A regional cement producer trades at 14x EV/EBITDA against a five-year median of 9x. Volumes grew 11% last year on a capacity utilisation of 88%, the highest in a decade. Realisation per tonne rose 7%. The company has announced a greenfield plant adding 40% to capacity, commissioning in 30 months, funded by debt that takes net debt from 0.8x to 2.1x EBITDA. Two competitors in the same region announced expansions within the same quarter. Coal and freight together are 42% of cost and have fallen 18% over the year.
Write a buy or sell recommendation. State the call in the first two lines, then the evidence, then the two risks that would make you wrong and what you would watch to catch them early.
100 points, 60% to pass.
The tension is that everything good here is cyclical and everything committed is structural. Utilisation at 88%, rising realisations and falling input costs are all peak-cycle conditions, and the multiple has rerated to match. Meanwhile three producers are adding capacity into the same region with a 30-month lag — the classic setup for realisations to break just as the debt lands. A strong pitch prices the cycle rather than the year: what does EBITDA look like at mid-cycle utilisation and normalised coal? The bull case is that regional demand absorbs the additions and the freight advantage of a local plant is real. Either way the falsifier is observable — quarterly realisation per tonne, and whether the competing plants actually get commissioned.