GRUPO LAMOSA, SAB DE CV Great Opportunity at

Transcription

Equity Research
Construction
GRUPO LAMOSA, S.A.B. DE C.V.
September 05, 2014
Great Opportunity at Inflection Point for Sector
 Other
P$ 27.6
Figures in millions of pesos
Price Target 2015: P$ 33.0 19% Return
■ We are initiating coverage of Grupo LAMOSA with BUY recommendation
and a year-end 2015 target price of MP 33.0. Potential return at our target
price is 20%, taking into consideration a 1% cash dividend yield.
Sales
EBITDA
■ LAMOSA is the company with the highest EBITDA margins in the ceramic
industry, more than double the levels of its local competitors (19% versus
9% on average) and 460 bps higher than its international peers.
Net Profit
ROE
ROA
Net Debt/ EBITDA
Div. Yield (Cash)
18.7%
-12.4%
18.9%
-6.9%
18.9%
5.9%
19.2%
7.1%
630
651
771
798
6.6%
-26.1%
6.8%
-13.2%
7.7%
22.5%
7.6%
3.5%
15,043
627
9,290
5,149
5,753
5,753
15,201
444
9,060
4,950
6,141
6,141
15,828
507
9,403
5,204
6,425
6,425
15,866
463
8,746
4,464
7,120
7,120
1.6x
8.3x
16.4x
1.6x
8.5x
15.9x
1.5x
8.0x
13.4x
1.4x
7.1x
13.0x
10.9%
4.2%
2.5x
1.0%
10.6%
4.3%
2.7x
1.0%
12.0%
4.9%
2.5x
1.0%
11.2%
5.0%
2.0x
1.0%
USD 800
Firm Value (mn)
USD 1,169
3mo. Avg. (mn)
USD 850
1yr. High—low
Float
MP 28.7—MP 23.7
13%
Lamosa vs. IPC (August 2013 = 100)
Leverage reduction, an opportunity for inorganic growth. The company’s
leverage has been reduced from 6.8x in 2008 (Porcelanite acquisition) to 2.8x on
1H14. We estimate that this level will reach 1.5x by the end of 2016. In our opinion
with this leverage LAMOSA could make an acquisition, probably in USA or South
America.
95
Solid senior management team. With more than 20 years of experience on
average, the senior management team of Grupo LAMOSA, headed by Federico
Toussaint Elosua and Tomas Garza de la Garza, has positioned the company as
one of the biggest producers of ceramics worldwide.
Source: Bloomberg
Actinver’s Equity Research - Creating Ideas With Value
10,554
2,024
Mkt. Cap (mn)
120
Main risks to our recommendation are: i) higher external competition; ii) increase
on cost for raw materials and inputs; iii) no success in international business
10,003
1,889
Market Data:
Margins above the average of the industry. The company’s profitability is higher
than its competitors, with an EBITDA margin of 19%, compared with 9% on average
of Interceramic and GISSA (construction division), the two main domestic
competitors. In a comparison with international peers, LAMOSA’s EBITDA margin is
higher in around 460 basis points.
Our target price is obtained using the discounted cash flow method, which
assumes a WACC (weighted average cost of capital) of 10.2%, cost of capital of
12.7%, beta of 1.3 and perpetual growth rate of 3.5%.
9,558
1,808
115
110
105
100
Dec-13
Nov-13
Oct-13
Sep-13
90
LAMOSA*
IPC
Ramón Ortiz Reyes
Cemet, Construction y Transport
[email protected]
Enrique Camargo
[email protected]
+52 (55) 1103 66 00 x 1836
1
Aug-14
Our estimates could prove conservative. We have decided to estimate
conservative growths in the following years until we have solid evidence of
recovery. We are projecting sales increases of 5% in 2014, 6% in 2015 and 7% in
2106; at EBITDA level we anticipate a higher growth of 6%, 7% and 8%,
respectively. Additionally, we have incorporated a sensitivity matrix that captures
the risk in our price target with further variations at EBITDA level. Price ranges
obtained by us are from MP 27.0 to MP 39.0 per share.
Multiples
EV/Sales
EV/EBITDA
P/E
9,545
1,783
Jul-14
We are initiating coverage with a BUY recommendation and target price of MP
33.0. In our opinion, LAMOSA is an attractive investment option within the
construction sector. First signs of recovery began in July, where the sector showed
positive increases.
Total Assets
Cash
Total Liabilities
Debt
Equity
Majority
2014e 2015e
Jun-14
■ Based on our estimates (with conservative assumptions) we expect a
reduction of 18% in the P/U multiple for 2015 compared to the current
level, supported by economies of scale and economic growth.
Margin
Growth YoY
L12m
Apr-14
■ We consider the current environment represents a buy opportunity as we
are at an inflection point in the recovery of the construction sector in
Mexico.
Margin
Growth YoY
2013
May-14
Last Price:
Quarterly Review
Mar-14
Low Liquidity
Change in Estimates
Feb-14
LAMOSA
Change in T.P.
Jan-14
Change in Recommendation
Buy
CONTENT
Investment thesis…..………..…………….………………….
3
Positives…………………….…..…………………………………….
3
Negatives…………………….…..…………………………………..
4
Valuation…………………………………………....……………...…
5
Discounted cash flow ……..……………………………………....….
5
Sensitivity matrix…………………………………………………..…
6
Relative valuation………………………………………...……….….
6
Financial results…………………..……....………………………..
7
Financial projections………………………………………………
8
Sector analysis…………………………………………….............
10
Industry in Mexico…………………….………………….………..…
10
Ceramic industry in USA…….………………...……………………..
13
Company description……………………………….………….....
14
Management and Board of Directors…………..……….…………....
18
Shareholders structure………….…….………………...……………..
19
Financial summary……………….……………………….....…….
21
2
Investment thesis
We recommend BUY of LAMOSA’s shares considering it is an attractive investment option
in the construction sector, a segment that will have a significant increase in coming years.
The leadership position of LAMOSA’s brands provides important leverage in generating
sales gains with the economy’s recovery expected for Mexico during the following years (with
real increases of GDP of 4.0% and 3.3% for the period 2015/16). We estimate a compound
annual growth rate (CAGR) of 4%/9% in sales and net income, respectively for the period
ending in 2016.
We established our target price in MP 33.0 by the end of 2015, with a potential return of 20%,
taking into consideration a 1% cash dividend yield for the same period. Our target price is
valued at 14.0x our 2016 EPS and 15.5x our 2015 EPS, slightly above the industry average
of 14.7x which is justified due to LAMOSA’s higher profitability compared to its peers.
Margins above the average of the industry. Grupo Lamosa has a higher profitability than
its competitors, with an EBITDA margin of 19% (at the end of 1H14) compared with the 9%
obtained on average by Interceramic and GISSA (construction division), its two main
domestic competitors. In regard to international participants, LAMOSA’s EBITDA margin is
higher by 510 basis points. The higher profitability is mainly explained by the geographical
diversity of LAMOSA’s plant locations, with a presence in 12 states (see company
description), maintaining cost efficiency in transportation (9% of sales), owing to the nearness
between their plants and its clients. For the period 2014/16 we estimate an expansion in
margins of 23 basis points (bps) on average, without the benefit yet of energy reforms, which
could contribute a reduction in the cost of energy of 4 percentage points; energy costs
currently amount to 10% of sales.
Leverage reduction, an opportunity for inorganic growth. The reduction of leverage of
the company has been significant. After the acquisition of Porcelanite in 2007 (US$ 810
million), LAMOSA´s leverage increased to 6.8x (net debt/EBITDA) by YE 2008. The company
later focused in a strategy to reduce such leverage. For 1H14 the debt negotiated for
Porcelanite’s acquisition had been reduced by more than 50%, with a leverage ratio of 2.8x.
In our projections, we estimate that LAMOSA will be capable of generate an average free
cash flow of MP 560 million in the following three years, to help reduce leverage to a 1.5x
level at the end of 2016E. With a low leverage level, we consider that LAMOSA will evaluate
potential acquisitions possibly in USA or South America.
Construction sector with recovery signs. In accordance to the latest data published by
INEGI, in June 2014 the construction industry gained 1.2% YoY, this being the first positive
variation in the past two years. The improved performance is related to an increase in
housing construction and in specialized works and it increases the expectation of recovery of
the sector, supported by an increase in federal government spending on infrastructure and
the improved performance for the housing industry in the following years.
Production with state-of-the-art technology. In the past ten years LAMOSA has invested
around US$ 1.0 billion in technology and acquisitions (mainly in the ceramic division
representing a 73% of total sales). These investments have positioned the company as one
of the lowest cost producers in the industry and provide solid expectations of continued sales
growth without the need of high capital expenditures.
Leader in all its products lines. The effort made by the company to modernize its plants
and actions taken to position its brands amongst its clients allows Grupo LAMOSA to
maintain its leadership in the markets in which it participates. In the tile business it has a
market share of 43%, in adhesives 62% and in sanitary ware 21%, higher than its nearest
competitors (by division: Vitromex 19%, Interceramic 12%, and Cato 16%).
3
Solid Top management. With more tan 20 years of experience on average, Grupo
Lamosa’s top management led by Federico Toussaint Elosua (General Director) and
Tomás Garza de la Garza (Finance, Administration and Planning Director) have lead the
company to position itself as one of the most important ceramics producers worldwide.
Also, they were able to reduce the company’s leverage efficiently after the acquisition of
Porcelanite, in an environment of high credit restrictions amidst the 2008 crisis.
Main risks.
Higher external competition. New international competitors could compromise the future
growth of LAMOSA’s sales. Nevertheless, we consider that this is not probable in the
medium term. Imports of ceramic products to Mexico have represented between 5% and
10% of the total market. Most of the them come from Europe (mainly Italy and Spain), as
well as China. In our opinion this percentage should not increase in the following years due
to strengthening of the peso in regard to other currencies and the fact that in Mexico the
majority of ceramic products is set to the affordable entry level, whilst imports are set
mainly to luxury products, transferring to the client the associated costs for duties and
transportation.
Increase in cost for raw materials and inputs. An important variation in the main inputs
could affect the profitability of the company if it is not able to transfer them to its clients.
The most representative items in regard to costs for LAMOSA are: energy (approximately
10% sales), enamel (aprox. 9%) and transportation (aprox. 9%). Nevertheless, as we have
mentioned in our investment thesis, the weighted average of energy cost in regard to the
total sales could decline by 4 percentage points as a result of the energy reforms.
Little success in international growth. With the low leverage reached by the company
we think it is probable that LAMOSA might extend its operations globally (USA and/or
South America). An inefficient or unsuccessful strategy here could affect the company’s
financial position and commit the future growth.
Stock with low liquidity. LAMOSA is classified as a share with low liquidity in accordance
to the Mexican Stock Exchange (BMV) classification, positioning it in number 96. In
accordance to Bloomberg, average daily traded volume in the past three years was MP 6
million (US 460 thousand). Top management is taking the necessary measures to increase
LAMOSA’s share liquidity, which we see as positive.
4
Valuation
We are initiating coverage of Grupo Lamosa, with a BUY recommendation and target
price for 2015E of MP 33.0 per share. Our price is based on a discontinued cash flow
valuation which assumes a WACC of 10.2%, cost of capital of 12.7%, beta of 1.3 and
perpetual growth rate of 3.5%.
At our target price for 2015, Lamosa would trade at a forward EV/EBITDA multiple of
7.1x for 2016, in line with the forward multiple of 7.1x (based on 2015 EBITDA). On the
other hand, the forward P/E multiple at our target price is at 14.0x, practically in line with
its historical forward average and at a premium of 8% compared with the current 2015
multiple.
GRUPO LAMOSA, S.A.B. DE C.V.
Discounted Cash Flow Model (2015-2019E)
Millions of Pesos
EBIT
Effective Tax rate
Tax Effect On EBIT
NOPLAT
Depreciation
Working Capital Changes
CAPEX
FCFE
Perpetuity Grow th Rate
Present Value of Explicit Period (2015-2019E)
Perpetuity Value
Present Value of Perpetuity Value
Theoretical Firm Value
Net Debt
Minority Interest
Theoretical Market Value
Number of shares (Mn)
Theoretical Price / Share
Current Market Price
Potential Return
2015E
1,458
30.0%
(437)
1,020
566
(227)
(450)
910
Average Cost of Debt
Long Term Tax Rate
After-Tax Cost of Debt
Cost of Capital
Market Risk Premium
Risk Free Rate + Country Risk Premium
Beta
% Total Debt
% Capital
WACC
2016E
1,570
30.0%
(471)
1,099
626
(351)
(400)
974
2017E
1,696
30.0%
(509)
1,187
669
(354)
(350)
1,152
2018E
1,832
30.0%
(549)
1,282
716
(358)
(333)
1,308
2019E
1,923
30.0%
(577)
1,346
766
(361)
(283)
1,469
$
$
Perp.
1,981
30.0%
(594)
1,387
805
(362)
(297)
1,533
3.5%
4,276
22,774
12,695
16,971
4,696
0
12,275
375
32.8
27.6
18.5%
6%
30.0%
4.2%
12.8%
5.5%
5.5%
1.3
30%
70%
10.2%
So urce: A ctinver
5
We have incorporated in our valuation a sensitivity matrix in order to consider relevant
variations to our estimated EBITDA for 2016. Our base scenario is located in the middle of
the table, with no variation at EBITDA level and the implicit valuation of our target price. As
can been seen in the table, upon an increase of 15% in our EBITDA estimate, the target
price would increase to MP 39 per share. Whilst a contraction of 15% would limit our price
to a level of MP 27 pesos. We do a similar exercise considering the implicit valuation of our
P/E multiple.
EBITDA change %
Sensitivity matrix
Net Income change %
15%
10%
5%
0%
-5%
-10%
-15%
15%
10%
5%
0%
-5%
-10%
-15%
5.6x
$ 29.2
$ 27.5
$ 25.9
Implicit forward EV/EBITDA multiple
6.1x
6.6x
7.1x
7.6x
$ 32.5
$ 35.9
$ 42.6
$ 39.3
$ 30.7
$ 34.0
$ 40.4
$ 37.2
$ 28.9
$ 32.0
$ 38.2
$ 35.1
8.1x
$ 46.0
$ 43.6
$ 41.2
8.6x
$ 49.4
$ 46.9
$ 44.3
$ 24.2
$ 27.1
$ 30.1
$ 35.9
$ 38.9
$ 41.8
$ 22.6
$ 20.9
$ 19.3
$ 25.3
$ 23.5
$ 21.7
$ 28.1
$ 26.2
$ 24.2
$ 33.7
$ 31.5
$ 29.2
$ 36.5
$ 34.1
$ 31.7
$ 39.3
$ 36.7
$ 34.2
12.5x
$ 33.9
$ 32.4
$ 30.9
13.0x
$ 35.2
$ 33.7
$ 32.2
Implicit forward P/E multiple
13.5x
14.0x
14.5x
$ 36.6
$ 39.3
$ 37.9
$ 35.0
$ 37.6
$ 36.3
$ 33.4
$ 35.9
$ 34.6
15.0x
$ 40.7
$ 38.9
$ 37.1
15.5x
$ 42.0
$ 40.2
$ 38.4
$ 29.5
$ 30.6
$ 31.8
$ 34.2
$ 35.3
$ 36.5
$ 28.0
$ 26.5
$ 25.0
$ 29.1
$ 27.6
$ 26.0
$ 30.2
$ 28.6
$ 27.0
$ 32.5
$ 30.8
$ 29.0
$ 33.6
$ 31.8
$ 30.0
$ 34.7
$ 32.9
$ 31.0
$ 33.0
$ 30.9
$ 28.8
$ 26.7
$ 33.0
$ 31.3
$ 29.7
$ 28.0
Relative Valuation
The P/E multiple estimated for 2015 of 13.0x reflects a discount of 24% in regard to the
average of Lamosa’s international peers, which is attractive. Nevertheless, in the EV/
EBITDA multiple the discount is only 4%. In our opinion, the company could trade at higher
multiples taking into consideration that EBITDA margin is 460 bps above their average
based on 2015 estimates.
Company
Ticker
Ceramic products
Mohawk Industries
Masco
Toto
Boral
Lamosa
Dynasty Ceramic
Villeroy & Boch
Portobello
MHK.US E.U.A.
MAS.US E.U.A.
5332.JP Japón
BLD.AU Australia
LAMOSA*.MM
México
DCC.TB Tailandia
VIB3.GY Alemania
PTBL3.BZBrasil
PanariaGroup
PAN.IM
Italia
Delton Cables
DCL.IN
India
Average (Exc. Lamosa)
Country
Price Mkt Cap
(Local)
(USD)
148.7
23.9
1,277
5.3
27.5
59.0
12.5
4.9
1.4
56.1
EV
(USD)
Tot Ret
2014
10,829
8,509
4,296
3,912
800
739
485
338
81
2
13,195
10,730
3,953
4,589
1,164
754
503
475
210
8
-0.1%
4.8%
-23.4%
11.9%
-3.4%
21.0%
18.5%
-0.8%
7.3%
36.8%
3,244
3,824
8.5%
Return
YoY
EV/EBITDA
P/BV
P/E
EBITDA margin
2013A 2014E 2015E actual 2013A 2014E 2015E 2014E 2015E
25.9% 12.8x
25.2% N.A.
1.3%
6.8x
16.6%
8.9x
9.3% 8.3x
3.1% 12.8x
48.1%
5.9x
22.0%
6.7x
18.9% 22.0x
-5.7%
3.3x
17.3%
9.9x
11.1x
10.4x
7.2x
8.6x
7.9x
12.8x
4.9x
6.0x
7.1x
N.A.
9.8x
9.2x
6.5x
7.5x
7.1x
11.5x
4.6x
4.2x
5.8x
N.A.
2.3x 23.8x 24.2x
12.2x 23.2x 23.6x
1.9x 11.7x 11.6x
1.2x 25.4x 24.1x
1.7x 16.3x 13.4x
7.8x 19.2x 19.6x
2.2x 14.1x 13.5x
3.7x
8.6x
8.9x
0.4x
N.A. N.A.
0.8x
0.6x
N.A.
18.1x
22.7x
19.2x
19.0x
12.9x
18.2x
14.0x
7.6x
18.1x
N.A.
15.0%
11.9%
10.7%
11.7%
19.2%
25.3%
9.7%
18.7%
8.4%
N.A.
15.9%
12.6%
11.3%
12.7%
19.4%
26.4%
9.8%
21.1%
9.0%
N.A.
8.5x
7.4x
3.6x 15.8x 17.9x
17.1x
13.9%
14.8%
So urce: B lo o mberg, A ctinver
6
Financial Results
OPERATING INDICATORS
Sales
EBITDA
Net Profit
EPS
Net Debt
Sales Growth
EBITDA Growth
EBITDA Margin
Net Debt / EBITDA
ROE
ROA
$
2011
8,628
1,736
226
0.61 $
6,459
(2%)
2%
20.1%
3.7x
5%
1%
2012
9,565
2,035
852
2.30 $
4,774
11%
17%
21.3%
2.3x
18%
6%
2013
9,545
1,783
630
1.69 $
4,522
(0%)
(12%)
18.7%
2.5x
12%
4%
1S 13
4,724
876
364
0.97 $
5,012
0%
(10%)
18.5%
2.6x
13%
5%
1S 14
4,737
901
385
1.03
4,506
0%
3%
19.0%
2.5x
11%
4%
Source. Actinver
We consider relevant to mention the results that Lamosa presented during 2012, as they
could help to dimension the potential growth in an environment with higher economic
growth.
In 2012 the construction sector growth accelerated due to the completion of works and
acceleration of housing construction previous to the change to the new government. This
situation led to an increase in volumes and prices in Lamosa’s products. As a result, total
sales and EBITDA grew 11%, and 17%, respectively. The EBITDA margin reflected an
expansion of 120 basis points, with a higher utilization level in plants and fixed cost
absorption. Additionally, net income increased to MP 852 million, higher than the MP 226
million of 2011, as a result of a better operational result and an exchange gain of MP 281
million vs. a loss of MP 442 million in 2011, compensating a higher tax rate (41% versus
31% in 2011).
Nevertheless, in 2013 the economic growth was only of 1.2% (compared to 3.9% in
2012), resulting in an important contraction in housing and even more in the construction
sector. As a result, Lamosa’s sales remained practically flat in regard to 2012. At the
EBITDA level a contraction of 12% was reported with an advance of 46% in the price of
gas and the fact that Lamosa incurred extraordinary expenses to strengthen the value of
its own brands. Net income of the fiscal year dropped 26% as a result of the reduced
operating level and the recognition of an exchange loss of MP 27 million compared to the
gain of MP 281 million previously mentioned.
In the first half of 2014, total sales remained unchanged due to the low economic
growth with a reduction of -2% in the ceramic division (73% of total), partially compensated
by a 6% sales growth in the adhesives division (26% of total). During this period we
observed a relevant contraction in the construction sector, affecting the demand of
LAMOSA’s products. On the other hand, total EBITDA slightly increased in regard to 2013,
supported by a cost-cutting strategy and non recurring benefits such as a gain of MP 35
million from a legal dispute that the company started in 2008, and the additional
recognition of depreciation of MP 36 million. These items partially offset the increase of
23% in gas prices. Net income, nevertheless, advanced 6% due to an exchange gain of
MP 30 million compared with a loss of MP 11 million in the 1H13.
7
Financial projections
OPERATING INDICATORS
Sales
EBITDA
Net Profit
EPS
Net Debt
Sales Growth
EBITDA Growth
EBITDA Margin
Net Debt / EBITDA
ROE
ROA
$
2012
9,565
2,035
852
2.30 $
4,774
11%
17%
21.3%
2.3x
18%
6%
2013
9,545
1,783
630
1.69 $
4,522
(0%)
(12%)
18.7%
2.5x
12%
4%
2014E
10,003
1,889
771
2.06 $
4,696
5%
6%
18.9%
2.5x
13%
5%
2015E
10,554
2,024
798
2.13 $
4,001
6%
7%
19.2%
2.0x
12%
5%
2016E
11,345
2,196
881
2.35
3,306
7%
8%
19.4%
1.5x
12%
5%
Source. Actinver
Ceramic: Estimates (MP$ million)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
25%
20%
15%
10%
5%
0%
2011
2012
2013
Sales
2014E
2015E
2016E
EBITDA margin
Source: Actinver
Adhesives: Estimates (MP$ million)
3,500
29%
3,000
28%
2,500
27%
2,000
26%
1,500
25%
1,000
24%
500
0
23%
2011
2012
2013
Ventas
Source: Actinver
2014E
2015E
Margen EBITDA
2016E
Our projections consider a growth in sales of 5% in 2014, 6% in 2015 and 7% in
2016. Due to the slowdown in the economy during the 1H14 total sales have had no
change in regard to 2013, with a decrease of -2% in the ceramic division (73% of total)
compensated partially with a 6% increase on sales in the adhesives division (26% of
total). We anticipate a moderate recovery in the second half of the year (with a real growth
of 3.3% GDP on average), therefore we expect total sales will grow 9% in the half, with a
total advance of 5% in 2014.
The ceramic division will be the main driver of growth for the period 2015/16. It is
important to highlight that on June 2014, the amounts for construction and especially for
building showed the first signs of recovery having grown 2.2% and 2.5% respectively. For
the period 2015/16 we estimate an advance of 6% and 8% in sales, supported by an
accelerated dynamism in the construction sector as a result of higher government
spending and economic growth which we expect will be around 4.0% and 3.3% for the
same period.
Adhesives, the most defensive segment. On the other hand, for the adhesives division
(25% of total) we estimate an average growth rate of 6.5% for the period 2014-2016. We
believe our projection could be conservative based on the fact that in previous years when
the economic growth contracted and the construction sector collapsed, total sales of this
division increased on average 6%, thus we expect growth to be higher with the economy
well in positive territory. We consider this segment as the most defensive, since Lamosa’s
brands are well positioned, and by its nature are in continuous use in spite of the economic
weakness.
Real Estate division. In our analysis we are considering that this division will not
contribute significantly to total sales as it is not a strategic business for the company, which
since 2008, has been selling its assets. The contribution in total sales in 2008 was 3% and
by the end of 2014 we expect it will represent only 0.5% of the total.
At EBITDA level, we estimate an average growth of 7% for the next three years. Our
estimates for EBITDA during 2014 show a gain of 6% compared with 2013, as a result
mainly from a low comparison base and better performance on sales during the second
half of the year. During the 2H14 we anticipate an upturn in EBITDA of 9%. For the period
2015/16 we expect total EBITDA to increase 7% and 8%, respectively, supported mainly
by the growth in sales and the natural absorption of costs as a result of the increasing
usage level of its installed capacity that is at present time around 85%.
8
We expect an expansion of 23 basis points on average in the EBITDA margin. We
consider that LAMOSA will generate healthy EBITDA margins of 19.0% on average during
the period 2014/16, as a result of its strategy to contain costs. We highlight the expansion
of 90 basis points (bps) expected in the margin from 2014 to 2015, without considering the
non recurrent benefit mentioned in our analysis on financial results. After energy, transport
and enamel are the main costs of the company which represent both 9%of sales. In our
opinion, the geographical location of the company’s plants (see business description)
grants a unique opportunity to continue growing and at the same time maintaining the
transportation expenses under control. We consider that during the period 2015/16
LAMOSA could benefit by an increase in volume and slight increase in prices, setting
EBITDA margin to a level of 19.4% in 2016, which we believe could be conservative.
EBITDA mix 2015E
Real Estate
0%
Adhesives
34%
Ceramic
66%
Source: Actinver
LAMOSA: Debt maturity profile (MP million)
2,500
We project a capital investment (CapEx) of MP 198 million for 2014, equivalent to 2%
of sales. Nevertheless, during 2015/16 we projected combined capex of MP 900 million
(4% of sales for the period), the increase due to an expected addition of a porcelain
production plant.
2,000
1,500
1,000
500
0
2014
2015
2016
MXN
2017
2018
USD
Source: Actinver
LAMOSA: Leverage (Net Debt/EBITDA)
4.0x
We estimate net income gains of 23% in 2014 and 4% in 2015. The main difference
between these increases compared with EBITDA is mainly generated by the changes in
the exchange rate in our projections. During 2014, we estimate an exchange gain of MP 46
million compared to a loss of MP 27 million reported in 2013; whilst for 2015 we estimate a
growth of 4% with an exchange gain of only MP 27 million. Without these results, the net
income would be increasing 15% and 7%, respectively.
We estimate LAMOSA will generate positive free cash flow of MP 240 million in 2014
with a higher generation during 2015 and 2016 with FCF of MP 679 and MP 758 million,
respectively.
Net debt//EBITDA of 1.5x for 2016. We project a major reduction of the company’s
leverage as a result of higher income generation and the strategy established by the
company to reduce debt. This indicator is compared favorably in regard to the 6.6x level at
the end of 2008 (after the acquisition of Porcelanite).
3.7x
3.5x
3.0x
2.3x
2.5x
2.5x
2.5x
2.0x
2.0x
1.5x
1.5x
1.0x
0.5x
0.0x
2011
2012
2013
2014E
2015E
2016E
Source: Actinver
9
Sector analysis
Ceramic: Market share (volume sales)
others
22%
LAMOSA
43%
Interceramic
16%
In the ceramic businesses (73% of Lamosa’s sales, 65% of EBITDA), the companies that
operate at an international level tend to engage in all areas of the production chain, from
acquisition of raw materials, design, manufacturing and distribution. A differentiation
strategy is developed that implies focusing in innovative designs, or developing new point
of sale channels to reach final consumers. Some of the most important players are in Italy,
Spain and Brazil, such as Marazzi, Porcelanosa and Eliane. In the same manner, Chinese
companies have increased their market share offering lower prices. In our view, Lamosa is
well positioned to export products to USA as one of its most important covering plants is
located in Monterrey, close to the US border.
In Mexico 90% of ceramic covering supply comes from local producers, mainly
Porcelanite-LAMOSA, Vitromex and Interceramic. LAMOSA is the market leader with a
participation of 43%.
Vitromex
19%
Adhesives: Market share (volume sales)
The sanitaryware business is saturated. This is a division that has high competition and
is very pulverized. Some of the most important players are Kohler, Roca, Toto and
American Standard, amongst others.
Mexico is very well positioned to export sanitary products to USA. Exports are
considered to be a benefit for the Mexican industry due to its strategic location and high
quality products, in comparison with its European and Asian competitors. Lamosa’s
competitive advantage is relevant, as it has a toilet factory in Monterrey, very close to the
border, were toilets and bathroom furniture are produced. Other companies that are in the
competition in this market are Vilbomex (property of Villeroy & Boch) and Cato.
others
17%
Cemix
9%
LAMOSA
62%
Interceramic
12%
Bathroom furniture: Market share (vol sales)
LAMOSA
21%
Others
48%
Cato
16%
Vitromex
15%
On the other hand, in the adhesives industry (26% sales/36% EBITDA) there are 10
brands in the Mexican market with national presence, and more than 70 brands at a
regional level. Some competitors in the national market are Interceramic and Cemix,
amongst others. Although this industry is very fragmented, LAMOSA is positioned as the
market leader with a 62% market share, thanks to its very well known brands by the
ceramic fixers.
Mexico’s distribution channels are diversified. The traditional method of construction
and remodeling projects in Mexico allows for competition and survival of many small and
medium size contractors, wholesale vendors, hardware stores, specialized companies, all
representing the main distribution channels in Mexico. Besides the previously mentioned
distribution channels, more recently “home centers” (i.e. Home Depot) have evolved, with
their main focus on small and medium size contractors and self-construction. Also, this
channel has had great acceptance due to flexible timetables in which clients can make
weekend purchases comfortably.
In Mexico there are more tan 600 distributors, whilst abroad the are more tan 200
distributors, covering an approximate total of 6,000 sale points in Mexico as well as the
United States, Canada, Central America, South America and Caribbean countries.
10
Main Distribution Channels
México
Exports
México
Adhesives Division
Ceramics Division
Channel
Key Sales Factor
Independant and specialized
w holesale distributors
The range of products offered, price and exhibitioners that
are in the store of the distributor.
Convenience stores specialized in
home products.
Price, constant availability of products and delivery
opportunity.
Hardw are stores.
Price, product quality, design, capacity to help the clients
promptly and range of products offered.
home products.
Price, availability and speed on the delivery of products.
Stores specialized in Floor Covering.
Price, constant availability of products and delivery
opportunity.
Wholesale plumbers
Performance, design, service to clients and brand
recognition.
Tiendas de acabados.
Brand recognition, quality, product variety, client attention
and assessment.
home products.
Brand recognition, product quality, w ide range of products,
availability and speed on product delivery.
Hardw are stores.
Price, product quality, design, ability to promptly address
clients and range of products offered.
Construction material suppliers.
Brand recognition, product performance, inventory rotation
and constant availability and speed on product delivery.
So urce: A ctinver
Sector with interesting growth expectations
Mexico's population in 2010
The ceramic coating, adhesives and sanitaryware businesses are linked to the economic
performance and demographic profile.
Mexico’s population 2010
Age
Age
Not specified
80 to 84
Women
Women
70 to 74
Men
Men
60 to 64
50 to 54
40 to 44
30 to 34
20 to 24
10 to 14
Creation of new families and population bonus benefiting the ceramic market. In our
opinion the ceramic industry will continue benefiting from the demographic bonus that
Mexico has. The population percentage with ages younger than 20 years represents 39%
of the total, which is substantially higher than the 9% of the population with ages higher to
60 years old, in accordance to INEGI data. This contrasts to developed markets in which
the percentage of people with ages above 60 years old is much higher.
0 to 4
Millions
Millions
Source: INEGI's 2010 population survey
Fuente: INEGI
Population growth rate (Mexico)
2.3
2.1
1.9
1.7
%
1.5
1.3
1.1
0.9
0.7
0.5
Mexican population has grown at a compound annual growth rate of 1.8% during the
period 2005-2010, improving in regard to the previous datum of 1% in the five previous
years. It is expected that with this increase the need for remodeling or new construction of
houses and buildings in Mexico will increase in the long run.
Housing, another growth variable
The housing deficit is linked also to the demographic bonus. In Mexico the housing
deficit is higher than five million houses, an amount that continues to increase annually.
The annual housing demand is estimated in around 600 thousand units, resulting from the
increase of 12 million people by 2020, generating approximately 6 new million families. For
the year 2014, MP 298 billion will be invested in the sector to finance the acquisition of a
new/existing homes, remodeling and self-construction, according to SEDATU (government
housing agency).
11
INFONAVIT Credits distribution
35%
65%
New House
Housing supply is reactivated, positive news for LAMOSA. In accordance to the latest
data from SEDATU, new home registrations increased 22% in 1H14. Cumulative
investment to June reached MP 114 billion, representing an increase of 11%. Of the total,
66% was used to finance the acquisition of new homes, 31% for existing homes and 3%
for improvements.
It is important to mention that the majority of acquisitions of new and existing homes was
concentrated in the affordable segment in which houses include poor coverings. This is a
potential market that LAMOSA can attend, as after many years these houses require
improvements which include new coverings.
Improvement
INFONAVIT credits geared to home improvement. Approximately 65% of the credits
from INFONAVIT at the end of July were for the acquisition of new homes, whilst the
remaining 35% was for improvements. These amounts indicate a change in the
INFONAVIT’s mortgage needs, since in the past, 95% of mortgages were used to buy
new homes.
Source: SEDATU
The 62% of houses in Mexico have cement/earth floors. This represents a great
opportunity for growth for LAMOSA in coming years. We note an upward trend to better
quality of life for Mexican families in which floor coverings play an important role.
First recovery signs in the construction sector.
Construction Industry (YoY%)
%
8
6
4
2
0
-2
-4
-6
-8
-10
In June 2014, the construction industry increased 1.2% on an annual basis, which
implies a favorable economic environment for Grupo Lamosa. For the first time in two
years a positive change can be observed in the construction sector, which increased 1.2%
on an annual base and 2.2% in comparison to May 2014, due to an increase in works
related to the building of houses (mentioned in previous paragraphs) and specialized
works for construction. Also, this is the second month in which there has been an important
increase in workers hired in the construction sector, amounting to 85 thousand, reaching
the same levels of 2012.
Construction in recovery mode. According to INEGI figures, the building index has
turned up in the past four months, which we expect will benefit demand of coverings.
Nevertheless, the index is still well short of the levels reached in July 2012, as seen in the
table below.
Building Index
110
Base 2008 = 100
105
100
95
90
85
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
Jan-09
May-09
Sep-08
Jan-08
May-08
Sep-07
Jan-07
May-07
80
Source: INEGI
12
Ceramic industry in United States
A total of 19% of LAMOSA’s sales come from exports. The main market is the US, that is
why we consider relevant to give a brief description of the ceramic industry characteristics
in this country.
US market with an expected annual growth of 5% between 2014 and 2018. Before the
2008 crisis, the ceramic segment was growing at an annual rate of 9%. Now the
expectation in the industry is for an annual average growth of 5% between 2014 and 2018.
There is a marked trend in the United States to replace soft coverings like carpets for
stronger ones such as ceramic, wood, vinyl and laminated floors. In 2013, the estimated
ceramic market reached USD 2.4 billion. As far as the adhesives market, 3 companies
represent 80%, with a total market value of USD 1 billion.
In the period 2003-2013, Mexico increased its share of imports to the US from a level
of 13% to 30%. The 68% of ceramic coverings consumed in United States is imported,
mainly from Mexico, Italy, China, Spain and Brazil.
Competitive advantages for Mexico of coverings in USA
˗Mexico has a 0% tariff to export to USA
˗Low transportation costs (US $ 1.50 - $ 1.75 per m2)
˗Exchange rate. Compared with other countries that export to US
˗Better gas prices, compared with other regions
In accordance to the RMI index the refurbishment activity has reactivated. This index
reflects the actual and future market conditions of refurbishment in United States. A
percentage higher than 50 points indicates that higher reports have been received
indicating the refurbishment activity is above the average. As can be seen in the chart the
surge of the actual conditions and expectations of the future activity have begun to
increase, reflecting a value of 56 points on both cases.
Remodelling Market Index (RMI) USA
Current Vs. Future (market conditions)
65
60
Scale of 0-100
55
50
45
40
35
30
25
20
1T07
2T07
3T07
4T07
1T08
2T08
3T08
4T08
1T09
2T09
3T09
4T09
1T10
2T10
3T10
4T10
1T11
2T11
3T11
4T11
1T12
2T12
3T12
4T12
1T13
2T13
3T13
4T13
1T14
2T14
15
Current market conditions
Future market conditions
13
Company description
Main activity
Grupo Lamosa’s business is composed of 3 divisions:
■
Ceramic: Ceramic coverings business including sanitaryware. It represents 73% of
total sales and 64% of EBITDA.
■
Adhesives: the adhesive and specialized business for construction. Representing
26% of total sales and 36% of EBITDA.
■
Real Estate: initially focused on providing land for the ceramic division in order to
provide clays for the ceramic division. 1% sales and close to 0% of EBITDA.
To date the company holds 24 production plants, 11 for the ceramic division and 13 for
adhesives and specialized materials for construction. The plants are strategically located in
12 federal entities within the Mexican Republic. The object is to be close to clients to
provide further assistance and reduce transportation costs.
Due to investments performed in previous years for USD 150 million, each of these plants
has state of the art technology from Italy and United States. At the same time, we
anticipate the company will continue with investments to update and maintain its
production standards.
Grupo Lamosa Plants
Plant Locations
Coverings:
Nuevo León
San Luis Potosí
Sonora
Querétaro
Guanajuato
Tlaxcala
(1)
(1)
(1)
(1)
(1)
(4)
Toilets:
Nuevo León
(2)
Adhesives:
Nuevo León
Jalisco (Guadalajara)
Michoacán (Morelia)
Chihuahua
Hidalgo (Tizayuca)
Guanajuato (León)
Yucatán (Mérida)
Baja California Norte (Tijuana)
Sonora (Navojoa)
(1)
(3)
(1)
(2)
(2)
(1)
(1)
(1)
(1)
Coverings
Adhesives
Toilets
14
Ceramic Division
The businesses of ceramic coverings and sanitaryware are operated respectively through
Porcelanite Lamosa, S.A. de C.V. and Sanitarios Lamosa, S.A. de C.V. In the Mexican
market, LAMOSA has a high presence as the leader in sales of ceramic coverings, with a
market participation of 43% (based on sales volume), followed by Vitromex (19%) and
Interceramic (16%).
As an exporter to United States, the company competes with some of the biggest
producers of ceramic coverings, as well as producers of other type of coverings for floors,
such as carpets and laminated. Nevertheless, in states located to the south of this country
the preference for hard floors is increasing.
In the sanitaryware segment, LAMOSA is also the leader of the segment with a market
share of 21%, followed by Cato and Vilbomex with participations of 16% and 15%,
respectively. Understanding the needs of each segment, the company has positioned itself
as one of the leading brands within the category, increasing its presence in the north
American market with efficient and water saving products.
Wet grinding process
Production process.
The production process both for ceramic coverings as well as toilets is illustrated in the
lower part of this paragraph. The process is highly automated, resulting in lower cost and
optimization of the production process. We consider that due to the investments performed
by the company to modernize its plants, LAMOSA is well positioned to continue to be the
leader in its markets.
Production process for Ceramic Coverings
Compresion
with
through
presses
Drying process
and enamelling of
covering
Covering
burning
Quality
inspection
process
Packing for
client
2
3
4
5
6
7
Until mixture is co nverted
in fine dust
Co vering
acquires fo rm,
texture and
co nfirmatio n
Humidity is remo ved and
specific design is applied
A t a temperature
o f 1,100 ̊C
In acco rdance to
quality standards
Wet grinding and
mixing of different
clays
Drying process of
mixture (Spraydryer)
1
(Wet-milling)
So urce:A ctinver
Production process for Toilets and Bathroom Furniture Products
Toilet production process
Prepare enamel
Pouring and
moulding
Enamelling
& Controlled
burning
process
Quality process
inspection
Packing for
client
3
4
5
Co ntro lled so
that particular
features and
brightness can
be preserved
In acco rdance to quality
standards
Confining mixed
paste
1*
In special sto rage silo s
2
*Simultaneously, enamel is prepared so once mixture goes through the pouring and drying process, the outcoming piece can be enamelled
in accordance w ith the design and color applied to the product.
So urce: A ctinver
15
Mexican suppliers provide 90% of the raw materials. The supply chain of LAMOSA has
a sufficient number of suppliers to avoid production stops. Amongst the main suppliers are
Torrecid de México, S.A. de C.V., Colorobia México, S.A. de C.V., and Ferro Mexicana,
S.A. de C.V.
In regard to energy, the only fuel used for the operative production in the ceramic
division is natural gas. In the coverings business, the majority of the plants have
contracted the supply of this input with Pemex Gas and Petroquímica Básica. As to the
sanitaryware business, natural gas is contracted and supplied directly by 2 distributing
companies: Gas Natural México and Compañía Mexicana de Gas. The main electricity
supplier is Comision Federal de Electricidad (CFE for its acronym in Spanish).
Certified plants. During 2012, Grupo Lamosa implemented a management and
communication program of sustainable actions of the company, obtaining the certification
“Green Squared”, achieving the certification for the Queretaro, Monterrey and San Luis
Potosi plants of the Coverings business. This certification ensures that the plants use the
best practices regarding sustainability of the industry and it is awarded by the Tile Council
of North América.
Adhesives Division
The Adhesives business represents 26% of sales and 36% of EBITDA. This division is
focused mainly in the manufacturing and marketing of adhesives and nozzles for the
installation of ceramic and natural coverings of floors and walls, as well as specialized
products such as stucco, waterproofing, sealers, additives and self-levelers. The division is
integrated mainly by Crest Norteamérica, S.A. de C.V., Adhesivos de Jalisco, S.A. de C.V.,
Industrias Niasa, S.A. de C.V., Soluciones Técnicas para la Construcción del Centro, S.A.
de C.V. and Tecnocreto, S.A.
Production process. The production process of the adhesives division is less complicated
in regard to the ceramic division process and is explained in the following diagram.
Adhesive Production process
Strict quality control process with the
specified and authorized features
Reception,
inspection and
storage of raw
materials
Mixing, drying &
bagging process
1
2
Such as cement, aggregates
and chemical pro ducts, in
special silo s
Do sed based o n specific
fo rmula
So urce: A ctinver
As noted, the process is integrated only by two steps: 1) receipt of raw materials and ii)
mixture and subsequent packing in bags for sale. This is a segment that demands few
resources and is profitable for the company with an EBITDA margin of 26% on average.
16
The main suppliers of cement for the production of adhesives are CEMEX and Lafarge,
leading companies in their segment and this guarantees high quality raw material.
Real Estate division.
During 2013, this division registered sales for MP 47 million. The Project development
business operates mainly through the subsidiary Grupo Inmobiliario Viber, S.A. de C.V,.
LAMOSA has no intention to maintain this division as an important business for the
company. Due to its nature and through time, after the land investments made by the
company for its expansion, certain territorial areas were considered for sale, the same as
certain assets that were developed by them. As we have mentioned in our projections, we
are not considering a relevant contribution to sales from this division. Nevertheless, any
additional sale of any asset can be used to reduce the company’s leverage.
Main products.
To date LAMOSA owns more tan 700 registered intellectual property rights, which include
brands, commercial names, patents or logos.
The main brands that LAMOSA possess in the coverings business are: LAMOSA,
Porcelanite, Firenze and Verve. In the sanitaryware division we find: Sanitarios LAMOSA,
AMBIANCE and Vortens. In adhesives the leading brands of the company are: CREST,
Imper Crest, Niasa, Perdura and Solutek amongst the most representative.
Covering
Adhesives
Sanitaryware
17
Name
Federico Toussaint Elosúa
Maximino Michel González *
Eduardo Elizondo Barragán *
Armando Garza Sada *
Bernardo Elosúa Robles
Guillermo Barragán Elosúa
María del Carmen Elosúa González
José Manuel Valverde Valdes
Javier Saavedra Valdes
Eduardo Padilla Silva *
Carlos Zambrano Plant *
Eduardo Garza T Fernández *
* Independent advisor
Position
President of the
Board of Directors
and General Director
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Advisor
Management and Board of Directors
Board of Directors
The members of the Board of Directors possess extensive experience in the sector, as
they have been active in the industry for more than a decade. Six members of the Elosua
and Valdes families (part of controlling group) have a position in the Board. There are 6
independent members from a total of 12. It must be mentioned that Eng. Federico
Toussaint Elosua is the General Director of the company and president of the Board of
Directors..
Management Team
Federico Toussaint Elosuua has been since 1992 the General Director and Advisor
since 1989. He was named president of the Board of Directors in 1998. Eng. Toussaint has
presided institutions such as COPARMEX in the state of Nuevo León, and CAINTRA. He is
National Advisor for COPARMEX and is a member of the Board of Directors of Grupo
ALFA, Grupo XIGNUX, Grupo Iconn, Universidad de Monterrey, Centro Roberto Garza
Sada, as well as the Consejo Mexicano de Hombres de Negocios. Mr. Elosuua was
granted a degree in Industrial and Systems Engineering by the Instituto Tecnológico y de
Estudios Superiores de Monterrey (ITESM) and possess a postgraduate degree in
Business Administration (MBA) by the Instituto Panamericano de Alta Dirección de
Empresas (IPADE).
Tomas Garza de la Garza has served as Administration, Finances and Planning Director
since his incorporation to Lamosa in the year 2004. He has 30 years of professional
experience in diverse industries and has been in charge of the legal, treasury, auditing,
comptroller, investor relations, information technology and strategic planning and business
development areas. He has served as an independent finance advisor, was founding
partner of the advisory and investment banking office Garza & Asoc. Also, throughout the
years he has served in several positions in Hylsa, Cervecería Cuauhtémoc and Vitro. Mr
Garza is a Biochemistry Engineer from the ITESM and has a masters degree in Business
Administration from IPADE.
Sergio Narváez Garza serves as Director of the Ceramic division and the Coverings
business Porcelanite-Lamosa . Mr Narváez has been responsible of this area since joined
LAMOSA in 2000. He has 30 years of experience and is in charge of the commercial,
logistics, marketing, operations, human resources areas, as well as the Technical area. He
worked in the Household division of Grupo Industrial Saltillo as CEO of this division for 7
years. Previously he worked in Industrias Confad, MABE and Vitromex.
Alejandro Javier Nosti Busquets serves as Director of the sanitaryware business since
2013. Previously he held the position of Divisional Director of Grupo Velas, as well as
CEOr of Grupo Primex with a 20 year trajectory, holding positions in the operations,
supply, finance and commercial areas.
Jorge Aldape Luengas has served as Director of the adhesives division since 1993.
Previously he held the position of General Manager of Crest, General de Minerales and
was the CFO of Químico Minera. Also, he worked for Quimivan supplying chemical
products to the petrochemical industry and others.
18
Shareholding structure
LAMOSA started trading its shares in the Mexican Stock Exchange (BMV) in 1951.
Currently the company has 375 million shares outstanding. The control group has 87% of
the total, including members of the founding families and long term investors.
Float.
13.0%
Control
87.0%
LAMOSA only has one stock series, and trades with the code LAMOSA*. In the past three
years the daily volume traded by the company amounts to MP 6 million (USD 460
thousand), and during the past three months the amount has reached MP 24.7 million
(USD 1.9 million), with a recent block trade of approximately 24 million shares (sold to
retail and institutional investors) that granted the company greater liquidity.
19
Company’s structure
Grupo Lamosa, S.A.B. de
C.V.
Lamosa
Servicios
Administrativo
s, S.A. de C.V.
Servicios
Administrativo
s Lamosa,
S.A. de C.V.
Servicios
Lamosa, S.A.
de C.V. Sofom
E.N.R.
División
Cerámica
División
Inmobiliaria
División Adhesivos
North
American
Plumbing
Problems,
Inc.
Crest
Norteameric
a S.A. de
C.V.
Lamosa
Revestimiento
s, S.A. de C.V.
Sanitarios
Azteca S.A.
de C.V.
Porcelanite
Lamosa S.A.
de C.V.
Sanitarios
Lamosa S.A.
de C.V.
Adhesivos
Perdura
S.A. de C.V.
Inmobiliaria
Porcelanite
S.A. de C.V.
Revestimiento
s Porcelanite
S.A. de C.V.
Crest S.A.
de C.V.
Servicios
Comerciales
Lamosa S.A.
de C.V.
Revestimiento
s Lamosa
México S.A.
de C.V.
Niasa
México S.A.
de C.V.
Revestimiento
s y Servicios
Comerciales
S.A. de C.V.
Servicios
Industriales
Lamosa S.A.
de C.V.
Adhesivos
de Jalisco
S.A. de C.V.
PL Ceramics
Group, Inc.
PLG
Ceramics, Inc.
Soluciones
Técnicas
para la
Construcció
n del Centro
S.A. de C.V.
Administrador
a Lamosa
S.A. de C.V.
Sofom E.N.R.
Industrias
Niasa S.A.
de C.V.
Grupo Inmobiliario
Viber S.A. de C.V.
Tecnocreto
S.A. de C.V.
Servicios
Industriale
s Lamosa
S.A. de
C.V.
Soluciones
Técnicas
para la
Construcció
n
20
Company Profile: Grupo Lamosa, S.A.B. de C.V. (LAMOSA*)
Major Shareholders
Industry:
Ceramic Tile
Country:
Last Price (MXN):
27.64
Rating
Target Price (2015)
33.00
Mkt. Cap (USD mn):
804
Expected Dividend Yield
1.0%
Mkt. Cap (MXN mn):
10,354
Total Upside Potential
20.39%
Domestic & International Sales Mix
MEX
COMPRA
# of shares (million)
Float.
13.0%
Int
19%
375
Company Description
Control
87.0%
México
81%
Lamosa is a leading producer of tie ceramic and adhesive products with more than 120 years of experience in
the Mexican construction sector. Its product’s portfolio consists of highly recognized brands in the local and
foreign markets which include: Lamosa, Crest, Miasa, Porcelanite, and Vortens. Lamosa has presence in
Mexico, United States, and Central America.
Investment Thesis - Positives
1) Considerable leverage reduction, Net Debt /EBITDA goes from 6.6x in 2008 to 2.8x by the end of the 2Q14; 2)
Plant modernization with a MXN 1.2 billion investment; 3) Potential margin expansion through cost reduction,
which would improve profitability (already above the industry average); 4) Favored company by the Mexican
economic recovery; 5) Alternative instrument for investing in the construction sector.
1H14
Sales Mix
Investment Thesis - Risk Factors
EBITDA Mix
0%
1%
1) Slower-than-expected recovery in the Mexican economy; 2) Substantial increase in raw material prices; 3)
Increased competition; 4) Entry barriers into foreign markets; 5) FX rate volatility
2012
2013
2014E
2015E
8,628
9,565
9,545
10,003
10,554
-5,342
-5,683
-5,790
-6,209
-6,595
Gross Profit
3,286
3,882
3,755
3,793
3,959
Gross Margin
38.1%
40.6%
39.3%
37.9%
37.5%
-2,506
Cost of Sales
-1,921
-2,242
-2,409
-2,439
Profit Before Other Income and Expenses
General Expenses
1,365
1,640
1,346
1,354
1,452
Margin
15.8%
17.2%
14.1%
13.5%
13.8%
-8
34
5
Other Income and Expenses
-226
-
Tile
1,141
1,640
1,338
1,389
1,458
Operating Margin
13.2%
17.2%
14.0%
13.9%
13.8%
-368
-395
-445
-501
-566
EBITDA
1,736
2,035
1,783
1,889
2,024
P/E
EBITDA Margin
20.1%
21.3%
18.7%
18.9%
19.2%
P / BV
Pre-Tax Profit
134
1,437
966
1,102
1,140
Profit from Continuing Operations
75
852
630
771
798
Net Profit Before Minorities
75
852
630
771
798
-
-
-
-
-
Minority Interest
Real Estate
Tile
Adhesives
Real Estate
Valuation Metrics
Operating Profit
Depreciation and Amortization
Adhesives
64%
36%
EV / EBITDA
2011
2012
2013
2014E
9.7x
7.4x
8.3x
8.0x
7.1x
45.8x
12.0x
16.3x
13.4x
13.0x
2.5x
2.0x
1.8x
1.6x
1.5x
ROE
5.5%
18.1%
11.5%
12.7%
11.8%
ROA
1.5%
5.7%
4.2%
5.0%
5.0%
Operatiing Profitability
Net Profit
226
852
630
771
798
2,100
21.5%
Net Margin
2.6%
8.9%
6.6%
7.7%
7.6%
2,050
21.0%
N° of Shares
371
371
375
375
375
EPS
0.6
2.3
1.7
2.1
2.1
10.9%
-0.2%
4.8%
5.5%
EBITDA Growth
17.3%
-12.4%
5.9%
7.1%
2,000
EBITDA (MP m n)
Sales Growth
20.5%
1,950
20.0%
1,900
1,850
19.5%
1,800
19.0%
1,750
18.5%
1,700
18.0%
1,650
Balance Sheet (MP mn)
1,550
2013
2014E
2015E
TOTAL ASSETS
14,960
15,147
15,043
15,828
15,866
Current Assets
4,910
5,223
5,123
5,530
5,790
780
1,065
627
507
463
10,050
9,924
9,920
10,298
10,077
4,907
4,974
5,048
5,105
5,346
Intangible Assets
4,177
4,198
4,279
4,097
3,618
TOTAL LIABILITIES
10,842
9,961
9,290
9,403
8,746
Current Liabilities
1,805
2,191
2,610
2,773
2,639
Long Term Liabilities
6,933
7,771
6,680
6,630
6,106
Long Term Assets
Property, Plant & Equipment
TOTAL DEBT
NET DEBT
TOTAL CAPITAL
Shareholder's Equity
Minority Interest
7,239
6,459
5,839
4,774
5,149
4,522
5,204
4,696
4,464
4,001
4,118
5,186
5,753
6,425
7,120
4,118
5,186
5,753
6,425
7,120
-
-
-
-
-
17.0%
2011
14,960
15,147
15,043
15,828
15,866
3.7x
2.3x
2.5x
2.5x
2.0x
2014E
2015E
EBITDA Margin
60.0%
4.3x
3.8x
50.0%
3.3x
40.0%
2.8x
30.0%
2.3x
1.8x
20.0%
1.3x
10.0%
0.8x
0.0%
0.3x
2012
Debt Ratio (%)
Net Debt / EBITDA
2013
Leverage
2011
Total Liabilities and Equity
2012
EBITDA
Debt Ratio
2012
Cash and Temporary Investments
17.5%
1,600
2011
2015E
EBITDA m argin
Sales
73%
26%
2011
Net Debt / EBITDA
Income Statement (MP mn)
2013
2014E
2015E
Net Debt / Adj. EBITDA (x)
21
Fundamental Research
Gustavo Terán Durazo,
CFA
Head of Fundamental Research
(52) 55 1103-6600 x1193
[email protected]
Martín Lara
Telecommunications, Media and
Financial
(52) 55 1103-6600x1840
[email protected]
(52) 55 1103-6600 x4134
[email protected]
Consumption
Carlos Hermosillo Bernal
Pablo Duarte de León
FIBRAs (REITs)
(52) 55 1103-6600 x4334
[email protected]
Ramón Ortiz Reyes
Cement, Construction and
Concessions
(52) 55 1103-6600 x1835
[email protected]
Federico Robinson Bours
Carrillo
Energy, Conglomerates, Industrial and
Mining
(52) 55 1103-6600 x4127
[email protected]
Juan Enrique Ponce Luiña
Telecommunications, Media and
Financial
(52) 55 1103-6600x1673
jponce@actinver,com.mx
Economic and Quantitative Research
Ismael Capistrán Bolio
Head of Economic and Quantitative
Research
Jaime Ascencio Aguirre
Economy and Markets
Santiago Hernández
Morales
Quantitative Research
Roberto Galván González
Technical Research
(52) 55 1103-6600 x1487
(52) 55 1103-6600 x793325
(52) 55 1103-6600 x4133
(52) 55 1103 -66000 x5039
[email protected]
[email protected]
[email protected]
[email protected]
Fixed Income Research
Araceli Espinosa Elguea
Head of Fixed Income Research
(52) 55 1103 -66000 x6641
[email protected]
Jesús Viveros Hernández
(52) 55 1103 -66000 x6649
[email protected]
(52) 55 1103-6600 x4132
[email protected]
Mauricio Arellano
Sampson
22
Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock
Exchange main Price Index (IPC)

Strong Buy with an extraordinary perspective. According to the analyst, in the next twelve months, the valuations of stock
and/or prospects for the sector are EXTREMELY FAVORABLE

Buy. According to the analyst, in the next twelve months, the stock’s valuation and / or prospects for the sector are VERY
FAVORABLE

Neutral. According to the analyst, in the next twelve months, the valuation of stock and / or sector ARE NEUTRAL OR
FAVORABLE but with a similar perspective to the IPC

Belowmarket. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NOT
POSITIVE

Sell. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NEGATIVE, or
likely to worsen

In review with positive outlook

In review with negative or unfavorable perspective
Important Statements.
a)
Of theAnalysts:
“The analysts in charge of producing the Analysis Reports:
Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Ismael Capistrán Bolio; Pablo Enrique Duarte de León; Araceli Espinosa Elguea; David
Foulkes González; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Ramón Ortiz
Reyes; Federico Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:
b)
1.
"All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All
recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided
or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly,
with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services.
2.
"None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuers underhis
coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position
during the twelve months prior to the preparation of this report. "
3.
"Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their
assertiveness regarding the performance that is actually observed in the values object of the recommendation"
4.
"Analysts maintain investments subject to their analysis reports on the following issuers: AC, ALFA, ALPEK, ALSEA, AMX,AZTECA,
CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL,
MEXCHEM, OHLMEX, TLEVISA,SORIANA, SPORTS, VESTA, WALMEX.
On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver
1.
Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations
contained in the reports of analysis to ensure future business relationship.
2.
All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned
in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V.
GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to
the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts
will be affected by the profitability gained by Actinver Group and its subsidiaries.
3.
At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any
investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports,
representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of
the question, except for the following: * AEROMEX, BOLSA A, FINN 13 and FSHOP 13.
4.
Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following
issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP and FUNO.
This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.
23

GRUPO LAMOSA, SAB DE CV Great Opportunity at

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