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Quarterly Results: Cemargos (UNDERPERFORM) - Double-digit growth mildly overshadowed by lower than expected results in Honduras

Price: COP 10,780; Target Price: COP 9,950

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May 6, 2014 ( newswire) The company released its financial results for 1Q14 reporting sound double-digit growth along its operating and bottom line figures. However, we highlight that margins in the Caribbean were well below our estimates, and thus EBITDA surprised us negatively by 13.5%.

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During 1Q14 consolidated cement sales grew 4% (2.7 mn MT), while concrete sales increased 14% (2.4 mn m3). Growth in volumes include one month of operations of new assets in Florida and a full quarter of Honduras. Meanwhile, growth in Colombia was moderate (4% y/y). While EBITDA margin in Colombia (32% including corporate and others) was above our estimates for 2014YE (28%), margins in Central America were widely below our estimates due to lower than expected margins in Honduras related to price controls from authorities and previous drops in purchases from construction and specialized stores, which according to the company, were pursuing this price-related-policy. This effect should be neutralized in 2Q14 as cement companies have negotiated with the Government and managed to increase prices by 6% towards the end of March. EBITDA in the US was positive (USD 2 mn) despite challenging climate conditions in 1Q14. We expect margin in the US to close 2014 at 7%, which we consider can be reached during the following quarters. Non-operating results came overall in line and thus surprises in bottom line figures were mainly explained by a lower than expected EBITDA.

We will fully incorporate the Honduras, Florida and French Guiana acquisitions in our models. Although we foresee this could have some effect on T.P., our recommendation could eventually remain unchanged.

Credicorp Capital

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