Cementos Argos Offers High-Risk/High-Reward Leverage To Colombia And The U.S.

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About: Cementos Argos S.A. (CMTOY), Includes: CX, HCMLY, SUM
by: Stephen Simpson, CFA
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Stephen Simpson, CFA
Long only, growth at reasonable price, value, research analyst
Summary

Cementos Argos is leveraged to growth in construction and infrastructure investment in both Colombia and the U.S.

With sub-60% capacity utilization in those markets, a pick-up in volume would have disproportionately positive effects on operating leverage, profits, and cash flow.

Argos is over-leveraged (and working to reduce it) and has been pursuing a value-over-volume strategy in Colombia, putting long-term growth potentially at risk.

Cementos Argos looks modestly undervalued today, but if the company picks up volume in the U.S. and Colombia in 2020/21, the undervaluation could be in excess of 30%.

When I wrote about Cemex (CX) the other week, I mentioned Cementos Argos (OTCPK:CMTOY) [CCB.CN] as a name to consider for investors who wanted better leverage to volume growth in