Cement Aggregates Businesses

[Packer16]

I was thinking about industries that have good characteristics but some relatively cheap players and cement/aggregates came to mind.  Although there are some commodity players out there, most companies have good margins.  Most of these businesses trade at 8x EBITDA+ and for good reasons of local duopolies and transport costs.  Some the cheaper ones I have come across are: Sumitomo Osaka (4.6x), Nozawa (2.8x) and Yoshicon (1.1x) in Japan, Seo San (3.1x) and Busan Industrial (4.8x) in Korea and Buzzi (savings shares) (6.1x) in Italy.  Has anyone looked at this sector or found good research sources.  TIA.

 

Packer 

[Guest Schwab711]

I think BedRock Software is the CLB of the industry. I'm pretty sure they are private but it might be worth looking into their customers?

[abitofvalue]

US Concrete, Vulcan Materials & Texas Industries are the big ones in the US.  Probably finding a couple of initiation coverage reports on them should provide a good starting point.

 

BTW - Monarch Cement (MCEM) trades at 4x EV/EBITDA right here in the US, don't know too much about them but they seem to have done ok through the crisis based on a cursory look on Bberg

[rogermunibond]

Four big players, Lafarge, Holcim, Cemex and Heidelberg.  Fifth player is CRH but they're less cement than the big four.

 

Japan, Italy, Korea issues are all about volume declines and price weakness.  Volume could take a while to get back.  It's not like Japan is in need for more infrastructure.  Korea maybe.

 

Japan and Korean Cement Associations have good website with decent production/sales statistics.

 

If you're looking at the cement/aggregates business, the US is better than most countries but not on cement.  But with aggregates.  VMC and MLM are essentially a duopoly with lots of smaller players.  There's room for more consolidation.  Recently the family from Florida Rock have been buying assets.  They were high bidder on Maryland quarries that Lafarge was selling and a while back bought Cemex assets.  They are called Panadero Aggregates Holding

[LC]

careful of environmental issues. fly ash is the biggest problem and when i looked at monarch, the regulatory pressure certainly existed. kind of a utility, though. not much sense in setting up multiple cement plants for a given geography.

 

oh also, perhaps send a PM to user 'Aberhound', he has a good knowledge of the industry IMHO.

[namo]

@Packer: do you use EBITDA multiples even for capex-intensive industries, like this one is (I believe)? Why not EBITDA-capex, or possibly EBIT?

[Packer16]

It depends upon what portion of cap-ex is one-time versus for recurring.  For the cement business, there is an investment in a plant so EBITDA may be used or EBITDA - recurring cap ex may be a batter metric.  In most cases, a cheap EBITDA multiple will also have a cheap EBITDA - recurring cap ex.

 

Packer

[Simple Investor]

It looks like Monarch has a $26 million dollar equity portfolio as well.  Would you subtract the equity portfolio to get a lower EV? 

 

They also stopped filing with the SEC in dec 14.    The did a Reverse/Forward Stock Split to reduce the company record holders of stock below 300 persons. 

 

http://www.monarchcement.com/Assets/PDFs/SEC%20Filings/2015/Qtr%201/2014%20Annual%20Report.pdf

 

[gym97]

packer, besides liquidity, do you see any disadvantage from holding the savings shares? assuming you don't care about liquidity, it almost seems like the savings shares should trade at a premium given the buzzi family are majority owners anyways. I think buzzi savings shares look cheap but there has always been a discount to the regular common shares.

[DavidVY]

HA! I was just looking at this field after reading some global value fund's annual letter.

 

The one he liked was Martin Marietta Materials, Inc.(NYSE:MLM).

 

His argument was that it was a small player market (oligopoly) and that margins remain intact during downturns.

 

It looked too expensive for me, but I added it to a potential watchlist

[Packer16]

From a minority shareholder perspective, the savings shares do look better.  When some of these have been converted to common, some have been converted at a discount (Italcementi and Fiat) or on a 1:1 basis (Exor).  Exor was converted most recently so the trend does appear upward.

 

Packer

[DavidVY]

Bought USLM.

 

- Way overcapitalized balance.

- 5th largest player in this space

- Family owned

- Extra safe investment

 

Cons

- Illiquid

- Lack of financial engineering will be a drag on ROE (MLM is using lots of debt)

- Heavily tied to infastructure buildout for USA