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H2 EBITDA misses consensus, FCF helped by working capital inflows Umicore reported H2 EBITDA of EUR453m, 3% below consensus. EST EBITDA missed by 10% while Catalysis and Recycling were in line. Free cash flows were strong, however. Post financing and leases FCF was close to EUR200m during H2, helped by a significant inflow on working capital. Battery Mats guide leaves investors waiting for a significant inflection point Within its newly formed Battery Materials segment, management pointed towards a FY24 sales range of EUR575-675m with an EBITDA margin of 22%. 2023 performance was said to have been helped by a series of one offs including lower costs from production test runs and valuation of battery scraps. Excluding these effects, management expects the FY24 EBITDA to be up significantly though also confirmed a higher DandA charge within the segment as capacity ramps. Earnings are also expected to be H2 weighted which may increase nervousness around further downgrades. Group guide below consensus, hedging lowers volatility but suppresses upgrade risk UMI''s FY24 EBITDA guide of EUR900-950m was c6% light on consensus. The Catalysis and Recycling guides were in line leaving the Battery Mats / Spec Mats (both formerly within EST) as the key drivers of the downgrade. UMI also reiterated its intention to extend the duration and coverage of its hedges which may cap upside with metals prices trading at multi year lows. FY24 EBITDA estimates cut by 8%; PT cut to EUR21.5 from EUR22.5 We lower our FY24 EBITDA estimates by 8% driven by cuts within Battery Materials. Umicore''s shares continue to trade near 5yr+ lows and at an undemanding valuation (c7x FY24 EV/EBITDA). However, we think this accurately reflects risks around slower EV penetration, shifting mix towards competing cathode tech and the long payback period for investors. With few catalysts, we stay Neutral rated on the shares.
Umicore Umicore SA
• H2-23 EBITDA missed by 4% and the FY24 EBITDA range by 6%, both primarily due to Battery Materials (e.g. impact start-up costs).• This means that the doubts on battery materials are unlikely to be removed soon and that 2024 will be another transition year. • We stick to Hold and lower our TP to EUR 23 (from EUR 25), based on our 2025E SOTP with an overall target EV/EBITDA of around 8x.
We foresee another transition year coming up as we expect that start-up costs will hamper operational leverage at battery materials and lower PGM prices will impact profitability of Recycling. We have lowered our 2024-26 EBITDA estimates by 7-9%.Our 2025E SOTP arrives at EUR 25 p/s (was EUR 31 p/s), with a target EV/EBITDA of 8.3x (was 9.3x) due to lower peer group multiples. Hold.
Umicore has taken a huge step by adding fresh orders for battery material of 35GWh for the North American market to the order book by 2027. By signing the contract with AESC, Umicore improved its global customer footprint and overfulfills its plan to deliver battery material volumes of 230 GWh by 2030.
• Umicore is going to build a new battery materials plant in Canada for which it will receive substantial grants and already has a long-term contract with AESC in place.• Given the grants, more JV financing and more discipline, Umicore reduces its net capex requirement for EUR 2022-2026 from EUR 5bn to EUR 3.8bn. • Positive statements, but now it is all about execution and most will only be visible as of 2026. The short-term results at Battery materials could well still be hold back by start-up costs at Nysa. We stick to Hold.
H1 in line with expectations Umicore reported H1 EBITDA of EUR519m, 2% ahead of consensus expectations and 14% down y/y. Recycling EBITDA beat consensus despite lower PGM prices. This was offset by a small miss in EST (RBM was flat y/y), while Catalysis was in line. FCF was soft at EUR60m due to Umicore''s capex ramp and the y/y earnings decline. Guidance better than feared Management introduced its FY23 EBITDA guidance range at EUR960-1,020m. At the midpoint this is 2% below consensus expectations of EUR1,008m. On the segment level new guidance was largely in line with expectations with Catalysis seen up y/y and Recycling down due to lower PGM prices. In EST, management pointed towards a decline in segment EBITDA. However it now targets a y/y improvement in RBM (vs flat previously) which is certainly an incremental positive considering the unit''s importance for UMI''s equity story. Overall, guidance looks better than feared given the recent decline in PGMs and UMI''s underperformance vs the chems sector ytd. Still a ''show me'' story; new reporting structure a step in the right direction Umicore announced a new structure which will involve RBM becoming a separate business unit. While this may signal a step in the right direction when it comes to transparency, Umicore''s equity story remains dependent on management''s ability to regain credibility which can only come with a track record. This comes as the company embarks on a significant capex cycle where any returns are likely to be long dated. As such, we stay Neutral rated on the stock, despite the shares trading on a relatively uncommanding valuation (c8x FY24 EV/EBITDA). Changes to estimates We lower our FY23/24 EBITDA estimates by 4%. Our DCF based price target falls to EUR30 (previously EUR34).
Umicore broadly confirmed our cautious view by providing a soft full guidance as H2 will be weaker than H1. Catalysis should see some volume progression, whereas Energy & Surface Technologies will be negatively impacted by the normalisation in cobalt prices. Lower pgm prices and less available scrap is likely to dampen Recycling’s performance. The outlook provided by management fits with ours. Profitability for the full year will depend on how pgm prices evolve for the rest of the year.
• H1-23 REBIT was a touch better than expected, primarily driven by Catalysis. • The new FY23 guidance range on EBITDA more or less meets our current and consensus expectations.• We stick to Hold and TP of EUR 31, based on our 2024E SOTP with overall target EV/EBIT of 14x. We regard 2023 as some kind of transition year as it will unlikely provide more important proof points on the ramp up and potential profitability of battery materials.
• We have lowered our FY23 and FY24 REBIT estimates by 5-6% to reflect the lower PGM/rhodium prices. We are now slightly below consensus.• We expect a more cautious tone on Recycling with upcoming H1-23 results. • Hold maintained, TP reduced from EUR 33 to EUR 31 due to lower outcome of our SOTP 2024E. We regard 2023 as some kind of transition year as it will unlikely provide more important proof points on the ramp up and potential profitability of battery materials.
Q1 trading in line with company expectations Umicore published its Q1 trading statement confirming the year has started in line with expectations with Catalysis up strongly y/y, EandST down y/y (RBM flat and normalisation in CSM) and Recycling earnings down due to lower metal prices and higher costs. Qualitative outlook highlights increasing metal price headwinds in Recycling For FY23 they maintain a qualitative outlook although have committed to providing more quantitative colour at H1 results. The qualitative guidance points to small upside to consensus in Catalysis and EandST but offset by downgrades in Recycling due to lower metal prices and despite hedges. We lower our FY23 EBIT estimate by 7% to EUR724m (-16% y/y) mainly in Recycling and cut our target price to EUR34 from EUR36. New cathode contract in China a positive Umicore also announced it has signed a new contract with a Chinese battery OEM player to supply 20kt (~15GWh) of high nickel cathode material starting from late 2023. Management gave limited details on the contract (price/volume terms, time to ramp up etc) but nevertheless this should help to materially improve utilisation rates at its Chinese plant and signals that there is demand for high nickel cathodes in China after significant competition from LFP cathodes in recent years. We estimate this contract could account for 50% of its Chinese capacity once ramped and management hinted that they might sign a contract in Europe with this customer as well. Still in show me mode as they transition to ''Umicore 2.0'' Management continues to demonstrate progress in its transition to ''Umicore 2.0'' and its RISE 2030 strategy however will likely remain in show me mode as they look to rebuild credibility and until they start to outgrow the EV market again. With near term metal price headwinds plus elevated capex with a long-dated payback, we stick to our Neutral rating. Shares are trading on 8.5x 2024 EV/EBITDA.
As usual, Umicore provided only qualitative comments about the business performance for the first three months and also provided a qualitative outlook, Despite the management’s ambition to be supportive, some more transparency is needed. Making reference to the current consensus is not that helpful as the consensus lacks divisional details.
• Umicore indicated that it had a solid start of the year. For FY23 it sees REBIT slightly above current consensus expectations for Catalysis and ES&T, while at the lower range of current expectations for Recycling (impact lower PGM prices). • We have reduced our FY23 and FY24 REBIT estimates by ~4% driven by Recycling• In our view 2023 looks to become some kind of transition year as it will unlikely provide many more proof points on the ramp up and potential profitability of battery materials. We stick to Hold and lower our TP to EUR 33 (from EUR 37)
Transitioning to ''Umicore 2.0'' This week we spent some time on the (virtual) road with Umicore''s CEO Matthias Miedreich and new CFO Wannes Peferoen. As usual, the discussion with investors focused on cathode materials where management still sees subdued growth near term but an improvement from late 2023 as new (high nickel) contracts start up. Management referred to 2023 as the final transition year from ''Umicore 1.0'' to 2.0. Compared to the past, management believes its new cathode contracts are better protected not only with take or pay clauses but also other sources of protection such as customer prepayments and ROCE guarantee agreements. They also hinted at opportunities for global contracts to better leverage the currently under-utilised assets in China by 2024. Positioning RBM for future growth There were several questions on Umicore''s decision to separate Rechargeable Battery Materials into its own legal entity. Management believes this set up will ensure RBM can maximise funding opportunities in the future with all options on the table from project financing, minority interest partners or even IPO. They also remain confident in the cash generation of the Catalysis and Recycling divisions to fund growth investments. Following strong performance in the Catalysis business and their confidence in new platform wins for Euro 7 legislation, management now sees upside to its target to generate EUR3bn of cumulative FCF in Catalysis by 2030. Payback still long dated in our view We think management has demonstrated good progress on the near-term objectives laid out in last year''s RISE 2030 strategic plan but must still rebuild credibility on ''Umicore 2.0'' following past mistakes around mid vs high nickel cathodes. From here focus will be on operational execution as they ramp up new cathode capacities and work to commercialise HLM and battery recycling. With elevated capex to at least 2026, we still see any payback as long dated and stick to...
• The FY22 results underlined the solid cash-cow profile of Catalysis and Recycling. • However, it is still waiting for the big step up in cathode volumes at RBM to become visible as of 2024. Therefore 2023 looks to be more of a transition year.• Umicore is a unique combination of assets, but it still has more to proof on the battery materials side. Despite a significant step up in capex, we foresee limited earnings growth in the coming few years. We therefore stick to our Hold rating and TP of EUR 37, based on our 2024E SOTP. Following the publication
H2 broadly in line - Catalysis beat offset by EandST miss Umicore reported H2 22 EBIT of EUR404m, +17% y/y and in line with consensus expectations. Catalysis came in ahead of expectations driven by improved margins whilst EandST missed on both weaker topline and margin. For FY23, management expects earnings to decline y/y, in line with current market expectations. Making step by step progress towards 2030 ambitions - cathodes contracts, catalysis costs So far, management has demonstrated good progress on its RISE 2030 strategic priorities laid out at the capital markets day last year. As promised, Umicore has signed a number of long term cathode supply agreements (mainly with VW''s PowerCo) and hinted at another contract signing in H1 23, helping to guarantee minimum volume offtakes (and hopefully returns) at the end of a steep capex schedule. In Catalysis, management has taken both short term actions to offset inflation (seemingly faster than peer JMAT) and implementing longer cost actions required to achieve its EUR3bn cumulative FCF to 2030. But still feeling the pain of past mistakes in high nickel cathodes Despite progress on longer term initiatives in cathodes, Umicore is set to underperform EV production growth for yet another year thanks to past failures in mid vs high nickel chemistry cathodes and ongoing competitive pressure from LFP in the Chinese market. We expect FCF to remain under pressure with group earnings down y/y against a backdrop of rising capex. Umicore will remain in investment mode until at least 2026, but any payback remains long dated. We stay Neutral and cut our TP to EUR36 (from EUR38) on slightly lower estimates. Shares are trading on 9x 2023 EV/EBITDA, 16x PE. If we could ask one question (more inside) Can you discuss the merits of the different relationships with PowerCo in Europe (a JV) vs in N America (long term contract)? By 2030, VW could account for ~40% of Umicore''s planned capacity - do you see any...
… profitability took a break and is set to soften in 2023. Umicore reported in-line figures, but the management issued a moderate outlook for 2023 as some of the positives are expected to leave the stage while cost inflation will remain. We see 2023 as a transition year as the global battery materials business becomes more regional, thereby helping car manufacturers to keep up with the targets for their fleets.
• Umicore reported in line FY22/H2 results: strong in Catalysis, but E&ST no longer benefited from exceptional performance at Cobalt & Specialty materials. • For 2023, Umicore guides EBIT(DA) to be down y/y, in line with current market expectations, with a stronger performance in Catalysis, but weaker in E&ST. • We stick to Hold. Our 2024E SOTP now arrives at EUR 37 p/s (was EUR 41 p/s). The question marks on the long-term return profile of battery materials remain.
Sounding a note of caution: Umicore’s share price has recovered well from the correction at the start of 2019 driven by the downturn in Chinese autos, particularly the EV market. Near term, we are cautious given uncertainty in the auto market with an 18% yoy fall in China auto sales for January against the backdrop of coronavirus. That said, the recycling division appears able to capitalise on current high PGM and precious metal prices. Further, working capital appears under control, with only €78m outflow in the year despite sharply rising PGM prices. Management does warn however of further outflow as palladium and rhodium prices continue to escalate. Estimate changes: We make significant changes to forecasts, adjusting for lower margins and growth in Energy & Surface Technologies (batteries), partly offset by upgrades in Catalysis and recycling. The result is 3.5-4.5% cuts to EBITDA (see overleaf). View: Umicore remains a well-diversified business with class-leading technology, benefitting from strong macro drivers. Recurring EBIT was €509m in FY19, very slightly lower year-on-year but still reflecting an 11% CAGR since 2015. Despite near-term challenges, we believe the longer-term auto electrification agenda is set to accelerate, helping to drive growth even if margins may not be as high as previously expected. However, against the backdrop of the coronavirus, we believe lower forecast growth is priced in at current levels. Down to Hold: Adjusting for updated sector multiples and rolling forward our 5-year DCF (with a higher terminal value due to growth) by one year results in an increase in our TP to €45/share. With a forecast total return of less than 1%, we downgrade to Hold.
FY19 Results Revenues €3,361m (consensus €3,335m), up 3% yoy, recurring EBITDA €753m (cons €725m), up 5% yoy, recurring EBIT €509m (cons €486m) almost flat yoy, underlying EPS 130 cps (cons 129cps), up 0.8% yoy, net debt €1,443m (cons €1,323m), mainly due to growth investments and the €188m acquisition of the cobalt Kokkola assets. Gearing stands at 1.9x net debt:EBITDA. A softer H1 was followed by strong H2 growth. The working capital movement in the year was just -€78.4m. Non-recurring items totalled €30m at the EBIT line, largely due to some restructuring charges. Operations Despite challenging market conditions in H1 last year, particularly as China’s EV market slowed down, H2 appears to have enabled the company to recover some lost ground. The EBIT mix is very evenly balanced with around a third from each of the three divisions. Catalysis reflected market share gains in light duty gasoline and higher penetration of particulate filters (more value per vehicle) supporting 10% EBIT growth to €185m. Higher palladium and rhodium prices did increase working cap in H2. Energy & Surface Technologies was down 29% yoy to €183m from record levels reflecting the impact of lower metal prices, higher depreciation (due to high capex), reduced sales of high cobalt containing products and lower sales into high end portable electronics and energy storage. In auto, sales grew in line with the global EV market that was up 7.7% yoy. We note that Umicore has not guided toward changes in its capex profile. Recycling benefitted from higher metal prices and a favourable supply environment that supported 9% revenue growth and 40% increase in EBIT to €190m. Greater availability of the Hoboken smelter is expected to be a further positive this year. Our View Having started 2019 facing a number of headwinds, the company has been able to recover some lost ground, with results slightly ahead of expectations. The even mix of business activities has helped stabilise the overall profile. The company is well placed for a resumption of growth in the year ahead despite challenging markets in autos given its able to provide the key solutions the market needs in catalysis and battery materials. We place our forecasts, TP and Rec under review.
Results H1 results were down yoy, but broadly in line with consensus. The FY19 outlook is maintained for recurring EBIT at €475-525m (consensus €490m). Revenue in the period at €1,684m (cons. €1,655m) is down 3% yoy, recurring EBITDA at €357m is down 2% yoy (cons. €350m), recurring EBIT is down 8% yoy to €240m (cons. €235m), leading to recurring EPS of €0.63ps down 9% yoy (cons. €0.63ps). Net debt at €1,059m (cons. €905m) is up from €861m at end 2018, partly reflecting the recognition of €37m from IFRS16 as well as ongoing investments, which puts net debt:EBITDA at 1.48x. Operations Catalysis: Revenues of €717m, +1% yoy, despite the 6.7% decline in global auto sales. Recurring EBIT of €86m, up 1.2% yoy. The company is outperforming the market as it is winning new platforms in gasoline particulate filters that is supporting investment in capacity in China and Poland. Further, the company reports growth in various compounds in pharma, chemical deposition and fuel cells. Umicore appears to have a strong position in Asia that now accounts for 37% of its light duty autocat market, with China the largest portion of this. Energy & Surface materials: Revenues of €607m, down 7% yoy, and recurring EBIT €102m, down 15% yoy. The previously flagged headwinds of competitive pressure from unethical cobalt and challenges in battery materials volumes continue to weigh near term. Due to the slowdown in battery materials, timings of new capacity has been pushed back in China with the growth profile in the business delayed by 12-18 months (management’s previous target was for 100ktpa cathode material supply for this year and 175ktpa by 2021). Recycling: Revenue of €313m, down 4.3% yoy reflecting the extended shut down at Hoboken. Recurring EBIT at €76m, down 3.8% yoy. Despite interruption from the recent fire, recycling is set to grow and volumes to exceed the record levels achieved last year. Favourable commodity prices should also be supportive as well as stronger expected output in H2. Our View We are encouraged that the company is maintaining guidance for the year (assuming no material degradation in the current macro-environment), and whilst performance has disappointed recently, the long term fundamentals, particularly in the electrification of autos remain intact in our view. Further, the strong gasoline position in filters should support growth, particularly if EU diesel sales decline more than market expectations.
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