Our view A positive trading update from Vesuvius – the key highlights are sequentially improved trading, good cost savings and cash, and a FY20 outlook is in-line with market expectations. We believe this should all be taken positively and feel confident of higher margins on recovery given cost actions. Trading improving Demand in both its Steel and Foundry markets has improved during Q3 2020 with sales up 7.0% sequentially, although down 14.3% year-on-year. This compares favourably to Q2 2020 which had a 26.2% sales decline year-on-year. October 2020 continued to show better trading with sales down 7.5% year-on-year. Its Covid-19 cost savings programme is on track to deliver £10m of savings per quarter in H2 2020, with restructuring actions set to deliver £19.4m per annum in 2020. Working capital management remains a focus with WC/sales of 22.4% vs. 26.7% at the half year, aiding a strong liquidity position of £448m, £73m higher than in February this year. As previously announced (20 Oct), the dividend has been reinstated with an interim dividend of 3.1p (2019: 6.2p). Outlook in-line Despite improving trends, management cites that uncertainty remains regarding the speed of recovery during 2021. FY20 Group EBITA is expected to be broadly in-line with market expectations (company-gathered consensus is £99.2m, compared to INVe £98.2m). Investment case and valuation Vesuvius has come a long way over the last few years with a proactive management team showing how a business with cyclical commodity customers can still generate good and reliable value. The long-term investment case is centred on its strong positioning for changes taking place in Chinese and Indian steel, as well as for growth in traditional markets, and we expect management to drive continuous improvement in the business. On our forecasts, the shares trade on a FY21E PE of 14.2x and EV/EBITDA of 8.0x with a dividend yield of 2.8%.