Loma Negra Is Feeling The Argentinian Recession; The Stock Is Not An Opportunity

Core Viewpoint - Loma Negra's 2Q24 results reflect a challenging macroeconomic environment in Argentina, with significant declines in sales volumes and ongoing operational adjustments to mitigate costs [1][2]. Group 1: Company Performance - Loma Negra's sold volumes decreased by 30% in 2Q24 compared to the previous year, with concrete volumes down 45% [3]. - Despite the decline in sales, the company managed to improve its margins by 500 basis points in both gross and EBITDA, resulting in an 11% contraction in adjusted EBITDA and a 12% contraction in operating income [3]. - The company halted clinker production and grinding operations to reduce costs, which may not be sustainable in the long term due to potential inventory cost increases [3]. Group 2: Market Conditions - Argentina is experiencing a significant recession, with the economy expected to decline by mid-to-high single digits this year, severely impacting the cement industry [2]. - Retail buyers are facing reduced disposable income, and real estate developers are hesitant to invest due to high construction costs and a lack of buyers [2]. - The national government has ceased all public works since December, further diminishing demand for cement [2]. Group 3: Ownership and Control Issues - Loma Negra's controller, Intercement, has been burdened by debt and is seeking to sell its stake in Loma, with Companhia Siderurgica Nacional (CSN) holding exclusive negotiation rights [4]. - Intercement filed for asset protection in Brazil, which does not affect Loma's operations but increases the urgency of selling its stake [4]. - The potential change in ownership could attract interest from other strategic players, including local investors [4]. Group 4: Valuation Insights - Loma's current valuation is challenging to assess due to the ongoing recession, with a market cap of approximately $820 million and potential cash profits estimated between$55 million to $70 million [5]. - The most negative scenario suggests a yield of about 6.6%, which is not particularly attractive given Argentina's economic instability [5]. - The stock is viewed as a Hold, as the company is expected to cycle between periods of growth and decline without significant long-term profitability improvements [5].