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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 Imerys SA
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 ALD KOF KOF ACKB ACKB ORP ORP 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.
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