The announcement of the acquisition of LafargeHolcim’s operations in Brazil by CSN Cements, controlled by CSN (CSNA3), didn’t come as a big surprise to the market, but it’s definitely positive. Analysts of Credit Suisse see in the transaction multiple attractive implicits.
“The transaction value implies US$99.50/tonne, which is below the recent acquisition of Elizabeth Cimentos (about US$160/tonne) and below what our indicators show it would cost to build new cement capacity ( approximately $250/tonne). On the basis of EV/Ebitda (company value over Ebitda), we see an implicit multiple of 9.2 times based on the expected Ebitda for 2021 or 6.7 times incorporating synergies, which compares to 7-8 times for cement players of Latin America”, said analyst Caio Ribeiro, in a report obtained by Money Times.
CSN informed, in a material fact released this Friday (10), that the base value of the deal is US$1.025 billion, subject to price and escrow account adjustments.
The transaction is in line with CSN Cimentos’ expansion strategy, which has been taking advantage of the recovery in cement consumption in the Brazilian market and wants to become a standout in the sector.
LafargeHolcim Brasil plants are strategically located in the Southeast, Northeast and Midwest regions. The company also has limestone reserves and concrete and aggregates units in its portfolio.
Credit Suisse highlighted that, with the acquisition of LafargeHolcim Brasil, CSN Cimentos exceeds the future capacity targets announced at Investor Day last year, of 13.3 million tons of cement produced per year.
The acquisition of the assets of LafargeHolcim Brasil adds a production capacity of 10.3 million tons of cement per year to CSN Cimentos. With the closing of the operation, CSN Cimentos will have a total annual capacity of 16.3 million tons of cement.
With the completion of the acquisition, CSN Cimentos is ahead of its schedule. Analysts expect to see the company shift focus from this, moving away from some M&As (Fusions and acquisitions) to focus on organic growth opportunities. According to Ribeiro, the potential initial public offering of shares (IPO) of the company should pave the way for further growth potential.
For CSN’s shares, Credit Suisse has an outperform recommendation and a target price of R$ 62.50. The bank believes the company’s free cash flow generation will remain robust, leading to a drop in leverage to structurally lower levels and resolving past capital structure issues.
Did you like this news? Download our app to read, in just one click, this and more than 150 articles daily.