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Q2 25 results broadly in line, guidance falling short Imerys'' Q2 25 sales were down 10.7% and down 1.5% LFL to EUR886m as volumes contracted 3.3% due to the adverse demand backdrop in Europe. Adj. EBITDA declined 22% to EUR154m, reflecting 1) lower contribution from the Quartz JV due to excess inventories in solar end markets and 2) the deconsolidation of paper-related activities (at constant perimeter and ex. JV, EBITDA was up 1.7% thanks to cost savings). The group guides for FY 25 EBITDA of EUR540m-580m, which compares to Bloomberg consensus at EUR605m. Lithium project seeing capex overruns and delays Management now expects the Lithium project to start commercial production in 2030 vs. 2028 in its initial estimate. The group also pointed to increased capex for the project, from EUR1.0bn to EUR1.8bn. The capex uplift was said to be due to ESG compliance enhancement and inflation. The group also highlighted that due to market conditions, it is now seeking partners to support the project. We cut our estimates and TP - Neutral maintained We have cut our EPS est. by 36%/29% in 2025E/2026E to factor in the guidance shortfall, lower contribution from the Quartz JV and higher financial results. We have also reduced our TP from EUR30 to EUR22 to reflect 1) lower earnings forecasts for the core business, for which our valuation comes out at EUR24 (average of ROCE/WACC and DCF methods), 2) a negative NPV for the Lithium project (minus c.EUR2/share), reflecting the further decline in Lithium prices (at c. EUR10/kg vs. unit operating costs projected by management at EUR7-EUR9/kg), and 3) the sharp increase in projected capex for the project. We keep our Neutral stance.
Imerys Imerys SA
What happened? Imerys reported Q2 25 sales of EUR886m down 10.7% of which -1.5% on a LFL basis representing a sequential deterioration vs the previous quarters (+3% in Q4 and +0.6% in Q1). Volumes contracted by 3.3% due to weak economic conditions (soft industrial production in Europe especially in automotive end markets and clients'' cautiousness due to tariffs uncertainty). Adjusted EBITDA was down 22% YoY at EUR154m coming 3% above consensus. The decline was due to lower contribution from JVs especially the Quartz business that saw a sharp reduction in EBITDA still facing excess inventories at Chinese solar clients. The business excluding JVs saw a 1.7% increase in EBITDA at constant perimeter thanks to pricing and savings on fixed costs and overheads. Imerys provided an update on its Lithium project now expected to start operations in 2030 vs. 2028 in group''s previous indications. The pushback in time was said to be due to public debate and authorisation constraints. Also management highlighted that due to market conditions in Lithium (current LCE price of USD9/kg vs project breakeven point of USD7 to USD9/kg), the group was seeking a financial partner to conduct the project. Management introduced its 2025 EBITDA guidance aiming at EUR540m - 580m compared to Bloomberg consensus at EUR603m (i.e. c. 4% to 10% short of expectations). The group pointed that its guidance assumed no further deterioration in the economic backdrop. BNPP Exane View: While Imerys shares were already weak into the print, we expect the shares to open down low to mid-single digit on the back of consensus downgrades of likely 5% to 10%.
Q1 25 results overall in line Imerys'' Q1 25 results were broadly in line with our forecasts, with sales up 0.7% LFL and EBITDA down 32% due to reduced contribution from the high purity quartz joint venture. The core business saw volumes down 0.7%, offset by +1.4% pricing. Volumes were negatively impacted by weakness in Europe, notably in automotive, industry and construction. On the other hand, the graphite and carbon business had a very strong quarter thanks to BEV end markets. The high purity quartz JV saw a sharp decline in profits, mainly due to a high comparison basis and high inventories in solar end markets. Limited direct impact from tariffs Imerys has a widespread industrial network with limited flows between regions, making its business mostly local. From that perspective, the group expects limited direct impact from tariffs. April trends were said to be overall good (following strong March), but management remained cautious on the remainder of the year, highlighting ongoing macro uncertainties. US talc litigation progressing as planned A confirmation hearing started on 22nd April following the approval of the joint reorganisation plan by voting creditors and claimants. The hearing should likely last two weeks, after which the judge will provide its decision on whether to approve the voting process. A positive outcome would pave the way for North American Talc subsidiaries to emerge from Chapter 11 and Imerys to be cleared from any liability risk related to this US litigation. Estimates trimmed - Neutral maintained We have trimmed our earnings forecasts by 4% this year and 2% next year as we have adjusted our volume assumptions downward. We leave our EUR30 TP unchanged and maintain our Neutral rating.
What happened? Imerys released Q1 25 sales of EUR871m down 6% YoY and up 0.7% on a LFL basis. We were expecting sales of EUR891m up 3.5% organically. Volumes were down 0.7%, slowing down from previous quarter while pricing was steady at +1.4%. The group continued to see adverse business trends in construction, industrial and automotive end markets in Europe. This was partially offset by stable demand in consumer goods and healthcare as well as a pickup in BEV related activities. Adj. EBITDA fell 32% at EUR128m (in line with our forecasts) primarily due to lower JV contribution and to a lesser extent scope effect (following the sale of paper related activities). Imerys expects a limited impact from US trade tariffs as group''s North American business is mostly local. Management did not provide any quantified guidance for 2025 citing heightened uncertainty on macro. BNPP Exane View: Q1 25 EBITDA was weak but in line with our forecasts. The fact that the group does not provide guidance at this point is also not surprising.
FY 24 results overall in line Imerys FY 24 results (published on 20th Feb) were broadly in line with our forecasts, with LFL remaining in positive territory in Q4 24 at +3.5% thanks to new production capacities in growing segments (lightweight polymers, conductive additives, calcium aluminate binders) and product launches in sustainable segments. Q4 24 EBITDA came out at EUR143m, down 5% YoY but up 12.5% at constant scope as positive volume, price-mix and lower energy costs helped more than offset a reduced contribution from JVs and higher fixed costs. The group will propose to pay a dividend of EUR1.45 per share, a 7% YoY increase. FY 25 outlook suggests further volume gains in core, but Quartz should be subdued The group expects further volume growth in 2025 for the core business as growth initiatives continue to ramp-up. Pricing is also seen in positive territory and likely like the prior year. The Quartz Corporation should on the other hand see its contribution decline, reflecting still very high inventories in photovoltaic end-markets. With that said, the comparison basis for the JV will start to ease in H2. US-talc litigation on track for resolution The US-talc case achieved an important milestone in early January with 93% of plaintiffs approving the reorganisation plan. The next step will be a confirmation hearing expected on April 22nd. Pending a positive outcome, the US talc entity could emerge from Chapter 11, which would clear Imerys from any risk liability. Neutral maintained Imerys has made good progress in returning to growth in its core business, but the Quartz JV should continue to be a headwind in H1 25, limiting upside to consensus expectations in our view. We maintain our Neutral rating.
What happened? Imerys published Q4 24 results that were overall in line with our forecasts. Q4 24 sales came out at EUR832m down 7% of which +3.5% LFL. We were expecting sales of EUR828m up 3.5% organically. Q4 performance was driven by 2.1% volume and 1.4% pricing. Sales were driven by continued volumes gains in North America (consumer and construction end markets) and Europe (ramp up of production capacities in weight reduction polymers solutions). Q4 24 adj. EBITDA came out at EUR143m coming at the bottom end of management guidance as contribution from JVs (mostly high purity quartz activities) declined YoY as solar end markets remained challenging reflecting high level of inventories in the channel. Free cash flow came out at EUR209m down from EUR288m mainly due to higher cash burn from WCR swings compared to last year. Net debt increased slightly YoY to EUR1.275bn. The group did not provide a quantified guidance for 2025 but indicated that it expects volumes to continue to increase. BNPP Exane View: FY 24 results were overall in line. We don''t expect consensus to materially move on the back of this print.
Good core business but continued weakness in Quartz During a recent call with Imerys, the company confirmed its FY 2024 guidance aiming for an adj. EBITDA of EUR670m-690m (consensus at EUR674m and BNPPE at EUR690m). The trends during Q4 were said to be similar to Q3, i.e. 1) a gradual volume recovery in the core business with marginally positive pricing and 2) continued weakness in the Quartz joint venture. The group indicated that the softness in Quartz should carry on in 2025 as demand in solar remains weak with no sign of restocking. On the US talc litigation, the group was reasonably confident on a resolution following the claimants'' agreement reached in early January. A confirmation hearing will be held in April. Imerys will report FY24 results on 20th February after the close. We trim our forecasts on softer Quartz and below EBITDA items We lower our EPS forecasts by 4% this year and 12% in 2025. This is to reflect higher financial charges (this year and next year) and reduced contribution from the Quartz joint venture (next year). We have also taken into account non-recuring costs of EUR300m in 2024 linked to the mark-to-market impact of currencies following the sale of paper-related activities. For the core business, we expect LFL growth of 4% in 2025, including 3% from volumes and 1% from pricing. Maintain Neutral; we lower our TP to EUR30 (from EUR33) We reduce our TP to EUR30 from EUR33 (still based on the average of DCF and ROCE/WACC methods) on lower earnings. While we are encouraged by the gradual recovery of the core business, we see the Quartz JV as a downside risk to consensus. We maintain our Neutral rating. Mourad Lahmidi (+33) 1 42 99 50 63 mourad.lahmidi@bnpparibas.com
Good trends in the core business Yesterday, Imerys published Q3 24 sales of EUR855m, up 4.1% LFL, tracking broadly in line with consensus. Volumes were up 3.8% and pricing up 0.3%. The business was stronger in consumer goods and plastics thanks to market share gains. Industrial end markets remained soft in Europe with no signs of a short-term rebound, but this was partially offset by good momentum in the US. Adj. EBITDA tracking in line: strong core business offset by soft Quartz Q3 24 adj. EBITDA came in line with consensus at EUR148m, decreasing 14% YoY, reflecting the sale of the paper-based activity. Excluding scope effects, Q3 24 EBITDA declined 2% as positive volume/pricing in the core business was more than offset by reduced contribution from the high purity quartz joint venture. The subsidiary continued to face muted demand due to high inventories in the photovoltaic value chain. However, management indicated that there were only limited disruptions after Hurricane Helene in the US with no supply interruption to customers. FY 2024 guidance unchanged Management maintained its FY 2024 guidance, aiming for an adj. EBITDA of EUR670m-690m. This implies Q4 24 adj. EBITDA of EUR137m-157m (or -9% to +4% adjusted for scope effects). Neutral maintained We leave our estimates and EUR33 TP unchanged and keep our Neutral rating.
We have corrected our adjusted net profit estimates; non-recurring items were not added back in our model previously due to an erroneous link. There is no change in adjusted EBIT or target price (DCF, ROCE/WACC). We do not consider the changes to be material; our rating is unchanged.
H1 24 results above consensus Q2 24 sales came out at EUR992m, up 0.7%, of which +2.1% was organic. This was 2% above consensus, reflecting the progressive recovery of European end markets, especially consumer goods and industrial applications, as well as share gains in the US. Volumes were up 2.7% in Q2, and price mix was broadly stable, recovering from -2% in Q1 as energy pass through mechanisms were less of a headwind. Q2 24 EBITDA (including JV contribution) was up 14%, beating consensus forecasts by 9% thanks to better-than-expected performance of the core business, while the Quartz Joint Venture fell short of estimates due to slower volume gains. FY 24 guidance falls short FY 24 EBITDA guidance was introduced at EUR670-690m (which accounts for the divestment of paper-based activities finalized on July 5th). This fell short of consensus at EUR703m. The downside to expectations was due to significantly lower contribution expected in H2 24 from the Quartz JV due to inventory bottlenecks in the solar end market in China. With no visibility on how fast inventories will decline in solar, management took down its expectations for the subsidiary. On the other hand, the core business is expected to maintain positive volume growth. Estimates and TP cut - Neutral maintained We have cut our EPS forecasts by 19% in 2024 and 12% in 2025 to factor in slower growth at the Quartz JV. We have reduced our TP from EUR35 to EUR33. While the shares are trading at a relatively low valuation multiple (PE of 10x 2025 vs. 10Y average at 12.6x), this is in our view also reflecting relatively modest post tax return on capital employed for the business (c. 4% in 2024 vs. 10Y average at 7.4%). We maintain our Neutral rating.
Q1 24 sales in line - trends seem to stabilise QoQ Q1 24 sales came in at EUR926m, down 7%, of which -5.3% organically. This came broadly in line with our forecasts as residential construction end markets continued to be challenging. There were, however, initial signs of demand recovery with volumes showing QoQ improvement. Price mix was a negative 2% due to high comparison basis and the reversal of energy pass-through mechanisms. Q1 24 adj. EBITDA tracking better thanks to JV contribution Q1 24 EBITDA under the new disclosure (i.e. including JVs contribution) was up 9.3% at EUR188m, topping our forecasts by 12% as a decline in core business EBITDA was more than offset by better-than-expected performance of The Quartz Corp JV. Contribution from associates more than doubled from EUR21m to EUR55m in Q1, mostly driven by the high purity quartz JV thanks to buoyant demand in solar, semiconductors and optic industries. Estimates and TP raised - Neutral maintained We have raised our EPS estimates by 7% in 2024 and 10% in 2025 to reflect better-than-expected JV contribution. We have raised our TP from EUR31 to EUR35 to factor in our earnings upgrades. However, with limited upside to our fair value post today''s share price rally and likely slow growth in the core business in the next 12m, we maintain our Neutral stance.
Mixed Q4 23 results Q4 23 sales came in at EUR894m, falling 6% short of forecasts due to 1) adverse end market conditions, especially in residential construction, 2) continued destocking in the channels, 3) a more acute competitive environment and 4) negative pricing, reflecting the unwind of energy surcharges against a demanding comparison basis. Adjusted EBITDA, on the other hand, came in 2% above consensus at EUR152m thanks to a decrease in variable costs and opex as the group benefited from lower raw material costs and cost cutting. One highlight of the FY results was a three-fold increase in the PandL contribution of the high-purity quartz 50/50 joint venture that accounted for 25% of published operating profit. 2024 outlook suggests return to slow growth The group expects a return to volume growth in 2024 as the comparison basis starts to ease, although the construction end market (c.40% of sales) is expected to remain subdued. On pricing, management comments point towards stabilisation. Overall, this is consistent with our +2% LFL growth estimate for 2024. We have adjusted down our earnings estimates by 2% in 2024 and 4% in 2025 essentially to account for less volume growth and lower contribution from pricing, which is partially offset by strong growth at the group''s quartz joint venture. TP unchanged - limited upside: down to Neutral We leave our TP unchanged at EUR31: this includes EUR19 for the core business and EUR12 for lithium projects. With limited upside to our TP and likely slow top-line development into 2024, we downgrade the stock from Outperform to Neutral.
Imerys published Q3 results above the market expectations due to better-than-expected pricing and well-delivered cost control. The company remains uncertain about the market recovery at present but did confirm that it will be able to achieve the lower end of its EBITDA guidance (in-line with our estimate) considering its ability to keep yoy prices flat or just slightly negative and through active cost management.
Soft Q3 23 trends, similar to Q2 Q3 23 revenues came in at EUR918m down 17.7% including -14% on a LFL basis and coming 4% below consensus due to 1) adverse market conditions in construction end markets (c.40% of group sales); 2) continued destocking at clients although management highlighted that stocks in channels are now very low; 3) increased competition from Asian players benefiting from lower energy costs. Volumes were down 14% YoY (similar decline compared to Q2) while pricing was neutral, reflecting the unwinding of energy costs surcharges. Q3 23 current EBITDA came out at EUR150m down 22% and tracking 6% below consensus due to decrease in volumes, partially offset by reduced fixed and variable costs. Imerys now guides towards the low end of its guidance range The group now anticipates 2023 EBITDA to come at the low end of its guidance range of EUR630m-650m, assuming no further macro deterioration as the group is deploying cost saving initiatives. This guidance implies virtually stable EBITDA is Q4 23. This is based on 1) stable volumes as comparison basis becomes less challenging and client destocking has likely come to an end; 2) neutral pricing; 3) continued benefits from lower variable costs. Estimates and TP revised down - Outperform maintained We have trimmed our EPS forecasts by 3%/4% in 2023/2024 to factor in the Q3 print. Our TP is taken down from EUR40 to EUR31 mostly to account for lower lithium prices (EUR21 for the core business down from EUR22 and c.EUR10 for future Lithium projects down from EUR18). Trends seem to have bottomed in Q3 while valuation seem to provide good support at 7.6x PE 2024 and c.6% dividend yield. Looking through the next six months, growth investments should start delivering against an easier comparison base. We keep our Outperform rating.
Mixed Q2 23 results Q2 23 revenues came in at EUR985m, down 12.8%, including -10% on a LFL basis and coming 6% below consensus due to 1) adverse market conditions in construction and industrial end markets; 2) continued destocking at clients. Volumes declined -14% (vs. -12% in Q1), partially offset by pricing (+3.8% although fading sequentially from +11% due to the unwinding of energy surcharges). Q2 23 current EBITDA came out at EUR180m, i.e., 3% above consensus, as pricing to variable costs differential was positive. Outlook points to challenging market conditions in H2 Management indicated that client destocking is expected to carry on longer than anticipated, impacting H2 23. Construction end markets should remain affected by higher interest rates, notably in North America. Industrial end markets are expected to be under pressure, notably in Europe. Overall, the group expects volumes to be weak and pricing broadly stable compared to what was achieved in Q2 23. Imerys aims at current EBITDA of EUR630m-EUR650m (a decline of c.10%) for 2023 which compares to EUR660m expected by consensus. Management guidance indicates the paper-related activities are in the process of being sold. Estimates and TP cut - Outperform maintained We have cut our above-consensus estimates by 11% and 13% this year and next year to factor in the group''s new guidance. We have cut our TP from EUR50 to EUR40 (including c.EUR22 valuation for the core business - average DCF/ROCE WACC methods - down from EUR32 and c.EUR18 for future Lithium projects unchanged). In our view, the story lacks catalysts over the next two quarters, but valuation seems a good support at c. 10x PE 2024 and 5% dividend yield. Looking through the next six months, growth investments should start delivering against an easier comparison base. We keep our Outperform rating.
Q1 23 was marked by lower volumes, offset by increased prices, and management assuring the market that the worse is already behind and that the volume demand is now in recovery mode. However, Q2 saw not just lower volumes, but also decelerating price growth. With ongoing destocking and flat pricing guided by the company, we will downgrade our estimates for FY23.
We have started our journey on ESG and French Midcaps. For this first edition, we identify the best positioned stocks. We look for those where improvement can be made. Finally, we also analyse the consequences of controversies on investor perception. Edenred (+) and Spie (+) the most owned French SMID are not particularly owned per ESG funds showing a mean weight of 1.2% vs 1.6% for German mid-caps. There are only 6 stocks for which at least 2% of ESG funds are involved, of which Edenred and Spie. While we go along with the consensus, we also note that those trades are crowded. Mersen (+) is not owned while we believe it should be Mersen ESG consensus is more than satisfactory standing at 3.7. However, it is not really owned by ESG funds, and consensus on the climate component shows a low score of 1.5. We believe it is not justified. Mersen is well positioned on 2 key topics: net zero and energy transition. The company has also undergone a radical shift of its business model since 2015. By 2027, 40% of group sales should be driven by renewables energies, green transportation and electronics markets. Imerys (+) is disregarded while the Critical Raw Materials Act is game changer A key aspect of the CRMA is to secure the battery materials supply chain within Europe. While the target for extraction is only 10%, Europe will still need to see significant investment to meet these targets given its current dependence on imports. Imerys (+) has a significant opportunity in our view to position itself as Europe''s primary lithium supplier. Its ESG rating should benefit accordingly. Controversies post-mortem: hard to build or re-build trust With some of French Midcaps having seen controversies in recent years, we had a look at the evolution of the ESG ratings and ownership of 2 of them: Clariane (previously Korian) (+) and Solutions 30 (+). In spite of efforts undertaken, their ability to build or rebuild trust with ESG related funds has failed so far.
NK NK MF MF VIRP VIRP MRN MRN RUI RUI SK SK BB BB BOL BOL LSS LSS TEP CEC ITP ITP TRI TRI BON BON PIG PIG QDT GBLB GBLB IPS IPS AYV KOF KOF ACKB ACKB ORP EMEIS DPH DLG DLG NXI NXI CLARI EDEN EDEN FNAC FNAC SMCP SPIE SPIE ELIS ELIS S30 MDM MAJ ARAMI
Imerys delivered a muted Q1 performance in line with the guidance. Revenues were down 0.9% yoy and the current EBITDA was down by 3.4%. The flat performance was mainly due to a 12% volume decline (especially in RAC) which was offset by an 11% increase in prices. Moving forward, the management expects a demand recovery but this will be partially offset by declining prices, since the energy surcharge component is fading.
Q4 22 results above forecasts Q4 22 sales came out at EUR1.024bn, up 10% YoY including 12.5% LFL. This compares to our estimate of EUR995m (+8% LFL). Price mix remained strong at +18.7% vs. +22% in Q3, while volumes declined 10% due to the geopolitical situation in Russia/Ukraine, the weakness in paper end markets (still in the perimeter) and some destocking in industrial end markets. Q4 22 EBITDA came out at EUR152m, up 15% YOY and tracking 7% above our forecasts. The group was able to more than offset the inflation of its cost base (both fixed and variable) through pricing in Q4 22 and for the FY. Outlook points to positive growth and margin expansion in 2023 Management expects Q1 23 volumes to remain weak (consistent with trends in January and Q4) due to high comps and the tail end of destocking in industrial end-markets. The group expects recovery from Q2 23 on the back of the end of industrial destocking, catch-up in automotive, the reopening of China and resilient consumer end-markets. Price-mix should remain a tailwind (embarked and new hikes) and seen at c. +4% in FY 23. These assumptions translate into positive LFL this year (we have pencilled in + 2.5%). The group also stressed that inflationary pressures were normalizing and this should drive EBITDA margin expansion over the FY. Estimates unchanged - Outperform maintained Our forecasts are basically unchanged following FY 22 results and include the sale and deconsolidation of paper-related activities from H2 23. The shares trade on 6.8x EV/EBITDA 2023e vs. 7.0x for 2010-2019 average, while: 1) the group''s growth profile has improved following the sale of HTS/paper; and 2) there is substantial value uplift from the Lithium project. We maintain our Outperform rating.
Imerys published stronger than expected sales and EBITDA figures, but net income was negatively impacted by a goodwill impairment loss, resulting in 8% miss vs our estimate. However, the outlook for FY23 is better than our expectations and, as guided previously, which will lead to a positive revision in our FY23 EPS. The company also announced a FY22 dividend of €3.85/share vs €1.55/share for FY21, which came as a positive surprise.
Imerys gave a comprehensive and well-quantified presentation during the CMD, clarifying a lot of questions after the press release yesterday morning. In short the management provided conservative guidance and, hence, our confidence in the company’s long-term potential remains intact.
Good Q3 results from Imerys. The company saw weakness in demand across multiple end markets and high cost-inflation yet, due to the unique product offering, it was able to further increase its prices resulting in a positive price/cost mix. The company is confident that it can manage the cost inflation going forward and has reiterated its guidance. Since the results and guidance were in line with our estimates, we do not expect to make significant changes to our model.
Lithium reserves come out 2x as much as anticipated Imerys announced on Monday that its Beauvoir mine could produce more than 1M tonnes of lithium, based on its investigations in the past 18 months. This is 2.5x more than our estimate (see our Upgrade note). Production could reach 34k tonnes per year over 25 years and processing costs reach c.EUR7k to EUR9k per tonne (broadly in line with our estimates and other similar projects in Europe). Subject to authorisations, the industrial milestones currently suggest that the launch of commercial production would be in 2028. Highly attractive unit economics At the current Lithium price (lithium hydroxide at c.EUR80k per tonne) the project looks highly profitable with a spot EBITDA per tonne of c. EUR70k. The group will integrate the entire value chain (from mining to conversion into finished product) and construction capex is estimated at EUR1bn. A dedicated financing structure will be used while the cash proceeds from the sale of HTS and paper-related activities should be used for core business investments and cash return. The project looks designed to reduce environmental impact Management indicated that the project should produce CO2 emissions 8kg/t vs. 15-20kg for Australian projects and that the operations have been designed to minimize environmental impact (underground mining, reuse of water, transport of rocks using underground pipes, use of rail, etc.). Target price lifted to EUR54 - Outperform maintained Figure 1 shows our valuation of the project, which is based on the following assumptions: 1) a price for Lithium at EUR30k/t, an arguably conservative level as demand in Europe (c.600kt) should outweigh supply (c.250kt) by 2030; 2) 50% probability of completion to capture delays/obstacles due to probable actions by environmental group/lobbies. On that basis, we estimate that the project should add EUR18 per share to the core business. We lift our TP from EUR36 to EUR54.
After months of study and millions of work hours, Imerys has finally shed some light on its lithium project, backing it up with additional numbers. The announcement was better than we had initially expected as a result of which we have augmented the value of the project by €200m in our NAV. To top it off, additional information provided by the company suggests that more treasure can be excavated by Imerys.
By selling cyclical/declining assets, Imerys has improved its growth mix. Despite a greater weight in construction, unprecedented pricing should drive positive pro forma earnings growth this and next year. Multiples are close to trough levels, while an interesting option on lithium production could change the equity story. We upgrade the stock from Neutral to Outperform. Nice portfolio reshuffle Over the past eighteen months Imerys has engaged in a major asset disposal program, selling its High Temperature Solutions (highly cyclical) and paper-related activities (structurally declining) for an EV of EUR1.3bn. The refocusing of the business on Performance Minerals improves the medium-term growth outlook of the company, with a more defensive end-market exposure. Strong support from pricing The group is not recession proof (due to higher weight of construction) but the magnitude of recent price hikes (c.20% and above variable cost increases) should be strong tailwinds at least until mid-2023. More price increases are not ruled out as the group has shown strong pricing power over the years, with a 15-year track record of the price-variable cost gap being consistently positive. Interesting optionality on lithium Management has been investigating one of its sites for Lithium extraction, which, according to the French bureau of mining research, could be the largest in France. Our analysis suggests that similar sites show operating unit costs significantly below current price making it a potentially highly profitable business. Imerys''s decision to proceed will be made public at its 7 November CMD. Attractive risk reward: upgrade to Outperform We have cut our 2023 EPS forecasts by 12% on the asset sales. NK trades on a 12m PE of 8.5x, 27% below 5Y average, while its growth profile has improved, pricing should limit earnings downside and lithium could bring additional value. We upgrade the stock to Outperform with an unchanged TP.
Lithium ‘gold’ provides optionality value to Imerys. Added to its well-established expertise in carbon black and graphite, Imerys may surf on the Li-ion battery explosive demand as a key materials supplier. That would be a complete change in the investment proposition from dull to risk growth. More news is expected before the end of this year and most likely at the CMD on 7 November.
