Cementir’s DCF is built on a rather conservative margin expansion, from about 20% in 2018-19 to 21% by 2029, which is our lowest margin expansion forecast amongst our cement companies, despite the fact that Cementir seems to have a stronger business model than the average cement company. Indeed, an EBITDA growth rate of 2% is used to generate the projection beyond 2021.
Our DCF model is based on a conservative FCF growth between 2018 and 2029 with FCF seen at €140m in 2029, a slow rise from the €123m computed for 2021.
The change in WCR deserves a comment. We decided to apply a simple rule: each euro of incremental revenue to be generated needs investment of about €0.10 in working capital. This seems to be conservative enough, in our opinion.
On the capex side, we assume that €70m in FY 19 is conservative enough with capex growing in line with depreciation expenses in 2020 and 2021, as well as by a 2% CAGR from 2021 onwards.
All in all, the perpetual FCF margin lies at about 9%. We consider this number to be conservative for a company with a strong business model and high FCF generation (EBITDA-to-FCF conversion rate of ~45%°.
SOTP valuation
Our SOTP/NAV is replacement-cost-based on a geographical basis and product basis. We have used multiples of €170 per ton of cement capacity for grey cement in developed markets (Denmark and Belgium), a low multiple of €100 per ton of cement capacity for Turkey’s grey cement plants due to the difficult business environment in which the division is evolving.
Concerning white cement, we have used multiples of €100 for Malaysia, €120 for China, €150 for Egypt, as well as €250 for Denmark and the US.
Peers valuation
We decided to neither apply a premium nor a discount for most multiples, despite the stronger business model than the average cement company (premium), because of the low free float (discount), with the exception of the yield to which we applied a premium of 30% because of the lower payout ratio of Cementir (20%) than peers.
Note that Lafarge bought Orascom in 2007 at 11.6x EBITDA, HeidelbergCement bought Hanson in 2007 at 12.8x EBITDA, Holcim acquired Cemex’s Australian assets in 2009 for 6.6× 2009 EBITDA, Camargo swallowed Cimpor for 8.7x EV/EBITDA in 2012 and CRH bought LafargeHolcim’s assets for 8.7x EBITDA pre-synergies and 7.7x EBITDA post-synergies.