1999 Third Quarter Results
APASCO
BUY
October 28, 1999
Carlos Peña (52-5) 325-2869
Apasco’s 3Q99 results showed improvements as expected, with revenues and EBITDA growing 5.6% and 10.5%
respectively. Revenue improvement was a result of higher prices for both cement and ready-mix. Prices for cement and
ready mix grew 5.8% and 5.0%, respectively, while cement volumes fell 3.1% and ready mix volumes remained
practically flat, as they compare to very strong volumes achieved in 3Q98. Operating margin at 33.2% declined slightly
compared to 2Q99 due to the increase in the cost of energy, but it was 2.9 pp higher than a year ago. EBITDA reached Ps
815 million. With net financial benefits of Ps 5 million, net earnings increased 107.9%. We expect cement volumes to
improve 2.4% and 4.5% in 1999 and 2000, respectively, and prices to remain stable at current levels in real terms. We
expect sales to increase 5.2%, in both 1999 and 2000, and EBITDA to improve 15.9% and 4.2% respectively. We expect
the EV/EBITDA multiple to fall to 4.3x in 4Q99 and to 3.6x next year. We believe Apasco's multiples will continue to
recover gradually, supported by its healthy financial structure, skillful management and growth prospects. Assuming a
conservative multiple of 6.0x (Apasco's four year average is 9.9x), the stock should reach a price of Ps 70 by February
2000, and Ps 84 by February 2001. We are confirming our BUY recommendation.
October 28, 1999 Price *:
52 Week Range:
Market Capitalization:
Shares Outstanding:
Ps 50.70
Ps 67.00 To 27.70
US$ 1.4 Billion
260.9 Million
Price/Book:
P/E on Sep T12
ROE
ROA
1.23x
8.31x
14.8%
17.0%
INCOME STATEMENT (thousands of constant pesos as of September 30, 1999)
9m98
Margin
9m99
Margin
Change
Net Sales
5,077,755
100.0% 5,465,517
100.0%
7.6%
Cost of Goods Sold
3,274,474
64.5% 3,207,515
58.7%
-2.0%
Gross Profit
1,803,281
35.5% 2,258,002
41.3%
25.2%
Operating Expenses
Operating Profit
401,544
1,401,737
7.9%
27.6%
425,909
1,832,093
Enterprise Value:
P/NCE T12
P/EBITDA T12
EV/EBITDA T12
US$ 1.4 Billion
6.41x
4.27x
4.48x
3Q98
1,817,583
1,134,208
683,375
Margin
100.0%
62.4%
37.6%
3Q99
1,919,844
1,122,142
797,703
Margin
100.0%
58.4%
41.6%
Change
5.6%
-1.1%
16.7%
159,474
638,228
8.3%
33.2%
21.0%
15.7%
7.8%
33.5%
6.1%
30.7%
131,763
551,612
7.2%
30.3%
Integral Cost of Financing
Interest Expense
Interest Income
Foreign Exchange Loss
Monetary Loss
386,777
166,836
58,449
418,633
(140,243)
7.6%
3.3%
1.2%
8.2%
-2.8%
(50,920)
145,997
93,042
(49,560)
(54,315)
-0.9%
2.7%
1.7%
-0.9%
-1.0%
#N/A
-12.5%
59.2%
#N/A
-61.3%
228,187
55,667
17,517
241,576
(51,540)
12.6%
3.1%
1.0%
13.3%
-2.8%
(5,394)
43,776
35,102
(9,601)
(4,467)
-0.3%
2.3%
1.8%
-0.5%
-0.2%
#N/A
-21.4%
100.4%
#N/A
-91.3%
Other Financial Expenses
Pretax Income
Taxes
(14,741)
1,029,701
425,784
-0.3%
20.3%
8.4%
(28,739)
1,911,752
773,277
-0.5%
35.0%
14.1%
95.0%
85.7%
81.6%
(3,928)
327,353
145,561
-0.2%
18.0%
8.0%
(5,389)
649,011
262,919
-0.3%
33.8%
13.7%
37.2%
98.3%
80.6%
Non-Cons. Subsidiaries
Extraordinary Items (gains)
Minority Interest
Net Income
Earnings Per Share
0
3,415
0
600,502
2.301
0.0%
0.1%
0.0%
11.8%
0
12,723
0
1,125,752
4.314
0.0%
0.2%
0.0%
20.6%
#N/A
272.6%
#N/A
87.5%
0
(212)
0
182,005
0.698
0.0%
0.0%
0.0%
10.0%
0
7,789
0
378,303
1.450
0.0%
0.4%
0.0%
19.7%
#N/A
#N/A
#N/A
107.9%
1,939,887
7.435
38.2%
2,362,955
9.056
43.2%
21.8%
736,924
2.824
40.5%
814,618
3.122
42.4%
10.5%
Sep-98
1.9x
13.8%
78.7%
17.7%
31.1%
9m98
42
32
25
11.6x
12.0x
7.2x
Sep-99
2.1x
13.7%
66.3%
5.9%
29.3%
9m99
40
35
19
16.2x
16.8x
11.1x
EBITDA
EBITDA Per Share
BALANCE SHEET (thousands of constant pesos as of September 30, 1999)
Sep-98
% of T.A.
Sep-99
% of T.A.
Total Assets
14,168,931
100.0% 13,862,566
100.0%
Cash & Equivalents
727,446
5.1% 1,454,158
10.5%
Other Current Assets
1,228,818
8.7% 1,285,024
9.3%
Long Term
362,763
2.6%
759,992
5.5%
Fixed (Net)
11,012,223
77.7% 9,567,296
69.0%
Deferred
837,681
5.9%
796,096
5.7%
Other
0
0.0%
0
0.0%
Total Liabilities
3,359,099
23.7% 3,144,559
22.7%
Short Term Debt
365,208
2.6%
286,497
2.1%
Other Current Liabilities
649,124
4.6%
997,474
7.2%
Long Term Debt
2,278,205
16.1% 1,797,757
13.0%
Other Liabilities
66,562
0.5%
62,831
0.5%
Shareholders Equity
10,809,832
76.3% 10,718,007
77.3%
Minority Interest
0
0.0%
0
0.0%
FINANCIAL ANALYSIS
Current Ratio
Short Term Debt to Total Debt
Foreign Liab. to Total Liab.
Net Debt to Total Equity
Total Liab. to Total Equity
A/R Turnover (days)
Inventory Turnover (days)
A/P Turnover (days)
EBITDA to Interest Expense
Interest Coverage Ratio
Annualized EBITDA to ST Debt
ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int.
NCE = Net income + Monetary Loss + Fx Loss + Depreciation
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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1999 Third Quarter Results
APASCO
BUY
Operating Results
3Q99
Increase in real terms vs.
3Q98
Increase in real terms vs.
2Q99
Revenues
Domestic Cement
1,920
1,547
944
635
736
140
33.2%
176.4
5.6%
(3.1%)
5.8%
1.3%
5.0%
(16.7%)
2.9 pp
(4.8%)
3.0%
5.2%
(2.2%)
6.5%
(2.2%)
(14.1%)
(1.8 pp)
0.6%
Ready-mix
Cement exports
Operating margin
Depreciation charges
(millions of Ps)
Volume (000s of metric tons)
Prices (Ps / metric ton)
Volume (000s of cubic meters)
Prices (Ps / cubic meter)
Volume (000s of metric tons)
(millions of Ps)
Quarterly revenues improved vs. 3Q98, due mainly to price increases in cement and ready-mix. Cement and ready mix prices remained at
similar levels in nominal terms vs. 2Q99. Competition among market participants continues to be driven through advertising campaigns rather
than through low-pricing strategies. Cement volumes declined as they compare to abnormally higher volumes in 3Q98 when some clients
anticipated purchases prior to an imminent price hike last year. However, volumes increased vs. 2Q99 fueled by some recovery in the formal
sector of construction together with growth in the self-construction segment of the market. Ready-mix volumes improved marginally. Export
volumes remain weak due to problems in the economies of Central and South America. Currently, exports account for 2.3% of revenues.
Energy costs grew 16% vs. 3Q98, due to higher fuel oil prices, leading to an increase in cash costs per ton of 5%. However, the higher prices
and lower depreciation charges led to a 4.0 pp increase in gross margin to 42.5%. With a 21% raise in operating expenses, operating profit
grew 51.6%. Operating margin at 33.2% increased 2.9 pp vs. 3Q98. Operating cash flow grew 10.5%, with EBITDA/share reaching Ps 3.12
for the quarter.
Financing Activities
The company posted a Ps 5.4 million net financial gain resulting from FX and monetary gains. Net interest expense declined 77.3% to Ps 8.7
million. Quarterly net income grew 107.9%.
Apasco's financial health continued improving. The company's cash holdings increased to Ps 1.5 billion (US$ 155 million), twice as much as
in 3Q98 (and 152% more in dollars), and net debt declined 58% in dollar terms to US$ 67 million. Leverage improved slightly vs. 2Q99 to a
healthy 29.3%, while current and interest coverage ratios improved to 2.1x and 16.8x, respectively.
Outlook
We believe domestic cement and ready-mix volumes in 1999 will grow 2.4% vs. 1998 and 4.5% in 2000. We expect prices to remain in
nominal terms at current levels for the remainder of this year, but expect them to grow in line with inflation in 2000. We believe 1999 revenues
will grow 5.2% and EBITDA 15.9%, as we expect margins to grow 4.0 pp over 1998 due to the increased use of petcoke as fuel and the strong
price levels. We expect revenues in the year 2000 to improve 5.2% and EBITDA 4.2%, with a slight drop in margins (-0.5 pp). The
EV/EBITDA multiple will fall from the current 4.5x to 4.3x by the end of 1999, and to 3.6x by the end of next year. Apasco's EV/EBITDA
multiple has averaged 9.9x in the past four years. However, taking in to account that next year’s growth will be modest, we are assuming a
more conservative multiple of 6.0x for our projections. At this level, Apasco should reach a target price of Ps 70 by February 2000, 38% higher
than its current price. Our target price for February 2001 is Ps 84. Apasco’s average multiple has typically been higher than Cemex’ due to its
healthier financial structure. However, it is now trading at a discount to Cemex. We believe Apasco’s multiple will appreciate from the current
levels, supported by the growth in operating results and also by the strength of its balance sheet and its excellent management. We confirm our
BUY rating on the stock.
Carlos Peña
clpena@cbbanorte.com.mx
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
2