Saint-Gobain held its CMD yesterday at which it announced its new Strategic Plan “Grow & Impact” for 2021-25. Given that it was the first CMD of the new CEO Mr Benoit Bazin (changed after 15 years), that too under a favourable backdrop, we expected the company to announce aggressive targets for the next strategic period. Hence, even though the company has set modest targets, we were slightly disappointed, but this does not overshadow the strong conviction we have for the company.
Companies: Compagnie de Saint-Gobain SA
Saint-Gobain has published excellent H1 21 results, beating consensus expectations. Due to a strong demand momentum across all regions, Saint-Gobain was able to implement multiple price increases and thus was able to achieve a strongly positive price/cost mix.
Given the good set of results and a positive outlook, we will raise our estimates which could have an impact on our recommendation as well.
Saint Gobain has announced the acquisition of Chryso, a player in the construction chemicals sector, for an EV of €1,020m (EV/EBITDA multiple of 12x) to be paid fully in cash. Chryso provides comprehensive additives solutions for sustainable construction. The company has generated in the last 12 months revenues of c.€400m and an EBITDA of €85m. The deal is expected to be closed in H2 21.
The company has reported its Q1 sales figures that came in even above Q1 19’s. This growth can be attributed to good dynamics across all segments, market share gains, and a sharp recovery in many markets. We expect this growth momentum to be sustainable, hence we will be revising our numbers upwards, resulting in a positive impact on our target price.
SGO announced good FY20 results, although sales and operating income were down by 10% and 16% respectively. It recovered significantly in H2 and sees positive trends for FY21. The company delivered on all its targets for FY20 and successfully completed its Transform and Grow programme. The new CEO will introduce new strategies for the company in October 2021.
SGO has proposed a dividend of €1.33/share and guided for the operating margin to be about 8.7% in FY21.
As hinted by the management, SGO enjoyed a strong recovery in lfl growth (Q3:3.2%, 9m:-7.2%). Americas and SE-MEA were robust performers registering growth of +6.4% and +2.7% respectively. Prices were up 0.6% in 9m 20 and 0.9% in Q3. For Q4, SGO expects to benefit from the favourable trends in the renovation market although Q3 catch-up effect reported in certain countries is likely to dwindle. We will be making minor changes to our model but leave our recommendation unchanged.
SGO has published H1 20 results below market expectations. Sales were down by 12% lfl, operating income by 50% yoy and recurring net income by 71% yoy. However, its cost-cutting targets came as a positive surprise. It is going to pre-deliver by one year on its Transform and Grow target and has announced an additional €200m savings by the end of 2021.
The company has reported its Q1 results, with sales down by only 4.9% lfl. Sales were hit most significantly in China and in its HPS division (the Automobile end-market has been troublesome since last year) until mid-March, but since then the company has seen a sharp decline in its activity level. Saint-Gobain has announced cost-savings initiatives and the cancellation of the FY19 dividend, but has not provided FY20 guidance. We have made minor adjustments to our model which had no impact on our
Saint-Gobain released its FY19 results, with revenues in line with the consensus but operating profit beating the consensus by 1%. The company showed a strong FCF increment, primarily due to improved WCR. The Nordic countries, France, India, and China showed strong performances, while Latin America and the UK continued to be the troublemakers. The company is conservative about its 2020 outlook but aims to increase its FCF through internal measures and initiatives.
Prices were up 2.0% in 9m 19 and up 1.4% in Q3 19, namely a deceleration, but possibly justified by a less inflationary cost environment.
In our view, the company should roll-out divestments of more than €20bn of sales.
Following this earnings release, we expect to raise our target price which might trigger a change in recommendation.
With a solid H1 19 but a less supportive market environment expected in H2 19, we expect to increase our target price by some 5-10% on the back of operating income beating consensus by some 3% and the fact that we are clearly below consensus concerning our FY 19 operating income. We expect to keep our Buy rating unchanged.
The absence of a further divestment programme is a shame.
As the comparison basis was low, we continue to expect moderate organic growth for the FY, some 3% if there is no unforeseeable negative event. We expect also an operating income growing proportionately with sales. Hence, we don’t expect a significant change in our valuation.
We welcome the possible sale of a 60% stake in Saint-Gobain PAM. However, we believe that the transformation doesn’t go as far as it should. The divestment programme targets less than 10% of sales, whereas we believe that more than €25bn of sales out of some €42bn ought to be divested to give back a growth and value creative profile to Saint-Gobain.
On the positive side, Saint-Gobain could finally turn to be value-creative by 2019 after a decade of value-destruction.
Concerning the divestment process, we recommend that management focuses its programme on three divisions, namely Interior Solutions, Pipe and Building Distribution. As argued in our “Letter to the board of directors of Sika and to Saint-Gobain’s shareholders” published in March 2018, in our view the company could become instantly value creative (ROCE higher than WACC) through the divestment of these three businesses.
We welcome the reorganisation. However, we believe that this transformation doesn’t go as far as it should. The divestment programme targets less than 10% of sales and the new divisional structure will blur the picture with the past.
The positive is the impact on the ROCE: it is difficult to give a clear number as we lack granularity but we believe that thanks to the divestments Saint-Gobain could finally turn to be value-creative by 2019-20 after a decade of value-destruction.
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