A new dimension

IBU-tec 13 September 2018 Update
Download PDF

IBU-tec

A new dimension

Technology

Scale research report - Update

13 September 2018

Price

€17.80

Market cap

€71m

Share price graph

Share details

Code

IBU

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Last reported net cash at end June 2018

€3.1m

Business description

IBU-tec is an international full service provider in the field of thermal process engineering, predominantly treating inorganic materials. It helps clients create enhanced performance materials, reduce energy consumption and use input materials more efficiently.

Bull

BNT acquisition adds wet chemical processes to existing thermal treatments.

New Bitterfeld site supports expansion into new thermal process applications.

Serving high-growth segments such as e-mobility and energy storage.

Bear

Acquisitions drag on margins.

Additional bank loans to support BNT purchase.

Low free float (26.5%).

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

H118 was successful for IBU-tec on several fronts. Revenues were back to almost H117 levels, as strong growth in demand for battery materials offset continued weakness in demand for materials used in automotive catalytic converters. Management achieved the objective set out at the IPO of purchasing a new site in Bitterfeld where more complex and hazardous materials can be processed in volume. It also purchased BNT Chemicals, more than doubling the revenues and adding complementary chemistries.

H118 revenue recovery driven by battery materials

Last year, revenues fell from €9.4m in H117 to €7.4m in H217 because of a sudden and substantial reduction in sales of catalytically active powders for the automotive industry attributable to the Dieselgate scandal earlier in the year. However, during H118 strong demand for battery materials used in energy storage and for chemical catalysts pushed revenues back up to €9.2m, close to the prior year levels. Stripping out the costs (€1.5m) of the IPO in March 2017, H118 EBITDA margin declined by 7pp year-on-year to 25%. Pre-tax profit (adjusted for IPO costs) reduced by 46% to €1.0m. Net cash reduced from €12.7m at end FY17 to €3.1m, following €4.8m in capex including the purchase of the Bitterfeld site.

BNT acquisition more than doubles revenues

Management has reiterated the guidance it gave immediately following the BNT acquisition in June. This is for annualised pro-forma revenues of €45–50m and EBITDA (prior to one-off transaction costs) of €5.5–7m. Prior to that, revenue guidance was €18.5–20.0m, generating EBITDA of €4.7–5.2m, so while the transaction more than doubles revenues, the improvement in profits is not expected to be as pronounced because of BNT’s comparatively low margin at present.

Valuation: Trading in line with peers

Management guidance gives a pro forma FY18 EV/sales multiple of 1.5–1.7x and EV/EBITDA multiple of 10.7–13.6x. Both these multiples are in line with means for our peer group sample (1.6x year 1 EV/sales and 11.9x year 1 EV/EBITDA). The BNT acquisition and new site development will have a short-term negative effect on EBITDA margin. Historically however, IBU-tec’s FY17 EBITDA margin has been towards the upper end of the range for its peers, which has justified a premium to the mean. This suggests potential for share price improvement if management can drive margin improvement in the BNT business post-acquisition.

Historical financials

Year
end

Revenue
(€m)

PBT*
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

12.5

2.5

0.45

0.0

39.6

N/A

12/15

16.6

4.5

0.79

0.0

22.5

N/A

12/16

17.7

4.3

0.77

0.0

23.1

N/A

12/17

16.8

1.9

0.45

0.13

39.6

0.7

Source: Bloomberg. Note: *Adjusted for IPO costs. **On number of shares at listing date.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Progress on execution of strategy

Bitterfeld site extends capacity and supports new chemistries

Part of the €16.5m (gross) raised at the IPO in March 2017 was allocated for the purchase of a new site where more complex and hazardous materials can be processed in volume. This was accomplished in April 2018 through the purchase of a site in Bitterfeld.

The 15,500m2 site is in an industrial area approved for chemical activity which is c 140km from the headquarters in Weimar. It will be used to process materials that cannot be produced at the Weimar site because of regulatory and permitting restrictions as well as providing additional capacity. IBU-tec has already built up a provisional pipeline of suitable projects for the proposed facility with existing and new customers, which will potentially deliver meaningful revenues when production commences at the site in Q119. It will start by installing two rotary kilns for processing battery materials and chemical catalysts. Together with the facility and technical equipment, these will cost €6m, most of which will be paid in FY18. A pulsation reactor will be installed at the site in FY19.

BNT Chemicals acquisition immediately doubles revenues

An alternative option for securing a site where more complex materials could be processed was to purchase an existing company. In June 2018 IBU-tec acquired BNT Chemicals for an undisclosed amount, payable in cash. BNT uses wet chemical processes to manufacture tin-based products, which it sells for use as catalysts in the chemical industry and manufacture of medicines, electro-plating in the automotive industry, coating glass and as raw materials, eg tin tetrachloride. We believe the transaction is an excellent fit as it adds complementary processing techniques, takes IBU-tec into new market niches such as the production of catalysts used in manufacturing medicines, and enlarges the customer base. Importantly, with annual revenues of €23-28m per year between 2015 and 2017, the acquisition is of sufficient scale to substantially reduce IBU-tec’s historic exposure to demand for car exhaust catalysts which was behind the revenue drop in H217. We estimate that this will reduce from 40-50% of FY17 revenues to 20% of the annualised revenues of the enlarged group.

Scope to improve BNT’s operating margin

While BNT has been consistently profitable, it does not currently generate the operating margins that IBU-tec has achieved historically. IBU-Tec’s CEO, who has significant expertise in improving the efficiency of manufacturing operations, is addressing this. Since BNT is located 1.5km from IBU-tec’s new thermal processing facility on the Bitterfeld chemical site, there is plenty of scope to achieve synergistic benefits as activity at the new site ramps up. In the medium term, management intends to establish toll-manufacturing capability at BNT so it can provide a range of wet processing treatments to customers that are already using IBU-tec for thermal processing of materials under a toll-processing arrangement.

Back on track in H118 after H217 dip

H118 revenues close to H117 levels

Total revenues declined by 3% year-on-year during H118 to €9.2m. Putting this in context, revenues had fallen from €9.4m in H117 to €7.4m in H218 because of a sudden and substantial reduction in sales of catalytically active powders for the automotive industry attributable to the Dieselgate scandal earlier in the year. H118’s revenues therefore represent a good recovery compared with the previous six months. This was driven by strong growth (40%+ compared with H217 in demand for battery materials deployed in e-mobility and stationary energy storage following signature of a framework agreement for the supply of materials used in stationary energy storage at the end of 2017. Demand for chemical catalysts also increased compared with H217. Importantly, IBU-tec was able to secure additional customers, including a well-known fertilizer group, thus broadening its customer base.

Bitterfeld costs dragging on margins

Personnel expenses rose by 7% y-o-y, in part due to the shift from automotive catalyst production to more labour-intensive small-scale project business, partly reflecting the recruitment of staff for the new Bitterfeld site. Material costs as a percentage of sales increased by 3.9pp to 12.6%, reflecting a shift to carrying out contract manufacturing for some customers rather than working exclusively on a toll-processing basis. Stripping out the costs (€1.5m) of the IPO in March 2017, EBITDA margin declined by 7pp to 25%. This remains high compared with the EBITDA margin of industry peers (see Exhibit 1). Pre-tax profit (adjusted for IPO costs) reduced by 46% to €1.0m.

Net cash reduced from €12.7m at end FY17 to €3.1m at end H118. Cash generated from operations was €1.9m. Capital expenditure totalled €4.8m including the purchase of the Bitterfeld site and the R&D centre in Weimar. The company also spent €6.3m as partial pre-payment for the BNT acquisition.

FY18 revenue guidance more than doubled following BNT deal

Prior to the BNT acquisition in June this year, management had forecast FY18 revenues of €18.5–20.0m generating EBITDA of €4.7–5.2m. Following the acquisition management raised guidance to annualised pro-forma revenues of €45–50m and EBITDA (prior to one-off costs associated with the transaction) of €5.5–7m. This guidance was reiterated when the H118 results were announced.

Valuation: Trading in line with peers

Exhibit 1: Multiples for listed peers

Name

Market cap
(€m)

EV/Sales
current year (x)

EV/EBITDA
current year (x)

EBITDA margin
last year (%)

Akzo Nobel

20,549

2.5

20.2

14.9

Bodycote

2,019

2.5

9.1

0.6

Croda International

7,479

5.1

17.7

27.5

Elementis

1,314

2.1

10.4

16.7

Evonik industries

14,932

1.2

7.0

14.8

Fuchs Petrolub

6,735

2.5

14.8

17.5

Holland Colours

73

0.8

6.1

12.2

Johnson Matthey

7,512

0.5

10.0

4.3

Kemira

1,810

0.9

7.3

11.4

Koninklijke

16,349

1.8

9.6

15.6

Nabaltec

225

1.4

8.4

18.4

Nanogate

182

1.2

10.6

11.6

Orapi

40

0.4

9.4

3.6

Robertet

1,184

2.3

13.3

17.4

Explosifs Prod CHI

169

-

-

6.2

Symrise

10,429

3.9

18.7

21.0

Umicore

11,838

0.9

16.4

4.2

Victrex

3,054

8.1

18.4

44.3

Wacker Chemie

6,461

1.4

6.6

19.1

Mean

1.6

11.9

IBU-tec

78

1.5–1.7*

10.7–13.6*

25.6

Source: Bloomberg. Note: Prices at 3 September 2018. *Based on management guidance (annualised) and net cash at end H118.

As there are no listed peers involved in toll manufacturing of inorganic chemicals, we use a sample of European companies involved in the manufacture of speciality chemicals or that use specialist chemical processes to provide a service. Management guidance implies a pro forma FY18 EV/sales multiple of 1.5–1.7x and EV/EBITDA multiple of 10.7–13.6x. (There is no guidance on earnings, precluding use of P/E multiples.) Since the share price has picked up from a low of €15.65 in February as investors have responded positively to the acquisitions of the site in Bitterfeld and of BNT Chemicals, both these multiples are in line with means for our peer group sample (1.6x year 1 EV/sales and 11.9x year 1 EV/EBITDA). The acquisitions currently have a dilutive impact on EBITDA margin with management guidance giving a range of 12.2-14.0% for FY18 on an annualised basis compared with 25.6% achieved in FY17. In FY17, IBU-tec’s EBITDA margin was towards the upper end of the range for its peers, justifying a premium to the mean at that time. This suggests potential for share price improvement if management can drive margin improvement in the BNT business post-acquisition.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues