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Research Tree provides access to ongoing research coverage, media content and regulatory news on Arkema. We currently have 14 research reports from 1 professional analysts.
Arkema’s FY figures broadly met our expectations. Net income benefited more strongly from the US tax reform than expected. Profitability was stronger than sales, which was partly the result of good pricing power. Q4 looks slightly different with a lower margin, which might be a mix of seasonality and a slight delay in passing on higher raw material prices in some businesses. Consensus was beaten.
Arkema reported +10% (v: +4%; p: +7%; FX: -4%; portfolio: +3%) higher sales (to €2,019m) and the gross profit margin improved from 22.3% to 23.4% in Q3. EBITDA clearly rose +17% to €331m and net profit attributable to shareholders jumped +48% to €142m, additionally boosted by a lower tax rate. 9M operating CF rose by +14% to €658m due to the strong organic performance and despite higher NWC outflows (€-135m after €-86m). Investing CF (€-19% to €-274m) was helped by lower changes in fixed assets payables and capex. Financing CF swung by €833m to €754m the higher inflow from net gross debt issuance (€926m after €26m). For 2017, management’s marginally adjusted FY guidance still expects to achieve EBITDA in the €1,310m to €1,350m range, and now sees EBITDA to come in at the upper end of the range.
Q2 sales were clearly up by +13% (v: +2%, p: +7%; FX: +1%: portfolio: +3%) to €2,198m and the gross profit margin slightly improved by 40bp to 24.0%. EBITDA rose +9% to €383m and net profit attributable to shareholders came in at €160m after €147m. Operating CF strongly improved from €73m to €242m based on the good operating performance and additionally fuelled by lower NWC outflow (€-50m after €-179m). Due to lower expenditures (€-145m after €-114m), investing CF moved from €-121m to €-106m. Financing CF swung from €-94m to €748m predominantly pushed by €899m net gross debt proceeds despite higher dividends (€-155m after €-143m). For 2017, management has marginally lifted FY guidance, now expecting to achieve between €1,310m and €1,350m (previously: €1.3bn) EBITDA.
Arkema announced its 2023 targets at its investors day. Management aims to generate a REBIT margin of 11.5-12.5% (2016: 9.7%; 2014: 7.5%) and EBITDA (based on recurring EBIT!)/free cash conversion of 35% (2016: 36%). The financial frame consists of ROCE to be at least at 10%, a net debt/EBITDA of <2x and an investment grade rating (2016: S&P: BBB; Moody’s: Baa2).
Arkema was up +14% (v: +5%; p: +5%; portfolio: +3%) to €2,152m and the gross profit margin improved from 22.1% to 23.0% in Q1. EBITDA increased +17% to €340m and net profit attributable to shareholders came in at €137m (€98m). Operating CF (+20% to €73m) was driven by the better operating performance despite the higher NWC outflow (€-179m after €-151m) due to higher receivables against the seasonality backdrop. Investing CF was broadly unchanged (€-97m after €-101m) slightly lifted by divestment proceeds. Financing CF doubled (€-20m after €-10m) seeing a decrease in short-term debt. For 2017, management had already confirmed its guidance of €1.3bn in EBITDA.
Arkema reported +5% (v: +6%; price: +1%; FX: -1%; portfolio: -1%) higher sales (to €1,852m) and the gross profit margin clearly improved from 18.0% to 19.3% in Q4. EBITDA strongly rose +26% to €246m and net profit attributable to shareholders jumped +76% to €86m. Operating CF came down from €380m to €246m, despite the higher operating performance, but NWC inflow declined from €205m to €97m and D/A was also lower. Investing CF moved from €-19m to €-327m burdened by significantly higher acquisition costs (€-337m after €2m) due to the closing of the Den Braven takeover. Financing CF was €-177m (€-57m), which suffered from higher net gross debt repayments (€-147m after €-25m). Management proposes a €0.15 higher dividend of €2.05 (€1.90) per share at the AGM on 23 May 2017. For 2017, management confirmed the achievement of the 2014 target of €1.3bn EBITDA. We expect the publication of the annual report in the coming weeks.
Arkema’s Q3 sales dropped 6% to €1,838m, but the gross profit margin improved from 20.2% to 22.3%. EBITDA went up +5% to €284m and net profit attributable to shareholders rocketed +57% to €96m. 9M operating CF strongly grew (+20% to €575m) due to the higher operating performance, despite a strong increase in NWC outflow (€-86m after €-19m). Lacking the huge cash outflow for the Bostik acquisition, investing CF abated from €-1,616m to €-337m, seeing capex far below D/A. Financing CF swung from €428m to €-79m, primarily due to the strong decline in net gross debt issuance (€26m after €478m). Management lifted FY guidance again, now expecting EBITDA growth in the 9-10% (7-9%) range based on the assumption that energy costs, raw material costs and FX will be in line with current levels. This does not include the announced acquisition of Den Braven. Closing is still expected in Q4 16.
Arkema’s Q2 sales (-7% to €1,952m) suffered from lower prices (-5%) stemming from lower raw material prices, adverse FX developments (-3%) and divestments (-2%), which may have been partly offset by higher volumes (+3%). EBITDA saw a strong increase (+38% to €351m) and net profit attributable to shareholders was up +11% to €147m. Operating CF remained broadly unchanged at €259m after six months of 2016. The better operating performance was mostly absorbed by higher NWC outflows (€-186m after €-67m). Lacking the cash outflow for the Bostik acquisition (~€1.3bn) in the previous year’s period, investing CF declined from €-1,531m to €-222m. Financing CF swung from €484m to €-104m as net gross debt proceeds melted away (nil after €486m). Management lifted the FY guidance and now expects EBITDA growth in the 7-9% range based on the assumption that energy costs and FX will be in line with their current levels. This does not include the announced acquisition of Den Braven for which the close is still expected in Q4 2106.
Arkema plans to acquire Den Braven, a leader in sealants for insulation and construction in Europe, for an EV of €485m. As the deal is subject to anti-trust approvals, closing of the deal is expected to take place in Q4 16.
Q1 sales were slightly up (1% to €1,893m) seeing one month of Bostik and some divestments (portfolio: +5%) and higher volumes (+3%), but lower raw material prices and the low point of the acrylic cycle ate up 6%. The gross profit margin improved from 18.25% to 22.1% and EBITDA strongly rose +32% to €291m. Net profit attributable to shareholders more than doubled (€98m after €42m). Operating CF (€61m after €34m) reflected the stronger operating performance, which was partly offset by higher NWC outflow (€-151m after €-110m). In Q1 15, investing CF was characterised by the Bostik payment and CF came back to a more normal level (€-101m after €-1,415m). The same is true for the financing CF (€-10m after €489m), which saw very minimal financing activities. Management confirmed its previously given guidance, expecting EBITDA to grow based on the assumption that energy costs and FX will be in line with current levels.
Bostik was a game-changing acquisition and the figures are dominated by this effect. In Q4, sales clearly improved +23% to €1,760m and the gross profit margin strongly improved from 15.5% to 18.0%. EBITDA went up +23% to €195m and net income attributable to shareholders nearly doubled (€49m after €27m). Operating CF more than doubled (€380m after €162m), driven by higher D/A and, additionally, propelled by a stronger NWC inflow (€205m after €61m), helped by lower inventories and receivables as well as higher payables. Investing CF came up from €-288m to €-19m as the previous year’s quarter was impacted by acquisition costs. Financing CF swung from €907m to €-57m. In the previous year’s quarter, Arkema issued a hybrid bond as a first building block to finance the Bostik acquisition. Management proposes a slightly higher dividend (€1.90 after €1.85 per share) at the next AGM on 7 June 2016. The payout ratio drops from 73.1% to 49.1%. For FY 2016, management is confident it can increase EBITDA, based on the assumption that energy costs and FX will be in line with current levels. The annual report should be available within the next few weeks.
Arkema will receive €73.6m from Klesch Group as compensation for the majority of costs incurred in the arbitration procedure.
Q3 figures remained dominated by the Bostik acquisition as sales strongly ramped up by +32% to €1,946m (volumes: -1%; prices: -4%; portfolio: +29%; FX: +7%) and the gross profit margin increased from 17.9% to 20.2%. EBITDA jumped +65% to €271m and net profit attributable to shareholders more than doubled (€61m after €24m). Operating CF (+31% to €224m) reflects the better operating performance and benefited from higher D/A. Investing CF (€-85m after €-111m) was helped by fixed assets payables (€79m after €-12m) despite higher capex (€-161m after €-107m). Financing CF swung from €128m to €-56m due to the lack of the previous year’s quarter inflow from short-term borrowings and the change of dividends to be paid (balance qoq: zero). In 2015, management expects EBITDA including Bostik in the range of €1,020-1,040m (previously: slightly above €1bn).
Q2 sales went up strongly by +39% (organic: -1%) to €2,106m and the gross profit margin improved from 18.1% to 20.3%. EBITDA ramped up by +35% to €254m and net income attributable to shareholders more than doubled (€133m after €50m). In H1, the operating CF benefited from the far higher operating performance coming in at €254m (€174m). Due to the Bostik acquisition, investing CF swelled from €-271m to €-1,531m, of which €-1,298m is attributable to the acquisition. Financing CF swung from €-107m to €484m due to the net gross debt issuance (€486m after €-25m). In 2015, management expects EBITDA including Bostik to be slightly above €1bn (previously: EBITDA to grow excluding the effect of the Bostik acquisition).
Research Tree provides access to ongoing research coverage, media content and regulatory news on Arkema. We currently have 14 research reports from 1 professional analysts.
Full-year results were slightly above expectations and point to being on track to exceed our previous FY 2018 forecasts slightly. Market conditions remain robust in its main US market, with significant growth seen in Europe. A revised dividend policy gives new clarity to cash returns, (backed by $19m of net cash), and triggers a strong uplift in ordinary dividend plus a supplementary dividend. The shares remain attractive on an earnings basis but also have premium yield attractions. Our raised 465p TP is based on a P/E of 17.0x in 2018 and 16.0x in 2019 and offers strong upside scope to the shares. Market conditions remain favourable and cash returns underwrite our positive stance.
Companies: Somero Enterprises
AB Dynamic’s (ABD) shares have risen tenfold since its 2013 AIM admission, fuelled by an impressive 19% organic revenue CAGR. The company is investing in a platform to sustain this performance. In the last 18 months it has opened new facilities, bolstered in-country customer support, reshaped its management structure and raised capital. The final part of this plan, a new CEO, is expected to take the helm in the summer. He, or she, looks set to inherit a business in great shape and enjoying long-term growth drivers. ABD’s investment should help it to capitalise on these trends and sustain its impressive growth.
Companies: AB Dynamics
Avon Rubber’s Capital Markets Day highlighted the strength and depth of its product portfolio. Investment in both divisions has ensured that the company is able to address strong growth trends in its end-markets with attractive solutions. Avon Protection has received US regulatory approval for its Powered Air Purifying Respirator range, which should see further orders. Meanwhile, milkrite I InterPuls is offering solutions for productivity improvements to a dairy market increasingly open to technology.
Companies: Avon Rubber
Flowtech has announced the complementary acquisition of Balu Limited, for £8.2m (EV of £10.2m), alongside a proposed placing to raise £11m (gross). Balu comprises two subsidiaries: Beaumanor Engineering, a Leicester-based fluid power equipment distributor and a long-standing competitor to Flowtechnology, with annual sales of £8.1m; and Derek Lane & Co, a specialist fluid power engineering business that has crossover with Flowtech’s Power Motion Control (‘PMC’) Division (sales of £3.3m). The purchase expands the footprint by providing a second logistics centre in Leicester, alongside new customers and product lines from which to extract commercial synergies. There is scope to drive operational improvement, within Balu and across the wider Group, and this is a key area of focus for management in 2018. We forecast FY2018E/19E EPS to be broadly unchanged following the transaction, including the dilution from the placing. Nevertheless, the platform on which to deliver future expansion is significantly stronger, and now at a sufficient scale to explore consolidation opportunities in the €12.6bn European market, albeit most likely in FY2019.
Companies: Flowtech Fluidpower
The company has announced the acquisition of Beaumanor Engineering and Derek Lane & Co for a total consideration of £10.2m to be financed by a two-part placing totalling £11m at 170p. The acquisition is a snug fit with existing operations and offers some strong synergies. The placing leaves the business with a strong balance sheet with headroom for some small bolt-on acquisitions, although post the Beaumanor deal 2018 is expected to focus on extracting synergies and operational improvements. The trading update signals that underlying trading is on track. We have updated our forecasts for the placing and acquisition. The shares have performed well, reflecting previous EPS-enhancing acquisitions, and remain attractively rated. Our 215p price target is based on a 2019 P/E of 12.4x
Companies: Flowtech Fluidpower
Restore has reported another year of significant revenue, profit and earnings growth, in line with expectations. There are few surprises in the statement following the January pre-close and the numbers speak for themselves. Revenue and adj. PBT increased by 36% and 38% respectively; EPS and DPS by 30% and 25%. This was driven principally by the PHS Data Solutions (PHS DS) acquisition, but organic revenue growth was a healthy 7%. The new year has begun in line with expectations and Restore is well positioned to build on the significant growth of recent years.
Perfomatrix PLC, a global end to end Performance Marketing technology and services company headquartered in the UK, is looking to join AIM in early April 2018, offer TBC Crusader Resources, an ASX-listed public company incorporated in Australia, which is primarily focused on the exploration and development of gold assets in Brazil. Offer TBC, expected late March. SimplyBiz, a Financial Services Firm, reported to be considering an IPO targeting a market capitalisation of between £140m and £155m in a listing that would raise £30m of new money. Bacanora Lithium—Readmission. No new money. Mkt cap £140m. Due 21 March. the new holding company for Bacanora Minerals Ltd Core Industrial REIT—established to invest in Irish-based industrial properties, predominantly located in the Greater Dublin Area. Vendor placing and new funds to a total of €225m, Target gross proceeds €207m. Expected Mid March Polarean - Medical drug-device combination company operating in the high resolution medical imaging market. Offer TBC. Due26 March
Companies: VLS SGZ SPA MTPH TLY ITQ TFW SAR RHL
Hot on the heels of the recent £4m fund raise and acquisition of the Louisville franchise, Water Intelligence has announced the acquisition of its Bakersfield, California franchise. Bakersfield is one of the larger cities in California and a major centre for agriculture in the US. Drought conditions in California make water loss a particularly sensitive issue with respect to agribusiness. Given these characteristics, the area was significantly under served by the former franchise owner with only $180k of sales in 2017. Water Intelligence has paid $252k for the territory, truck and equipment and plans to expand the operations in this territory rapidly given the size of the opportunity. We have upgraded our FY 2019E EPS by 2% and FY 2020E by 3% and raised our target price to 263p, factoring in value from potential future franchise re-acquisitions.
Companies: Water Intelligence
Two features stood out in Forterra’s first full year results since its IPO: another significant ‘beat’ on cashflow expectations; and the formal signal that Britain’s second biggest brickmaker was to ‘press the button’ on a new plant, having previously waited until there was clear evidence of sustainable housebuilding demand. We believe the time is right, but that the company will remain measured in its expansion, in keeping with what we believe is its conservative track record.
Empresaria, the diversified recruitment company, published its results for the financial year to 31 December 2017 which represented the third consecutive year of record profits and the eighteenth consecutive quarter of year-on-year (yoy) growth in net fee income (NFI). The fact that this was achieved during a year which saw one of its largest brands, Headway, under margin pressure from German labour reforms is a testament to the strength that resides within the Group’s highly diversified business model. Our forecast for 2018 is unchanged and sees an increase in adjusted PBT of 5% and EPS of 2%. We view 2019 with some caution at this early stage given the macro-economic uncertainty surrounding Brexit and currency.
Companies: Empresaria Group
1Spatial issued a positive trading update for the year ending 31 Jan 2018 with overall adjusted EBITDA expected to be in line with expectations. The performance was driven by the core geospatial business which had higher revenues, EBITDA and margins than forecast. The group also announced that it is disposing of its controlling stake in Enables IT (for a nominal sum) allowing it to fully focus its resources to the core geospatial business where it has differentiated IP. We are highly encouraged by the continued progress shown by the group against its strategy, noting some key wins in the UK and the US during the year. As such, we see good upside (>2x revenues) to the current rating of 1.5x EV/sales (only using Geospatial revenues) with continued delivery.
Capital Drilling (CAPD): Corp FY results – encouraging margin gain | Water Intelligence (WATR): Corp Acquisition of an underperforming franchise
Companies: Capital Drilling Water Intelligence
Northgate issued a complex trading update on Thursday 22nd February with significant implications for forecasts. We anticipated near term downside risk in our 19th January note, but not the magnitude. Our headline PBT forecasts are now cut by 20% in FY’18 to £55.8m, 44% in FY’19 and 31% in FY’20. Despite this rebasing of our forecasts, a number of risks remain – e.g. earnings still declining into FY’19, net debt still rising with covenant pressure in FY’19 and a change in depreciation policy which could increase exposure to vehicle residual values. There is some potential for a turnaround, but management itself does not expect any significant improvement in trading until FY’20. A breakup is a possibility to drive value, but failing that we believe a 30% discount to NAV is justified and set our target price at 279p.
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Companies: ABBY BDEV BWY BKG BVS CRN CSP CRST GLE INL MCS PSN RDW SPR TW/ TEF WJG
Learning Technologies Group (LTG) has released a strong trading update with FY17 profits and year-end net cash comfortably ahead of consensus. The update indicates that operating margins were c 190bp ahead of our forecasts, with net cash £7.9m ahead. However, we are maintaining our FY18/FY19 forecasts, which were recently updated in our monthly book. In October, LTG announced its objective to double run-rate revenues to £100m and achieve run-rate EBIT of at least £25m by the end of 2020. While the shares look punchy on c 37x our FY18 EPS, the business is attractively positioned in an industry growing at 15-20% and we note that sustainable high-teen growth opportunities are hard to find across the broader market.
Companies: Learning Technologies Group