A low high yield

Mytilineos 2 December 2019 Update
Download PDF

Mytilineos

A low high yield

New bond issue

General industrials

2 December 2019

Price

€9.80

Market cap

€1,400m

Net debt (€m) at 30 September 2019

449

Shares in issue

142.9m

Free float

73.4%

Code

MYTI

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.7)

(0.8)

41.2

Rel (local)

(3.9)

(7.8)

(4.5)

52-week high/low

€11.27

€7.29

Business description

Mytilineos operates three businesses: metallurgy (aluminium/alumina production), power & gas (power production/supply and gas trading) and EPC and infrastructure. The company operates in 29 countries across Europe, the Middle East and Africa and has a workforce of 2,700 employees.

Next events

FY19 results

March 2020

Analyst

Dario Carradori

+44 (0)20 3077 5700

Mytilineos is a research client of Edison Investment Research Limited

Mytilineos issued its first bond on the international debt capital market. The €500m five-year bond issue has a 2.5% coupon, lower than initial expectations and below the current weighted average cost of debt for the group. In addition to refinancing existing debt, the proceeds will be used to finance organic growth capex. Among the growth projects, we believe a new €300m gas-fired power plant has the potential to generate double-digit returns. In our view the share price does not fully reflect the lower country risk premium and we see room for a further re-rating. Our forecasts and valuation are unchanged.

Year end

EBITDA*
(€m)

Net income*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

299

139

1.02

0.32

10.0

3.2

12/18

290

139

1.01

0.36

10.1

3.6

12/19e

337

169

1.18

0.41

8.3

4.1

12/20e

330

175

1.22

0.43

8.0

4.3

Note: *EBITDA, net income and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Taking advantage of declining country risk premium

On 22 November 2019 Mytilineos issued its debut bond in the international debt capital markets. The €500m bond has a 2.5% coupon (which includes a new issuer premium), lower than the 2.75% initially expected as demand reached €1.3bn before books closed. The coupon is lower than Mytilineos’s bond issue in 2017 (3.1%, sold only on the domestic market and with a large retail component) and below the current weighted average cost of debt for the group of c 3%. Improving Greek financial conditions, thanks to a new pro-market government and ongoing economic recovery, drove a >50% decline in the 10-year Germany-Greece spread.

Low cost of debt, high returns from CCGT project

This sizeable bond issue improves the group’s liquidity position, extends the duration of its debt and provides more visibility on the company’s (low) cost of capital. In addition to refinancing, we expect proceeds of the issue to be used to finance growth capex. Among its growth projects, we believe the new €300m 826MW gas-fired power plant project (construction started in October) has the potential to generate double-digit returns. We have recently reduced our WACC assumptions to reflect the steep decline of Greek government bond yields and increased our valuation of Mytilineos accordingly.

Valuation: More room for a re-rating

We believe Mytilineos’s share price does not fully reflect the recent decline in Greek government bond yields and we see further room for a re-rating. We forecast Mytilineos to generate free cash flow (pre growth capex) equal to 43% of the current market cap in the period FY20–22. We expect a third of the cash flow to be paid as dividends, with the rest mostly invested in the new power plant, the key driver of EBITDA growth (our FY22 EBITDA forecast is 34% higher than FY19). Considering the robust growth profile/cash flow generation and solid balance sheet, we believe the current valuation multiples (c 8x P/E and 5x EV/EBITDA) are attractive. Our DCF-based value of €14.5/share offers significant upside potential.

Mytilineos: Taking advantage of declining interest rates

Exhibit 1 shows there is a correlation between the valuation multiples of Mytilineos (and the Greek stock market) and the country risk premium. Although the Greece 10-year government bond yield has declined dramatically in 2019 (down c 75%), thanks to improving economic conditions and the election of a more pro-market government, the impact on Mytilineos’s valuation multiples has been positive but more muted (from 6x to 8x P/E based on Refinitiv consensus estimates). Our sensitivity analysis suggests that a 1% lower WACC drives a 20% higher valuation. In addition, given the group’s significant discount to international diversified industrial groups and strong free cash flow yield, we see room for a further re-rating.

Exhibit 1: Mytilineos one-year forward P/E vs Greece 10-year government bond yield

Source: Refinitiv

A low high yield

As detailed in Exhibit 2, we believe the 2.5% coupon of Mytilineos’s recent bond issue compares favourably to a mix of other high-yield issuers over the same period. Mytilineos is a debut issuer on the international debt capital market and we believe the coupon is low considering that the issue also reflects a new issuer premium. The low cost in our view reflects the strong free cash flow generation of the company, the solid balance sheet and the diversification of its operations. This bond issue represents Mytilineos’s first Eurobond as the outstanding bond issued in 2017 is a Greek domestic bond, with a large retail component, listed on ATHEX (coupon 3.1%).

The S&P credit rating awarded to Mytilineos is the same as Greece (BB-) while the company’s Fitch rating is higher (BB vs BB- for Greece).

Exhibit 2: High-yield bonds issued in the same period

Date

Issuer

Tenor (year)

S&P rating

Size (m)

Coupon (%)

19 November 2019

Teva

5.25

BB

$1,000

7.125%

19 November 2019

Teva

5.25

BB

€1,000

6.000%

21 November 2019

Jaguar Land Rover

7.00

B+

€300

6.875%

21 November 2019

Jaguar Land Rover

5.00

B+

€500

5.875%

22 November 2019

Mytilineos

5.00

BB-

€500

2.500%

22 November 2019

TAP

5.00

BB-

€375

5.750%

Source: Refinitiv, Mytilineos, industry sources

Exhibit 3: Financial summary

Accounts: IFRS; year-end 31 December, €m

 

2017

2018

2019e

2020e

2021e

2022e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

 

1,527

1,527

1,941

2,088

2,266

3,025

Cost of sales

 

(1,143)

(1,150)

(1,500)

(1,649)

(1,799)

(2,446)

Gross profit

 

384

376

441

439

468

579

SG&A (expenses)

 

(86)

(88)

(99)

(104)

(107)

(121)

R&D costs

 

(0)

(0)

(0)

(0)

(0)

(0)

Other income/(expense)

 

1

(4)

(4)

(5)

(5)

(6)

Exceptionals and adjustments

 

6

(6)

0

0

0

0

Depreciation and amortisation

 

(73)

(79)

(87)

(91)

(93)

(101)

Reported EBIT

 

232

198

250

239

262

351

Finance income/(expense)

 

(43)

(38)

(23)

(12)

(9)

(26)

Other income/(expense)

 

(7)

1

(7)

(7)

(7)

(7)

Reported PBT

 

182

161

220

220

246

318

Income tax expense (includes exceptionals)

 

(24)

(24)

(44)

(42)

(44)

(57)

Reported net income

 

158

133

175

178

202

261

Basic average number of shares (m)

 

142.9

142.9

142.9

142.9

142.9

142.9

Basic EPS (€)

 

1.08

0.99

1.18

1.22

1.39

1.80

Adjusted EBITDA

 

299

290

337

330

355

452

Adjusted EBIT

 

226

290

250

239

262

351

Adjusted PBT

 

175

167

220

220

246

318

Adjusted net income

 

139

139

169

175

198

257

Adjusted EPS (€)

 

1.02

1.01

1.18

1.22

1.39

1.80

Adjusted diluted EPS (€)

 

1.02

1.01

1.18

1.22

1.39

1.80

DPS (€)

 

0.32

0.36

0.41

0.43

0.49

0.63

Adjusted EBIT margin

 

15%

13%

13%

11%

12%

12%

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

1,137

1,142

1,197

1,338

1,477

1,478

Goodwill

 

209

209

209

209

209

209

Intangible assets

 

236

235

235

235

235

235

Other non-current assets

 

282

272

273

273

274

274

Total non-current assets

 

1,864

1,858

1,914

2,056

2,195

2,197

Cash and equivalents

 

161

208

80

(29)

(73)

47

Inventories

 

159

184

194

199

205

212

Trade and other receivables

 

1,018

1,059

1,138

1,226

1,323

1,440

Other current assets

 

16

32

32

32

32

32

Total current assets

 

1,354

1,483

1,444

1,428

1,488

1,730

Non-current loans and borrowings

 

599

534

434

384

384

384

Other non-current liabilities

 

298

375

315

308

300

293

Total non-current liabilities

 

897

909

749

692

684

677

Trade and other payables

 

575

608

669

736

810

891

Current loans and borrowings

 

130

64

64

64

64

64

Other current liabilities

 

184

198

198

198

198

198

Total current liabilities

 

890

871

932

999

1,072

1,153

Equity attributable to company

 

1,377

1,508

1,618

1,731

1,860

2,027

Non-controlling interest

 

54

53

60

63

66

70

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit for the year

 

158

144

176

178

202

261

Taxation expenses

 

24

23

44

42

44

57

Net finance expenses

 

42

38

31

20

17

34

Depreciation and amortisation

 

76

81

86

90

92

100

Other adjustments

 

(9)

(7)

(27)

(26)

(26)

(26)

Movements in working capital

 

(38)

(68)

(28)

(27)

(29)

(42)

Interest paid/received

 

(32)

(31)

(31)

(20)

(17)

(34)

Income taxes paid

 

(6)

(18)

(44)

(42)

(44)

(57)

Cash from operations (CFO)

 

214

162

207

215

239

292

Capex

 

(127)

(85)

(141)

(231)

(231)

(101)

Acquisitions & disposals net

 

1

20

0

0

0

0

Other investing activities

 

9

18

18

18

18

18

Cash used in investing activities (CFIA)

 

(117)

(47)

(123)

(213)

(213)

(83)

Net proceeds from issue of shares

 

0

0

0

0

0

0

Movements in debt

 

(81)

(128)

(100)

(50)

0

0

Dividends paid

 

(5)

(46)

(59)

(61)

(69)

(90)

Other financing activities

 

(48)

106

(53)

0

0

0

Cash from financing activities (CFF)

 

(134)

(68)

(212)

(111)

(69)

(90)

Increase/(decrease) in cash and equivalents

 

(37)

47

(128)

(109)

(44)

120

Cash and equivalents at end of period

 

161

208

80

(29)

(73)

47

Net (debt)/cash

 

(568)

(390)

(419)

(477)

(521)

(401)

Movement in net (debt)/cash over period

 

50

178

(28)

(59)

(44)

120

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Mytilineos and prepared and issued by Edison, in consideration of a fee payable by Mytilineos. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Mytilineos and prepared and issued by Edison, in consideration of a fee payable by Mytilineos. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues