Citi upgrades Holcim to “buy,” sees 19% upside after ETS-driven selloff

Investing.com -- Citi Research upgraded Holcim to “buy” from “neutral” rating, setting a SFr80 target price on the Swiss building materials group after a 15% share price decline it called an overreaction to fears of European Union carbon market reform.

European Union Allowance prices have fallen roughly €20 per tonne since mid-January, hitting ten-month lows around €66 per tonne amid political pressure to overhaul the EU Emissions Trading System. 

Holcim’s share price decline outpaced most cement peers over that period, second only to HEI, despite the fact that roughly 15% of group revenue comes from non-cement businesses including roofing and insulation. "We think the recent sell-off on HOLN is overdone," analysts said.

Citi’s base case is not an ETS suspension but a lower Linear Reduction Factor extending the EU ETS cap beyond 2040, alongside a slower phase-out of industrial free allocations under the Carbon Border Adjustment Mechanism. 

Should reforms be limited to those measures, EUA prices are likely to rebound toward €80 per tonne on a 6-12 month view, supported by a 200 million tonne supply deficit this year, Citi’s Energy Strategist said. The brokerage lowered its 0-3 month EUA price target to €65 per tonne.

Cement pricing in Europe has held firm despite the ETS uncertainty. Holcim confirmed on its earnings call that a mid-single-digit percentage price increase has been implemented as planned. 

Citi noted that cement pricing has historically shown asymmetric exposure to CO2 costs, rising when carbon prices climb but holding when they fall. When EUA prices dropped roughly 40% in 2024 to below €55 per tonne, European cement prices still rose 2%.

The sell-off pulled Holcim’s EV/EBITDA to approximately 10x from a post-spin-off peak of 12x. Citi kept its 2026 revenue estimate broadly unchanged at SFr15,763 million while raising its group EBIT estimate 2% to SFr3,053 million. 

Diluted EPS is forecast at SFr3.21 in 2026, SFr3.54 in 2027 and SFr4.02 in 2028. Free cash flow yield is projected at 5.8% in 2026.

Over the longer term, Citi said the net impact of ETS reform on Holcim is likely marginal. The group targets its ECOPact low-carbon concrete and ECOPlanet low-carbon cement to exceed 50% of net sales in their respective categories by 2030. 

Holcim management said at its earnings call that EUA prices would need to reach €100 per tonne for the company to commit to carbon capture projects, adding that CCUS investment to date has been "negligible." Capital not deployed toward CCUS could be redirected to acquisitions or shareholder returns, Citi said.