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An Emerging Market Dividend Play with Upside Potential - LOMA

Jun 10, 2021 | Team Kalkine
An Emerging Market Dividend Play with Upside Potential - LOMA

Loma Negra Compania Industrial Argentina SA

LOMA Details

Lomo Negra Compania Industrial Argentina SA (NYSE: LOMA) is a leading manufacturer and distributor of cement in Argentina. The company also manufactures masonry cement, aggregates, concrete, and lime products used in private and public construction activities. As of December 31, 2020, LOMA held a market share of 43.80% in terms of sales volume in Argentina. The company is strongly supported by its huge limestone reserves, strategically located plant, and well-established supply lines. The company has a total limestone reserve of approximately 1,107 million tons, which are estimated to last 158 years at the FY20 consumption rate. Each of the company’s American Depositary Shares (ADS) represents 5 common shares. As of June 09, 2021, the company’s market capitalization stood at USD 1.51 billion.

Share Repurchase Program: On February 12, 2021, the company announced the share repurchase program effective February 18, 2021.

Buyback Summary (Source: Form 6-K, May 12, 2021)

Robust Q1FY21 Results: The company reported a 35.35% increase in net revenues to ARS 13,175 million in Q1FY21 (ending March 31, 2021) compared to ARS 9,734 million in Q1FY20. In addition, the company reported a massive upsurge of 104.45% in net income to ARS 2,568 million in Q1FY21 than ARS 1,256 million in Q1FY20. As of March 31, 2020, the company stood with total debt of ARS 7,241 million along with cash and short-term investments of ARS 6,048 million. During the Q1FY21, the company made the capital expenditure of ARS 1,022 million for the expansion of the production capacity of the L’Amalí plant.

Sales Volume and Revenues by Segment (Source: Earnings Presentation, Q1FY21)

Key Risks: Argentina’s economy has faced extreme volatility in the recent decades, with high inflations, devaluation of the Argentine Peso against the U.S. dollar, and unequal periods of economic growth. Therefore, the company’s operations may be affected by the economic and political events that might affect the Argentine economy. In addition, the Argentine Peso depreciated by 59.02% and 40.49% against the USD in 2019 and 2020, respectively. The Argentine economy and the company’s business could be severely impacted if the significant depreciation of the Peso continues.

Outlook: The company expects the cement demand to stabilize around pre-pandemic levels in 2021. L’Amali plant will be commissioned fully in the second half upon completion of its expansion.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LOMA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LOMA’s share price has increased by 22.73% in the past one months and is currently trading at a higher end of the 52-week range of USD 7.40 to USD 3.70. The stock is currently trading above its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 8.33. On the technical chart, the next support level is USD 6.50. Considering the company’s robust track record, market dominance, capacity expansion, robust balance sheet, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 7.18, up by 1.99% as of June 09, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.