Titan Cement Co. SA (TITCY, Financial) (ATH:TITK, Financial) is a Greek cement and aggregates manufacturer. Titan receives half its sales and profits in the U.S. The stock is very reasonably priced. It is a holding of Oakmark Small Cap Value.
The stock trades for 21.70 euros ($25.63), there are 77 million shares and the market cap is 1.671 billion euros. Earnings were 1.61 euros and the price-earnings (P/E) ratio is 13.5. The dividend is 0.1049 euros and the dividend yield is 0.48%.
Gross margins are 22.75%, net margins are 8.57% and operating margins are 11.37%. That is fantastic! Return on equity is 9.3%, which is pretty decent. Free cash flow was 118 million euros last year and the free cash flow yield is 7%. That is good, too.
Sales grew from 1.13 billion euros in 2012 to 1.51 billion euros in 2016. Net income went from a loss of 24.52 million euros to 127.44 million euros over that time frame. The balance sheet shows 89 million euros in cash and 121 million euros in receivables. The liability side shows 247 million euros in payables and 876 million euros in debt. A little heavy on the debt side, but not too bad. S&P rates Titan’s debt as BB+, which I would agree with.
Titan receives 53% of its sales in the U.S., 17% in Greece and Western Europe, 14% in Southeastern Europe and 16% in the Eastern Mediterranean. Titan operates in Florida, the Carolinas, Virginia and around New York City. The company also purchased part of a Brazilian cement manufacturer last year. The U.S. division got pummeled in 2010 to 2012, but has since recovered.
The Greek division fell from 2007 to 2012 and has never really gotten anywhere close to where it used to be. Southeastern Europe has been flat for years. The Eastern Mediterranean is down from 2011. Cement generates 60% of sales. The remaining 40% comes from other building materials. Titan controls 16% of the cement market in Florida and 34% in Virginia. I wonder how the recent storms will affect Titan’s Florida division. Will there be cement used in rebuilding? Titan holds 40% to 45% of the market in Greece. It is a huge player in the Baltics, but those countries have smaller economies. I do not see a lot of news on Titan. There are talks of an African cement company in play and Titan’s name is being mentioned.
In the first half of 2017, sales increased 6.9% and EBITDA increased 18.9%. Nice increase! Net debt increased 19%. Sales declined 33% in Egypt even though turnover was higher due to weak cement prices.
I got the idea to look at Titan by perusing Oakmark Small Cap International’s (OAKEX) holdings. David Herro (Trades, Portfolio) is the hero of the fund.
What I like about Titan is the cement margins are fantastic. Look at the company’s competitors. Cement is a small monopoly. Because of the high weight, you must use a local company or pay extra for trucking the cement to your project.
As for the economies where Titan operates, I am not an expert. The U.S. could be tough because it is due for a slowdown eventually. Much of the profits come from Florida, which is housing. The smaller European economies have not been doing well over the past several years. I would think they would be hurt less by any slowdowns as things are already pretty slow.
I like the free cash flow yield and low valuation of the stock. It does receive half its sales and profits from the U.S. If I was going to invest in a Greek stock, I would give this one a hard look.
Disclosure: We do not own shares.
