quarter of 2022, Titan Cement has warned that the end of the year is uncertain and expects that uncertainty to continue into the first half of 2024.

Some goals seem relatively “easy” to achieve. An annual EPS of €3 per share appears to be a given, especially if the company wants to grow EBITDA at a double-digit rate per year.

Interestingly, the company wants to reduce its exposure to cement as it increases its exposure to all other business units. The proportion of ready-mix concrete sales will increase, but we also want to more than double revenue from aggregate sales.

investment thesis

2023 is expected to be an incredibly strong year for Titan Cement, and we hope the company can repeat this performance in 2024. I think Titan’s 2026 forecast is achievable, with the company moving towards full-year EPS of €3 per share. We should be able to reduce net debt further, which will have a positive impact on free cash flow due to lower interest payments.

We have a small long position in Titan Cement as the order has only been partially filled, but we plan to further increase our exposure to Titan Cement in 2024.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.