UNACEM Corp: Moody's Local Rating Analysis and Outlook

2024-05-10 14:45:00

Risk Assessment Agency Moody’s Local ratified the category 1. pe to ordinary shares in the UNACEM Corp. SAA and keeps the outlook stable. The holding company owns the shares in the subsidiaries that make up UNACEM groupwhich mainly consists of UNACEM PeruSkanon Investments, Inc, UNACEM Ecuador and Compañía Eléctrica el Platanal SA-CELEPSA.

Status given to ordinary shares in UNACEM Corp It includes the company’s capacity to generate profits, which is weighted as ‘Very High’. In addition to the above, the market liquidity of the said shares, which is ‘High’ when measuring the trading frequency of 76.82% in the last six months. According to the report, as of December 31, 2023, the share capital of the holding company was composed of 1,818,127,611 shares with a nominal value of S/1.00 each. In this connection, the closing price of the share price, as of 31 December 2023, was S/1.52.

Reasons behind the assessment

The report indicates that the diversification of the asset portfolio in countries with different risks is considered (Peru, USAEcuador, Chile y Colombia) and with a presence in the cement, concrete and energy sectors. In line with the above, the growth strategy of the business units through value creation through investments is considered viable, so that it can consolidate its presence throughout Pacific coast.

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“In 2023 UNACEM Corp completed the purchase of Termochilca SA of the subsidiary CELEPSA –strengthen its position in the power market-, as well as the purchase of 100% of the share in the company Martin Marietta Southern California Cement, LLC (hoy, Tehachapi Cement LLC) of the subsidiary Skanon Investment Inc.so that it can strengthen its presence in USA. The foundation of a new company is also being considered, the purpose of which will be the construction and operation of an industrial plant in the area Condorcocha (Junín) for the production of quicklime and calcium carbonates, called CALCEM SA”, details Moody’s Local.

The rating agency also highlights the solid financial position of UNACEM Corpwhich is supported by the operating level of the subsidiaries and the important market share they maintain, which is supplemented by access to various sources of funding.

Unfortunate factors

Moody’s considers Local as a negative factor existing structural subordination with regard to the subsidiary UNACEM Perugiven that the latter is the main generator for which the company has contributed 74.45% of the company’s income as of 31 December 2023. UNACEM Corp.

“Although the direct financial influence (financial debt/EBITDA) registered at the end of the local analysis is positively assessed, it shows that by including the indirect exposure (+S/2 227.5 million) related to the debt of subsidiaries that have the guarantee of UNACEM Corpan increase in financial leverage is recorded, which leads to the indicator being 7.64x, level is considered high. It is worth mentioning that, consolidated level the financial leverage is 3.70x.”

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In the same way, the holding company’s exposure to implicit risks in the sectors in which the subsidiaries operate is assessed, given that the credit capacity of UNACEM CORPas a holding company, is only limited to receiving dividends and royalties from its subsidiaries to generate income.

“No less important is the performance of the construction sector, mainly within Peruwhich is highly sensitive to economic cycles and the environment with slow dynamics in investment in infrastructure and real estate development, which contributes to local political instability affecting growth expectations, business confidence and private consumption,” the report said.

Profitability and efficiency

At the end of 2023, the company had a net profit of S/359.6 million, 12.82% below that reported for the same period in 2022. The above includes an adjustment in dividends received (-9.37% year-on-year) which a result of the lower profit of the subsidiaries, in particular Imbabura Investments SA. y El Platanal Electric Company (CELEPSA)affected by lower demand for cement i Ecuador of external events.

Despite the above, gross profit was sufficient to cover administrative expenses, even when they were higher due to the increase in personnel and services contracted from third parties to strengthen the corporate capacity of all group companies. As a result of lower net profit, the profitability indicators of UNACEM Corp They adjusted. As such, annualized return on average equity (ROAE) was 6.75% from 10.48% in 2022, while annualized return on average equity (ROAA) was 5.57%, from 8.61%.

On the other side, UNACEM Corp recorded an EBITDA of S/428.2 million, 12.28% below that shown in the same period in 2022, which produced the lowest margin. Despite the above, the coverage offered by EBITDA on finance costs and debt servicing continues to be adequate.