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LafargeHolcim Should Provide
Rock Solid Gains

LafargeHolcim (NYSE ADR; HCMLY) is the world’s largest cement and aggregates company, with 2,300 operating sites in 80 countries that sell nearly 500 million tons a year into the highway, infrastructure and construction industries. Originally separate companies. Lafarge started in France in 1833 and, notably, supplied the cement for the Suez Canal, while Holcim opened in 1912 in Switzerland. The two companies merged in a landmark $44 billion deal in mid-2015, notes George Putnam, III, editor The Turnaround Letter, www.turnaroundletter.com.

“Sharp disagreements over leadership and valuation nearly scuttled the deal. After that rocky start, a newly-appointed CEO offered a promising plan to integrate the two companies, but this produced more disappointments than achievements. Last April, the CEO abruptly resigned after an investigation showed the company paid terrorist groups to provide protection for Lafarge’s Syrian cement plant. LafargeHolcim’s shares currently trade at a 33% discount to their mid-2015 price, effectively erasing nearly half of Holcim’s premerger value.

Analysis: Last October, Lafarge brought in Jan Jenisch as CEO. At Jenisch’s previous company, construction chemicals maker Sika AG, profits doubled and the share price tripled during his five years as CEO. His five-year turnaround plan for Lafarge is focused on improving revenue growth, increasing operating margins and converting more of its profits to cash. We expect a key part of the turnaround to involve simplifying and focusing the company’s far-flung operations.

Despite the impressive new management, Lafarge’s shares fell sharply when Jenisch unveiled his plan to investors on February 2, reversing their pre-meeting run-up and leaving the shares unchanged from more than a year ago. It appears that investors interpreted the plan’s modest targets as uninspiring. We believe, however, that the targets were intentionally set low to allow the company to later exceed them (probably by a lot), a savvy and not uncommon approach by many successful turnaround CEOs.

Lafarge’s shares trade at a relatively modest valuation of 8x current year EBITDA. Although waiting for a five-year plan to unfold may seem as dull as watching cement dry, the shares pay an appealing 3.7% yield and should provide rock solid gains when the recovery is completed.

Investors have several ways to buy Lafarge-Holcim shares. Its common stock trades on the SIX Swiss Exchange and on Euronext Paris under the “LHN” symbol. U.S. investors can purchase shares through the “HCMLF” ticker, but rnay find it easier to buy the ADR (American Depository Receipt) “HCMLY” (which is equal to 1/5 of an LHN/HCMLF share). All three of these stocks seem to track each other pretty closely, and they all appear to have sufficient trading liquidity for most investors.

We recommend the purchase of shares of LafargeHolcim Ltd. (HCMLY) up to 16.”

Editor’s Note: Edited by George Putnam, III for over 30 years, The Turnaround Letter, 1212 Hancock St., Ste. LL-15, Quincy, MA 02169, 1 year, 12 issues, $195, focuses on “troubled” companies poised for a rebound. For more information visit www.TurnaroundLetter.com.


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