The Alchemist: Escape velocity
40+ earnings to go and only one question The abyss of Q2 2020 will provide an interesting historical datapoint on the relative resilience of all subgroups of the chems sector. Beyond that, the Q2 earnings season will likely boil down to the comments on the cadence of Q2 and the look of July. Uncertainty is still high and quarter-ahead predictions will likely be scarce as corporates will have little to no visibility on September, the biggest month of Q3. With this note, we tweak all models into Q2s and roll-over DCFs. The best risk-reward potentials (coatings, distribution, Arkema) are now barely in the double digits, whereas we have a lot of stocks looking full and fair. Don''t party like it''s 2009 or 2016; earnings momentum into 2H could disappoint further We look at 2021 expectations against H2 ''20 run-rates and 2019. 2021 looks more like the north face of the Eiger than a walk in the park, with an EBITDA increase of around 15% versus H2 run-rates adjusted for seasonality. We do not see necessarily a significant risk on Q2s per se, but the upcoming season could be a catalyst for consensus downgrades for H2/2021. A rare exception: for coatings and distribution, we believe Q2 could trigger a wave of upgrades that do not seem to be priced in in the case of Akzo and Brenntag in Europe, PPG, Axalta and Univar in the US. Those are our top picks at the moment. We like ''chicken cyclicals'', we dislike ''the barbell'' We remain cautious on supply/demand conditions into 2021 for most commodities, with mid-cycle looking several years away. The extreme valuations on the super high end of the sector leave little room to disappoint. This is why we would generally avoid the barbell strategy which seems to be very popular with investors at the moment. We think risk/rewards look the worst with Solvay (Underperform) and Neutral-rated BASF, Covestro, Lyondell, Huntsman. We downgrade Clariant to Neutral; shares have re-rated to a fairer valuation and we see...
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14 Jul 20
With some external help
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.
07 Feb 20
Decoupling from automotive's negative trend
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.
31 Jul 19
Come back in 2020!
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.
23 Apr 19
Strong 2018, but a moderate 2019
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.
08 Feb 19
China stimulus boosting demand
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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17 Jan 19
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.
01 Aug 18
Capital needed for growth
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.
09 Feb 18
Charging Batteries' and Recycling’s comeback, but operating CF melted down
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.
31 Jul 17
Mobility showing the green light, Recycling the red one
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.
10 Feb 17
Strong demand from mobility applications, cont’d.
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.
21 Oct 16
Mobility does the work and guidance slightly lifted
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.
29 Jul 16
No signs of weakness in automotive
Umicore’s sales update provided only percentages but no hard figures. Group’s sales were marginally up by 1%. Catalysis reported strong demand from automotive, but the division’s performance was mostly offset by weaker performances from Energy & Surface Technologies (-4%) and Recycling (-8%). Both suffered from lower metal prices. Management did, however, provide some guidance with recurring EBIT expected to be in the range of €335-360m in 2016.
26 Apr 16
Strong final spurt, but where does 2016 go?
Umicore reported a +11% sales (ex metal trading) increase to €2,629m pushed by higher demand in Catalysis and Energy&Surface Technologies in 2015. EBITDA rose +5% to €417m and net profit attributable to shareholders was almost unchanged at €171m. Operating CF jumped +49% to €396m predominantly driven by a swing in NWC from €-113m to €88m. Investing CF came in at €-242m (€-222m) despite lower capex investments. Due to the share-buy-back programme (€-64m after €-10m), financing CF moved from €-99m to €-148m. Management will propose a higher dividend of €1.20 (€1.00) per share, of which €0.50 was paid out in September 2015, at the next AGM on 26 April 2016. Management failed to give clear guidance, but expects significant higher volumes in clean mobility and recycling. Metal price development is expected to remain volatile. AR is expected to be released in the coming weeks.
05 Feb 16
2015 seems to deliver
Q3 sales are seen +10% higher driven by Catalysis and Energy&Surface Technologies. Net debt increased due to interim dividend payments (€50m) and share buy-backs (€32m). Management became a bit more moderatein its guidance, now seeing REBIT near (previously: in the upper part) the €310-340m range.
22 Oct 15
Pushing the (automotive) pedal
H1 sales (ex precious metal sales) were up +12% to €1,349m and EBIT rose +18% to €123m. Net income attributable to shareholders came in +11% higher at €90m. Operating CF was severely hit by a €221m swing in NWC to €-165m outflow and investing CF moved up from €-69m to €-92m mainly driven by higher capex. Financing CF came in at €-14m after €-98m, primarily lifted by the disposal of own shares. Management fine-tuned already given FY guidance, expecting now REBIT to come in the upper part of the previously stated €310-340m range.
31 Jul 15