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France's Lafarge didn't so much "bring materials to life" – its corporate tagline – on Wednesday as an entire sector. European cement company shares rallied across the board after the Paris-based group reported its 2012 numbers. Not that they have been dozing recently. The likes of Heidelberg, Holcim and CRH have all outperformed European equity market indexes over the past six months, with share gains which at least doubled the Euro Stoxx's 10-per-cent rise. Lafarge is up by a quarter. The question for investors is whether future prospects justify this, and, if so, where to place their bets.
Over all, Lafarge's results were in line with expectations, and hardly worthy of fireworks. Revenue grew 2 per cent, to €16-billion ($21.6-billion), although cement volumes were down 3 per cent, largely due to double-digit declines in Western Europe. In the current year, Lafarge anticipates 1- to 4-per-cent volume growth, with positive trends in all regions outside Europe. Pricing should also improve and energy cost inflation ease to about 4 per cent, from about 7 per cent in 2012.
More notable, though, was the company's delivery on the corporate overhaul front. Earnings before interest, tax, depreciation and amortization of €3.5-billion benefited from more than €400-million of cost savings, with another €450-million promised for 2013. Innovative, higher-margin materials contributed a further €80-million to the EBITDA line; €200-million is forecast this year. With divestments on track, net debt eased further, to €11.3-billion.
Whether this makes Lafarge the most attractive play in the sector is debatable. Holcim, with lower leverage, also has broad geographic exposure and cost savings under way. But Lafarge shares, trade on a 14 times 2013 multiple: Holcim's at 16 times. Provided delivery continues, that looks quite attractive.