Seeking Alpha: Major Market Recoveries Can Take Cemex Further

Conditions are looking better in core Cemex (CX) markets like the U.S., Mexico, the U.K., and Germany, but there's still quite a bit further to go before conditions are back to normal. Improving construction trends in the U.S. and increasing public spending in Mexico should boost cement and ready-mix demand, helping pricing, capacity utilization, margins, and cash generation. The process of valuing Cemex is a little convoluted, but if Cemex can reach management's goals for mid-cycle EBITDA in 2016/2017, low-to-mid teens appreciation over each of the next three years doesn't seem unreasonable.

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Major Market Recoveries Can Take Cemex Further

Seeking Alpha: PPC - African Infrastructure Growth, But Not So Much Value

Africa is not only big, but bigger than most Americans can probably easily imagine. China, the U.S., India, and Western Europe would fit within Africa's borders with some room left to spare. It's also a very underdeveloped area, as the best-ranked country in terms of roads is Namibia at #35 and much of the bottom quartile of the rankings is made up of African countries. As a leading cement producer, this means opportunity for South Africa's PPC Limited (OTCPK:PPCYY).

Poor infrastructure has emerged as a key issue in maximizing the value of Africa's mineral and resource exports, to say nothing of facilitating better food production and trade. It remains to be seen whether African countries will invest the needed resources in infrastructure development, but PPC has big plans to benefit not only from improving conditions in South Africa, but underserved markets throughout Africa.

The only fly in the ointment is valuation. Down more than 10% over the past year and about midway between the 52-week high and low, investors are nervous about the company's ability to withstand increasing supply and low utilization in South Africa and continue to invest in the capex needed to expand into other African countries. The shares are not necessarily overpriced today, but they don't appear to offer that extra margin of safety I prefer in emerging market infrastructure plays.

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PPC - African Infrastructure Growth, But Not So Much Value

Investopedia: Cemex Looking For U.S. Prices To Get Firmer

There aren't too many commodities more leveraged to construction activity than cement, which is both good and bad news for Cemex (NYSE:CX). A major player in the cement and ready-mix concrete markets in the U.S., Mexico, and Europe, Cemex has been buffeted by the severe downturns in the U.S. and Europe. With a debt restructuring providing more breathing room and a focus on “value over volume” in the U.S., Cemex could have some room to trade higher on optimism about a U.S. housing recovery.

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Investopedia: Texas Industries For Patient Investors Only

Although the stock of cement and aggregates producer Texas Industries Inc. (NYSE:TXI) has bounced about 50% off the mid-2010 lows, investors may yet be in for a long wait with this company. Residential construction keeps digging its way to a new bottom, commercial construction is not substantially healthier and states across the country are facing choking budget problems. All in all, then, waiting for fundamental improvement here is a bit like watching cement dry ... though there is very likely substantial value buried deep within the story. 

The Quarter That Was
There was no logical reason to think that Texas Industries would have a strong fiscal quarter and the company did not by general standards. This is a case, though, where investors might want to look a little more carefully, and doing so shows a better picture. True, revenue growth of 4% is not going to make anybody forget about Apple, but 4% growth in this housing/construction environment is a pretty good result. That's all the more relevant, given that the company also surpassed the average topline estimate for the quarter by about 5%.

Cement revenue was flat, as an increase in shipments offset a decrease in prices, while aggregates posted low-teens growth on a strong improvement in shipped volumes. Consumer sales were up 4% as a double-digit increase in shipments was offset by a nearly double-digit decrease in realized prices. (For more, see Opportunities In Cement.)

Profitability is not quite as good now, though. Gross profit fell 28% from the year-ago level and only the aggregates business showed improvement (and aggregates happen to be the most profitable from a gross margin perspective). Operating loss expanded from the year-ago level, but the company did have positive operating cash flow for the first half of its fiscal year and nearly cleared its maintenance cap-ex needs.


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A Mess In Africa Highlights A Challenge To Resource Companies

Half a world away, a messy situation in a resource-rich land is offering up a lesson in caution to investors who seek out smaller mining companies. Canadian miner First Quantum once thought it had a valuable resource and a valid contract in its Kolwezi copper project in the Democratic Republic of Congo. Since then the company has seen the government of the RDC seize the project, sell it to another party, and now has seen the asset sold yet again - this time to mining company Eurasian Natural Resources. All the while, international law has more or less stood behind First Quantum. 

Investors in natural resource stocks have always contended with a higher level of risk and volatility relative to broader stock market indices, and those who invest in small miners (also called "juniors") take on even greater risks. In addition to the uncontrollable commodity price cycles, there are a host of production issues and dangers, as well as the risk that a project does not contain as much mineral wealth as the company hoped. 


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