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Flash: Cemargos continues buying in the strategic region

Price: COP10,100; Target Price: COP 9,950.

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April 9, 2014 ( newswire) Cemargos announced a new acquisition, this time for grinding assets in the French Guiana for EUR 50 mn (USD 69 mn). Below some remarks on the transaction with the available information:

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Cemargos acquired 100% of Ciments Guyanais, owned today by Lafarge and Holcim (50%-50%). Acquired assets include a clinker grinding facility with a capacity of 200,000 MT/year and a port, located in Degrad des Cannes, near Cayenne.

  • These assets have a EUR 8.1 mn (USD 11.2 mn) EBITDA - according to Cemargos’ press release - which reflects a 6.2x EBITDA multiple for the transaction. This multiple seems attractive relative to cement companies’ forward multiples (LatAm average: ~9x 2014E) and the Honduras transaction (8.5x).
  • The transaction reflects a capacity multiple of USD 345/MT which seems rich, as CAPEX for a cement (only grinding) expansion project stands at ~USD 100/MT; however, we highlight that this multiple does not take into account the port facility.
  • With this acquisition, Cemargos will become the leading supplier in the French Guiana. We highlight that the French Guiana has a cement consumption (per capita: 433 kg/year) that is almost 2x the average cement consumption in LatAm (per capita: 253 kg/year) and Colombia (per capita: 226kg/year). This economy is highly dependent on gold mining, the Guiana Space Center in Kourou (French), and recently eco-tourism.
  • This acquisition is consistent with Cemargos’ expansion strategy and it’s within the region that they have defined as strategic: the Caribbean (including the northern part of South America), Central America and Southeast USA. Hence, we initially deem this acquisition as positive given paid multiple, high cement consumption in Guiana and synergies with the Surinam and Antilles operations, but noting that there is still further information – especially regarding profitability of the assets - to be revealed by Cemargos.
  • Finally, we highlight that Cemargos’ net debt as of 2013 stood at USD 1.02 bn. In addition, by February 2014 the BoD had authorized acquiring an additional USD 600 mn in long term debt with HSBC, partially to fund the Florida transaction (USD 720 mn) and probably to fund this new acquisition as well, although particular funding of the Guiana transaction has not been confirmed with Cemargos. Thus, with net debt around ~USD 1.6 bn, net debt/EBITDA would stand at 3.1x, which starts looking relatively high (vs. 2013: 2.0x).
  • The transaction is subject to regulatory approvals.

Credicorp Capital

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