Samuel Weber, an independent wealth manager based in Zug, Switzerland, presented his in-depth investment thesis on LafargeHolcim (Switzerland: LHN) at European Investing Summit 2018.

Thesis Summary:

LafargeHolcim is the leading global construction materials and solutions company serving masons, builders, architects and engineers around the world. The company produces cement, aggregates and ready-mix concrete, which are used in building projects ranging from affordable, small, local housing to the biggest, most technically and architecturally challenging infrastructures.

Lifelong partnerships and the requirement to adapt products to specific customer needs enable LafargeHolcim to build-up a reputation for reliability and quality.

In 2017, LafargeHolcim generated CHF 26+ billion of revenue and almost CHF 6 billion of recurring EBITDA. The company plans to grow those figures by 3-5% and more than 5% per year, respectively and aims to generate a ratio of FCF to recurring EBITDA of at least 40%. If the company reaches those targets, it will generate recurring EBITDA of CHF 7.6+ billion and recurring FCF of CHF 3+ billion in 2022.

As FCF includes both growth and maintenance capex, it understates the company’s true earnings. The investments needed to maintain the status-quo are shown in the footnotes of the annual report and based on these figures, LafargeHolcim’s true earning power will be around CHF 4 billion in 2022.

Applying a P/E multiple of 15x suggests intrinsic value of CHF 60 billion, or CHF 41 billion discounted back to today with a discount rate of 8%. This looks attractive compared with a market cap of less than CHF 30 billion – even more so when considering the attractive dividend yield of 4% – and should compensate investors for the significant profit share of minority shareholders.

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About the instructor:

Samuel Weber is an independent wealth manager based in Zug, Switzerland. He manages portfolios for a handful of private clients with an aggregate size of CHF 200 million that he invests according to a value investing philosophy. Samuel holds a master’s degree in strategy and international management from the University of St. Gallen.