In-line FY19 results on lowered expectations Revenues declined by 4.9% (-5.7% organic) to £1,710.4m (INVe £1,741m, consensus £1,754m) driven by both Steel and Foundry. The operating margin contracted 40bps to 10.6% driving an operating profit decline of 8.0% (-9.0% organic growth) to £181.4m (INVe £181m, consensus £181m). EPS decreased by 9.1% to 45.1p (INVe 42.9p, consensus 43.1p). The dividend was increased by 3.5% to 20.5p (INVe 20.4p). Cash generation was strong (120% conversion) and net debt reduced by 12.7% to £216.3m (excluding IFRS 16). Outlook – expect a tough start to 2020 Key end markets were especially weak during the fourth quarter of 2019 and management expects this abnormally low level of activity to continue at least in Q1 2020 and to weigh on performance in H1 2020. The potential impact of the COVID-19 health crisis is difficult to assess, but is likely to have a temporary negative impact on its end markets. However, there are some signals indicating that the destocking phase experienced in H2 2019 is maturing and may shortly be coming to an end. Given external factors at play and the unknown impact of COVID-19, we believe the risk to FY20 consensus forecasts is modestly on the downside. However, we note that management is making a commendable effort to mitigate these headwinds. Our view and valuation Overall, these are resilient results that are in line with our forecasts and consensus at the profit levels, but 5% ahead at EPS. Revenues declined as expected and the margin was robust in lower volumes, highlighting restructuring efforts. FY20 headwinds are obvious but largely represent external factors and we believe the valuation is cheap enough to mitigate any potential earnings volatility. Vesuvius has come a long way since its demerger from Cookson with a proactive management showing how a business with cyclical commodity customers can still generate good and reliable value. Vesuvius is well-placed 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. The shares are currently trading on a FY20E PE of 9.1x and EV/EBITDA of 5.9x, falling to 8.5x and 5.7x respectively in FY21E. The shares also offer a dividend yield of over 5%.