Has Cement Hit Bottom? How about C&E?

As with many (or most) other industries, the question in engineering and construction is simple: when do we hit bottom?  or have we already hit it?  If you look at cement as a leading indicator (you could look at steel or coppper), and you hark back a little less than a year, The Portland Cement Association forecast last May an expected consumption drop of 11% in 2008, with a further drop of 5.5% in 2009.  (http://www.acppubs.com/blog/1150000515/post/1340026534.html?nid=4251). 

And having uttered this sybilline forecast, the PCA could step back and do a Mona Lisa smile at its accuracy.  Things did go in the tank, didn’t they?  But as to 2009, one wonders whether it is not time to take stock again, rather than just assuming that last year’s crystal ball gazing was sufficient.  There are bits and pieces of things that are worth noting in that regard, and some of the clues may be coming from offshore (which is where the HUGE cement demand built up in the first place).

Just today, Bloomberg’s Pooja Thakur reported from Mumbai (http://www.bloomberg.com/apps/news?pid=20601091&sid=aOtkexunAfc8&refer=india) that according to India’s largest cement maker, ACC Ltd (http://www.acclimited.com/newsite/index.asp), its cement sales in India climbed 13% year-over-year for January.  Hmmmm.  The “overheated” Indian market was thought to have cooled off quite considerably over the last 6 months or so, but 13% growth in cement sales seems fairly torrid. 

If the Indian cement sales represent the beginning of an uptrend, remember last fall when major cement factory designer and outfitter, Hong Kong-based KHD Humboldt Wedag International (NYSE:KHD), warned that it was prudently examining its backlog due to the dire world financial climate.  The concern was that the crisis of liquidity might have caused a potential slowdown in sales, and potentially some cancellations of orders (http://www.khdhumboldt.com/phoenix.zhtml?c=92949&p=irol-newsArticle&ID=1225518&highlight=).  Fast-forward to December 2008, however, and it turned out that KHD’s cancelled and postponed orders amounted to $68.8 million out of a backlog of $1.068 billion (http://www.khdhumboldt.com/phoenix.zhtml?c=92949&p=irol-newsArticle&ID=1233625&highlight=), perhaps not Armageddon after all.   Keep in mind that KHD shares, at $10.30 today, are off from a 52-week high of $35.79, and the company’s market cap of $314 million is lower than its raw cash balance, and not significantly higher than its free cash. 

Meanwhile the C&E segment has sunk dramatically, with mid-cap to large-cap giants like Pasadena, CA-based Jacobs Engineering Group (NYSE:JEC, http://www.jacobs.com/) selling for $38.39 vs a 52-week high of $98.31; and Irving, TX-based Fluor Corp (NYSE:FLR, http://www.fluor.com/Pages/Default.aspx) is at $38.80, down from a high of $101.37.  Moon Township, PA-based Michael Baker Corp (Amex:BKR, http://www.mbakercorp.com/) got what thestreet.com called “a shot in the arm” from the infrastructure “bailout” this week (http://secure2.thestreet.com/cap/login/rm_mbp_yho_nflow.jsp?cm_ven=YAHOO&cm_cat=PREMIUM&cm_ite=003190&flowid=2f742435b1&url=http%3A%2F%2Fwww.thestreet.com%2Fp%2F_yahoo%2Frmoney%2Findustrials%2F10461414.html), and is selling for $37.75 vs its year-high of $43.80.

It could be that there are more bargains in the C&E world than just BKR.

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