Umicore’s H1 figures were a notch above our expectations, but the divisional pattern has led us to remain cautious. As expected, automotive was the party-pooper in many perspectives. Sales of combustion cars as well as electric vehicles were more than subdued and the recovery will be highly linked to consumers’ confidence. And this will be function of how the pandemic evolves. Earnings came in 21% below consensus, which has to be revised downwards.
Despite the more than difficult business environment in automotive, (including e-mobility), Umicore was in a position to manage its business better than expected, partly helped by higher precious metal prices and favourable legislation. Nevertheless, profitability suffered a bit. The outlook presented is quite cautious given the current business uncertainties. This view is clearly supported by the unchanged dividend. As we had been quite cautious, Umicore’s figures beat them and were above consensus.
Umicore’s H1 report was balm for the recently heavily-punished shareholders. Despite being more or less in line with the consensus, the provided insights made the tone more positive (e.g. the positive development in China). Our expectations were more than fulfilled.
Umicore has extended and broadened the ‘path’ from the cobalt mine to battery materials with the supply agreement of the essential transitional metal cobalt, which we value very positively.
Profit warning due to postponed growth momentum
Umicore seems to be between a rock and a hard place as the overall automotive industry (combustion and electrical mobility) deteriorated since demand for both types of power train has come down, especially in China and Europe. Management’s clarification of the FY guidance is a confession of lower profitability on a recurring level as midpoint guidance is below 2018 recurring EBIT.
Umicore benefited from a favourable environment across its businesses, especially in H2 18, which pushed profitability to a mid-term high, resulting in the achievement of its Horizon 2020 targets two years earlier than expected. But it will be difficult to maintain them in 2019.
2018 has beaten our more moderate expectations, as we had anticipated some stronger investments (which come in 2019), but consensus was broadly met, especially on the profitability level. 2019 will be more moderate, despite the higher dividend.
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China has received a large amount of pessimistic sentiment due to the perceived weakness in the economy from a slowdown in Industrial Production and slowing GDP growth. We believe that China has gone through a planned and necessary set of reforms in 2017 and 2018 and will emerge out of this self-imposed reform chrysalis into a period of infrastructure growth focused on two key dates: 2021 and 2022; the 100th year anniversary of the founding of the Communist Party of China in 2021 and President Xi’s 10th year in office in 2022.
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Umicore’s Q2 figures are straight out of a textbook on how scale effects could improve profitability, as Energy & Surface Technologies’ earnings were clearly up despite some still high investments. This was stronger and earlier than expected and additionally helped by more favourable FX prices. Consensus looked to be broadly met.
Umicore reported +16% higher ex-metal continued revenues (to €2,791m) and EBITDA clearly rose +18% to €503m. Higher volumes as well higher sales (pgm) prices might have triggered the growth. Net income of continued operations came in at €229m (€192m). Net income attributable to shareholders jumped from €131m to €212m.
Operating CF melted from €385m to €153m, clearly hit by a swing to a strong NWC outflow (€-276m after €13m). Investing CF (€-497m after €-209m) reflected the building activities for the higher cathode materials capacities and acquisitions in Automotive Catalysts and Cobalt & Specialty Materials. Financing CF swung from €-105m to €398m, forced by higher net gross debt (€562m after €7m).
Management will propose a €0.05 higher dividend of €0.70 per share at the AGM on 26 April 2018.
For 2018, management expects to have already met the Horizon 2020 target (REBIT: around €500m).
The annual report will be available on 23 March 2018.
Umicore’s H1 figures showed a good performance seeing sales growth (ex precious metal sales) and increased profitability. Sales from continued operations rose +7% to €1,453m and EBTDA increased +14% to €354m. Net income attributable to shareholders was additionally helped by a swing in profit from discontinued operations coming in at €119m (€6m).
Management confirmed FY guidance, expecting recurring EBIT in a €370-400m range (continued operations: €355-385m).
Management is increasing opacity by stopping the issuance of the quarterly trading updates, which we do not appreciate.
Umicore reported some Q1 trading figures with sales from continuing operations up by +13% driven by strong demand in clean mobility.
Management gave FY guidance, expecting recurring EBIT in a €370-400m range (continued operations: €355m-385m).
Umicore released a mixed picture within its divisions. The group’s sales excluding precious metal trading were marginally up (+1% to €2,668m), with EBITDA at €408m after €427m. Net profit attributable to shareholders clearly dropped 23% to €131m.
Operating CF clearly rose +45% to €384,7m, primarily fuelled by the swing in NWC from €-113m to €13m, seeing higher inventories. Investing CF was a bit weaker (€-209m after €-222m) as higher investments in intangible assets were more than offset by disposable gains. Despite clearly higher dividends (€-143m after €-115m), financing CF stood fairly unchanged at €-105m (€-99m) as equity measurements of the company generated some positive inflow (€38m).
Management proposes a gross annual dividend of €1.30 (€1.20) per share at the AGM on 25 April 2017, of which €0.60 was already paid out as an interim dividend in August 2016.
For 2017, management expects clean mobility activities to deliver solid growth. Recycling activities are seen as benefiting from the new capacities coming on stream.
We expect the Annual Report to be published within the next few weeks.
Umicore’s number-less trading statement reported a +7% revenue increase mainly driven by Catalysis.
Management confirmed recent 2016 guidance expecting recurring EBIT to be in the range of €345-365m including the FY contribution of Zinc Chemicals for the full year, but excludes the effect of the rescheduled shutdown of the Hoboken smelter at the end of the year.
Umicore saw some higher sales from continuing operations (+2% to €1,207m, ex-metal trading) and EBITDA rose +10% to €223m in H1 16. Net income attributable to shareholders dropped from €90m to €46m due to the negative impact from discontinued operations.
Operating CF more than trebled (€169m after €51m), fuelled by significant lower NWC outflow (€-13m after €-165m). Investing CF stood fairly unchanged at €-89m, whereas financing CF moved from €-14m to €-63m as the latter suffered from a swing from net gross debt issuance (€23m) to net gross debt repayment (€-11m) and was additionally burdened by higher dividend payments (+27% to €-74m).
Management slightly lifted 2016 guidance, expecting now recurring EBIT to be in the range of €345-365m (€335-360m) including the FY contribution of Zinc Chemicals for the full year and based on current metal prices.
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Treatt has performed well during FY20 despite the pandemic. There was strong momentum across the tea, health & wellness, and fruit & vegetables categories, and citrus markets recovered as expected. The strong growth across the non-citrus segments is resulting in a slightly reduced dependence on citrus (now 50% of sales). The UK relocation was slowed down as a result of the first lockdown, but the building work is now complete and the move will begin in mid-2021. While management report a strong start to the new financial year, the outlook is understandably uncertain: demand is not expected to return to normal levels before the end of FY21 or into FY22, though management is confident the business is in the best possible shape to face the uncertainty. The FY20 results demonstrate this, with a good cash performance and a 9% increase in dividends implying management’s confidence in the year ahead.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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3M sees early signs of electronics recovery, Paccar expects strong truck demand in Europe, MKS Instruments reports 22% q/q semis growth in Q4, Kone sees stable 2020
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US & German manufacturing PMI hits lowest readings since 2009, UK manufacturing PMI heads below 50, BorgWarner expects material financial impact from customer production halts
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AGM’s prelims confirm a solid year of progress with customer engagement and technology development continuing despite the challenges of COVID from early 2020. The results are in line with expectations, with the benefits of last year’s cost realignment being seen in reduced losses and effective cash management. The market opportunity remains significant, as reflected by continued growth in the pipeline. Commercial highlights include the promising partnership with Blocksil, which should support revenue growth over coming periods, as should the recent expansion of the distribution network.
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