Compagnie de Saint-Gobain

The stable outlook indicates that we expect Saint-Gobain to display robust operating performance through 2019 and 2020. Performance should be supported by good volume demand in Europe and the U.S., and an inflationary environment that results in positive pricing conditions. We forecast FFO to debt of 25%-30% in 2019-2020, almost in line with 2018. This reflects a moderation the share buyback program in 2019-2020 compared with 2018, when the group acquired more than €0.5 billion of shares, and continuation of its portfolio optimization, including asset disposal. We also expect economic and operating conditions in Saint-Gobain's core markets, particularly North America and Europe, to soften a bit compared with 2017-2018, but to remain supportive. We believe that credit metrics will remain

...Wide product and end-market diversity support Saint-Gobain's ability to generate operating cash flow.Saint-Gobain is largely exposed to residential, civil, and infrastructure construction, and to other industrial-related sectors, such as automotive. We believe that this wide end-market diversification translates into sustainable cash flow generation, as diversity helps to reduce the magnitude of fluctuations in individual segments, offsetting the inherent cyclicality of the building materials industry and reducing exposure to the construction cycle. In fact, the group's yearly free operating cash flow (FOCF) has exceeded 1 billion on average over 2011-2018. The EBITDA margin is in line with industry average, supported by value-creating portfolio management, and a focus on price increases and cost cutting. Saint-Gobain's profitability ratios are average by industry standards and have exhibited low volatility in recent years. The adjusted EBITDA margin averaged 10.5%-11% over 2013-2018. Portfolio...

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