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Why did Viking Global Investors establish a position in Cemex?

Samantha Nielson - Author
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Aug. 18 2020, Updated 5:15 a.m. ET

Viking Global and Cemex

Andreas Halvorsen’s Viking Global’s new positions in the fourth quarter include Walgreen Co. (WAG), Canadian Pacific Railway (CP), and Cemex SAB de CV (CX). The fund increased its positions in Facebook (FB) and Valero Energy Corporation (VLO). It also liquidated its positions in Yahoo (YHOO) and Comcast Corporation (CMCSA).

Viking Global Investors opened a new position in Mexico-based cement giant Cemex SAB de CV (CX). Last year, Viking Global had sold its position in Cemex in 3Q 2013.

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Cemex posted a loss in 4Q, as sales declined in Mexico due to a slowdown in the country’s construction industry. However, losses narrowed to $255 million compared with $494 million a year earlier. Consolidated net sales increased by 4% during the fourth quarter of 2013 to approximately $3.9 billion and increased by 2% for the full year to $15.2 billion year-over-year. Net sales in the U.S. rose 8% to $819 million compared to the year-ago quarter, while sales in Mexico decreased 6% to $785 million. The company said it saw net sales due to higher volumes in Mediterranean, Northern Europe, Asia and South, Central America and the Caribbean regions, as well as higher prices of its products in local currency terms in most of its regions.

Cemex said on the earnings call that demand conditions improved during the fourth quarter in Mexico driven by an accelerating infrastructure spending in the second half of 2013. The industrial and commercial sector grew driven by the manufacturing activity, in line with the recovery in the U.S. Residential sector activity during 2013 was affected by a delay in the granting of subsidies at the beginning of the year, continued financing constraints for both home builders and buyers, as well as high inventories. However, the prospects for the residential sector for 2014 appear to be more favorable with double the amount of housing subsidies, better clarity on the new housing program and fiscal reform, and higher participation of medium and small home builders. Cemex expects a double-digit increase in cement volumes for the transportation sector, driven by the increase in resources, reconstruction efforts and the general reactivation of the economy.

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The U.S. EBITDA increase was fueled by steady volume growth, healthy pricing gains, and favorable operating leverage. Cemex said the 2013 performance provides convincing evidence that the turnaround in the U.S. is sustainable over the medium term. In Northern Europe, the economic turnaround drove growth in regional volumes during the second half of the year.

Cemex announced in August 2013 that it will swap assets in Europe with Holcim in a deal where Cemex will pay €70 million ($96 million) in cash as part of the transaction. Cemex will acquire all of Holcim’s assets in the Czech Republic and will divest the company assets in the western part of Germany to Holcim. In Spain, Cemex and Holcim will combine all their cement, ready-mix, and aggregates operations. The move was aimed at improving Cemex’s footprint in Europe and consolidating its portfolio in the continent. The deal is being investigated by the European Commission over concerns that the proposed transactions may reduce competition.

Morgan Stanley analysts are bullish about Cemex and said in January that “the consolidation in the cement industry in Mexico came into focus post the Cemex-Holcim asset-swap in 2013. Further consolidation might be a game-changer with reference to the long-term-profitability in the market.” Barclays analysts expect that “in Mexico a volume recovery to drive EBITDA up to 2012 levels (close to $1.2bn), which would represent close to 44% of the total forecast EBITDA growth in 2014.”

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