The Veolia bid for Suez has exposed again the French penchant for boards of the same feather. The irony is Suez’ poison pill relying on a Dutch stichting under the aegis of some of its board members. This is pushing the envelope too far and makes a mockery of shareholders’ fundamental rights.
Companies: SUEZ SA
Veolia has made an offer to acquire 29.9% of the Suez share held by Engie at €15.50/share, representing a substantial 50% premium. The two companies are similar concerning their activities and complementary in terms of their geographical footprint, and this transaction will almost double Veolia’s exposure to Asia. From Engie’s point of view, this would be a major step forward in its plan to refocus its activities on gas and the development of renewables.
Figures are broadly in line with expectations. EBITDA was slightly down due to the lower volumes of waste and water, on the back of the slowdown in industrial activity and tourism. In view of the first figures for March and April, the group estimates that the impact on EBIT should be in the order of €60m (or c.4%). Figures in China indicate an upturn in industrial activity.
Revenue increased by 3.6% in organic terms to €18bn and EBITDA by 3.9%, to €3.2bn, both slightly higher than our expectations. Growth was mainly supported by the Recycling and Recovery Europe division on the back of a positive price effect. The net debt/EBITDA ratio remains flat at 3.2x but was down to 3.0x at constant accounting standards. The proposed dividend is in line with expectations (€0.65). FY20 guidance is promising, the impact of 2019-nCoV is not substantial.
Following a smooth H1, Suez posted a solid set of results at the close of 9m19. The sustained strong top-line performance in Recycling & Recovery, the resilience of Water Europe and the continued delivery of revenue synergies in WTS led to a modest upgrade in the group’s revenue guidance, now targeting the upper end of the 2-3% organic growth range, and set a solid starting point for the execution of the new strategic plan.
The long-awaited autumn revelation of Suez’s strategic plan has addressed many of the concerns raised by shareholders, with a focus on profitability (EPS being the word of the day) and smarter growth focused on international markets, servicing industrial clients and offering technology-focused/value-added solutions. However, key questions remain unanswered, particularly regarding the ambitious €3-4bn asset rotation programme. Investors will be eagerly anticipating Suez’s next move.
Suez posted a satisfactory H1 19 set of results, with all divisions contributing positively to revenues and group EBIT in organic terms. While the operational performance was solid and the group is on track to fulfilling its 2019 guidance, all eyes remain on the highly awaited strategic plan. Mark your calendars for the 30 October presentation date.
Suez reported solid Q1 19 revenues of €4,210m (+3.7% organic growth vs +1.7% in Q1 18), mainly driven by WTS (+8.5%) and R&R Europe (+4.7%). EBIT saw a +3.3% increase, reaching €293m thanks to strong activity in the International division, particularly in China and Australia. Net debt remained relatively stable (lfl) at €9,031m (3.26x EBITDA) versus €8,954m in 2018. A resolution was finally reached on the Buenos Aires concession dispute, resulting in the collection of a €220m settlement from the Argentine government.
Suez released FY18 results. Sales reached €17,331m (+9.8% and +3.6% organic), EBITDA €2,768m (+7.4%, +3.4% organic), EBIT €1,335m (+10.2%, +7.5% organic), net income €335m (+13.4%). Free cash flow reached €1,023m and net debt at year-end was €8,954m (vs. €8,470m a year ago). The dividend proposed is €0.65 (unchanged). In terms of outlook, the group expects organic growth of +2-3% topline for FY19 and +4-5% at EBIT level, +7-8% for FCF and a net debt/EBITDA ratio of c.3x (3.2x currently), with the ambition to lower it until FY20. Also, the soon-to-leave CEO, Mr. Chaussade, will be appointed as Chairman, as expected, when Mr. Camus replaces him in May (see our comment dated 21 December 2018).
Suez’s 9m 18 results: €12,697m (+3.8% organic, +13% reported, +15.8% at CER), EBITDA €2,048m (+3.9%, +6.7% +10.4% respectively), EBIT €963m (+7.5%, +4.4%, +9.7%). Net debt at the end of Q3 was €9.3bn (€9.3bn in H1, €8.8bn in Q1, €8.5bn at year-end 17). The group confirmed its full-year targets (Revenue growth at constant exchange rates of c.9%, EBIT growth of c.10% at CER before recognition of the impact of PPA for the acquisition of GE Water, FCF of c.€1bn, net debt/EBITDA ratio of close to 3x, dividend of at least €0.65 per share.
Acceleration of growth in Q2. Disposal of 20% of WTS to a pension fund. FY18 guidance confirmed. Expect a slight revision upwards of our estimates/target.
Suez’s Q1 18 results: €4,058m (+1.7% organic, +9.1% reported, +13.8% at CER), EBITDA €635m (+2.6%, +3.4% +8.8% respectively), EBIT €289m (+5.5%, +2.8%, +10.2%). Net debt at the end of Q1 was €8.8bn (€8.5bn at year-end 2017).
Suez released a weak set of full-year results, marked by the negative Q4 one-offs flagged in early 2018 and the confirmation of the revised 2018 targets (post January warning).
Suez reported a disappointing set of FY17 trading figures and FY18 guidance.
Revenue up 1.5% organically, at c.€15.8bn
EBITDA down c.2% organically, at c.€2,640m
EBIT down c.2% organically, at c.€1,280m
Net income at c.€300m
Leverage down to 3.2x
FCF above €1bn, in line
Dividend stable at €0.65, in line
Suez held an investors presentation yesterday in Paris concerning the recently-acquired GE Water and the broader Water Technology and Services (WTS) division.
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The group has released a positive trading update, signalling a strong H2 and performance ahead of expectations. The new guidance points to a 6.7% upgrade to revenues and a 10.5% upgrade to EBITDA. Cash generation has been notably strong, at about $26m, which will drive an increase in supplemental dividends with a dividend yield of 7.1%. We raise our TP from 255p to 285p, based on a target P/E of 14x, giving decent upside to the current 11.6x.
Companies: Somero Enterprises, Inc.
Macfarlane has released a strong trading update for the 4 months to October 31 2020 highlighting second half revenue and PBT to date being ahead of 2019 and the expectation that 2020 PBT will be broadly in line with 2019, a strong recovery from the uncertain position at the interim results. Separately, the Group has announced that CFO John Love will be stepping down from his role and the Board to be replaced by Ivor Gray, current Group Financial Controller and Company Secretary. We expect this to be a seamless transition given Ivor's experience in the Group and represents very well managed succession planning by the Board. Reiterate buy rating.
Companies: Macfarlane Group PLC (MACF:LON)Macfarlane Group PLC (5K6:FRA)
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
Breedon has sustained its trajectory of recovery seen since July and August, when it started to outpace 2019 comparative levels of revenue and EBIT, through September and October to the extent that it is now able to issue modestly improved guidance for FY20. The stock has been a stellar performer rising c15% over the past month, is flat on the quarter but 36% higher over the past 12-months and we believe that the rating is not expensive (2022E EV/EBITDA c8x, PE 15.8x, dividend payments initiated and leverage closing in on 1x). Breedon has become one of the sector's most admired businesses, with a consistent record of delivery (proven again through COVID), offering a combination of organic development and acquisition driven growth, excellent free cash flow generation driving a phase of de-leverage and exposure to still positively expectant infrastructure markets in GB and Ireland. We retain a positive view on Breedon at this level.
Companies: Breedon Group PLC
H121 ended strongly for Renewi, recovering from earlier COVID-19 impacts that turned out to be less than management had previously anticipated. Relatively more resilient waste markets and actions taken to control cash flows and reduce costs contributed to this outturn. We have moved estimates ahead in all three forecast years.
Companies: Renewi Plc
We release prudent FY20E and FY21E forecasts as Xpediator continues to gain momentum and operations revert to pre-COVID levels. The Group has made strategic progress year to date. It has implemented a strict cost reduction programme which should drive annualised cost saving of over £0.5m, restructured and strengthened its management team and further integrated acquisitions. Additionally, it is in the process of consolidating its site portfolio, driving further costs out of the business. We believe the market continues to undervalue Xpediator's geographically diverse revenue base, flexible low fixed cost operating model and positive financial outlook. Accordingly, we move our recommendation from Under Review to Buy.
Companies: Xpediator Plc
Xpediator has delivered a healthy trading update, breaking several revenue records during H2 2020. Furthermore, the outlook for FY21 remains promising, reflecting recovery to more normal levels in Transport Services, a full-year impact of the Nidd acquisition, the turnaround of underperforming businesses, and new ventures. The £6m PBT forecast for FY20 highlights an improving margin, albeit this represents a shortfall from FY18. In our opinion management actions, plus recovering markets, can take the Group to peak margins over the next 18-24 months: delivering a marked increase in profitability.
Directa Plus has announced that in the October collaboration agreement with NexTech Batteries, it has achieved above 400 Wh/kg (watt-hours per kilogram, the usual measure of energy density) in a practical system. NexTech produced several full-scale pouch format cell prototypes using its proprietary cathode and electrolyte materials (with Directa plus graphene) producing 410Wh/kg of specific energy at a weight only slightly below 30g. For comparison, standard Lithium-Ion batteries have an energy density of 100-265 Wh/kg.
Companies: Directa Plus Plc
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Brick and concrete products group Forterra has raised its guidance for FY 2020E to above the current consensus range and reinstated dividends following trading in Autumn which exceeded its previous expectations and which has continued strongly despite the second lockdown. We have increased our FY 2020E revenue, EBITDA and EPS estimates by 3%, 14% and 46% respectively, and cut our net debt projection. We have introduced FY 2021E estimates showing further strong expected growth.
Companies: Forterra Plc
H1F21 revenue was £107m, down 14.8% y/y (H1F20: £125.6m) and down 11.9% sequentially (H2F20: £121.5m). Q2F21 revenue was up 5.3% y/y, indicating a trend to recovery in the post-lockdown period across both, Ireland and the UK. The strength of LTHM's business model is supported by the diversity of its customer base and the expanse of its product offering, allowing it to withstand fluctuations in demand across market sectors. We believe LTHM stock is a relatively low risk investment given the strong cash position (131.6p/share), no debt and a stable yield. The stock trades at 8x EBITDA, compared to its peer average of ~11.1x, on what are more compelling metrics.
Companies: James Latham Plc
FY20 has been a year of good strategic progress for Directa. Last year’s Setcar acquisition has supported strong revenue growth and, despite some COVID related disruption, contract momentum has continued. The successful launch of the Co-Mask is an example of the Group’s agility and the performance of its materials in demanding applications. The recent agreement in principle to supply graphene for lithium sulphur batteries adds a new vertical with significant promise. We reintroduce forecasts this morning, anticipating a steady performance in H2 with growth towards EBITDA break even in FY22. In our view, Directa is a well-managed business with proven technology and a significant growth opportunity.
SThree has released a brief update ahead of the scheduled Q4 trading update expected on 12th December. The key headline is that an improving trading backdrop over the last few months has driven a better than expected profit performance. Market consensus was clearly too light with the company now guiding for an FY’20 outcome above the top end of the range of expectations. We have updated our forecasts accordingly and now look for FY’20 PBT and EPS of £28.1m / 13.3p respectively – a PBT upgrade of +53% on our previous estimate. Although the company has not formally reinstated full guidance, we are taking this opportunity to publish our estimates for FY’21. SThree has shown good resilience through this pandemic. The combination of STEM industry specialism and the inherently higher short term visibility of the contract focus has afforded SThree management a greater degree of flexibility when it came to aligning the necessary cost actions with the strategic ambitions of building market share in the key, global STEM markets. Costs and headcount have been cut, but they have been targeted and selective. The net result has been an increasingly positive tone in trading commentary, culminating in yesterday’s explicit upgrade. Has this been fully priced in by the market? To an extent yes, with the shares now standing +57% above the May 2020 lows and outperforming the peer group year to date. However, despite this outperformance (share price and operational) SThree still stands at a material valuation discount to its peers. We continue to find the extent of this valuation gap hard to justify.
Companies: SThree plc
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.