Less profitability pressure surprises
GCC showed a good 1Q22 performance, showing solid revenue growth given higher volumes and prices, as well as a lower than expected margin contraction
The company reiterated its positive 2022 guidance. This, coupled with an attractive valuation ─5.7x FV/EBITDA vs. 7.9x of the sector’s─ confirms our favorable opinion for the stock
Positive demand and prices environment mitigate costs pressures. During 1Q22, GCC's revenues advanced since cement and concrete volumes presented annual growths in the US of 10.3% and 15.7%, respectively, driven mainly by a higher dynamism in industrial warehouses construction and the oil sector. Meanwhile, in Mexico, concrete volumes rose 9.2% and cement volumes fell 4.7% (given a high comparable base), recording greater activity in maquiladora’s plants construction and industrial warehouses. In local currency, better prices were registered, and in Mexico also in dollars. Thus, sales increased 15.7% y/y, slightly better than expected. On the other hand, EBITDA grew 10.2% y/y, therefore margin fell 1.3pp y/y to 26.4%, exceeding our expectation, reflecting lower pressure given higher product prices and cost control. Majority net income decreased 14.3% y/y, as a result of a higher financial expense because of debt prepayment.
Despite the difficult environment, prospects remain favorable. Even though inflationary pressures and supply chain disruptions, as well as lower economic dynamism, are challenges that need to be monitored, recalling the 2022e guidance, we consider the company and the sector expectations to continue being positive. This, coupled with a solid financial situation (-0.4x DN/EBITDA) and what the US infrastructure spending boost will represent, reaffirms our Buy recommendation for GCC.