QUARTERLY REPORT

February 12, 2020

CEMEX
REPORT OPINION: NEGATIVE
MARKET OUTPERFORMER
2020e PRICE TARGET US$6.2
Weak 4Q19. No 2020 dividend signals commitment towards
paying down debt
CEMEX reported weak 4Q19 figures, with profitability deteriorations reflecting the
negative impact of higher maintenance, raw material and freight costs. However,
the company’s solid FCF grabbed the spotlight, generating US$455 million (vs.
US$431.9 million GBMe), largely due to a stronger-than-expected reversal
in working capital needs, and proving that despite the sharp volume decline in
Mexico, it is able to keep generating free cash flow to pay down its debt.

We reiterate our conviction on the name. Despite the weak 2019 EBITDA figures,
FCF generation came in strong at US$461 million (US$478 million GBMe). That
said, we uphold our positive stance on the name, as our thesis remains robust,
based on a strong FCF—despite little to no-EBITDA growth—and an attractive
valuation. Furthermore, it is worth highlighting management’s decision to cancel
the 2020 dividend, which we believe shows their commitment to maximizing debt
reduction.

All in all, we reiterate our 2020 price target of US$6.2 and our Market
Outperformer rating. However, we will be sending a document shortly, updating
our estimates and valuation, mainly to account for CEMEX’s divestments in 4Q19—
which the company reported as discontinued operations retrospectively—as well
as the IFRS 16 accounting standards.

Key fundamentals of our investment thesis on CEMEX:

CAPITAL GOODS AND BUILDING MATERIALS
• Attractive valuation, as current prices offer a margin of safety over our
replication exercise under stressed conditions.
• FCF generation should stay strong, underpinned by the company’s liability
management efforts.
• Limited liquidity risk, due to a stretched maturity profile.
• Asset sales, with CEMEX on track to meet its guided US$1.5-2.0 billion
in disposals by YE20 (US$1.7 billion in divestments announced—US$915
million still pending to be closed).
QUARTERLY REPORT
February 12, 2020

STOCK PRICE PERFORMANCE VS. ANALYST ESTIMATES

6.5
6.0
5.5 16/10/2019 | 6.2 Market Outperformer
5.0
4.5
4.0
3.5
3.0
2.5
2.0
Feb-19

Mar-19

Apr-19

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Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

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Mar-20
Price Price Target

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