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Research: Industrials
Mytilineos’s 9M results suggest that it is on track to reach our FY19 forecasts. While declining alumina/aluminium prices create earnings risks for FY20, the efficiency programme launched in Q319, the strength of the US dollar vs the euro and volume growth are potentially mitigating factors. We forecast an average FY20–22 free cash flow yield of 14% and our broadly unchanged valuation of €14.5/share offers significant upside.
Written by
Dario Carradori
Mytilineos |
Growth on track, increased focus on cost cutting |
9M results |
General industrials |
29 October 2019 |
Share price performance
Business description
Next events
Analyst
Mytilineos is a research client of Edison Investment Research Limited |
Mytilineos’s 9M results suggest that it is on track to reach our FY19 forecasts. While declining alumina/aluminium prices create earnings risks for FY20, the efficiency programme launched in Q319, the strength of the US dollar vs the euro and volume growth are potentially mitigating factors. We forecast an average FY20–22 free cash flow yield of 14% and our broadly unchanged valuation of €14.5/share offers significant upside.
Year end |
EBITDA* |
Net income* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
299 |
139 |
1.02 |
0.32 |
10.2 |
3.2 |
12/18 |
290 |
139 |
1.01 |
0.36 |
10.2 |
3.6 |
12/19e |
337 |
169 |
1.18 |
0.41 |
8.4 |
4.1 |
12/20e |
330 |
175 |
1.22 |
0.43 |
8.1 |
4.3 |
Note: *EBITDA, net income and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
9M EBITDA +14%, on track to reach our FY forecast
9M results were broadly in line with our expectations, with revenues +43% y-o-y to €1,548m and adjusted EBITDA +14%, the earnings growth mainly driven by power & gas. 9M EBITDA margins reduced (to 16% from 20% a year earlier) reflecting the growth in lower-margin solar plant projects. Overall, Mytilineos looks on track to reach our FY19 adjusted EBITDA of €337m (+16% y-o-y). Alumina/aluminium price reductions have led Mytilineos to launch an efficiency programme with the aim of maintaining top quartile positions on the global cost curve for both commodities.
We forecast a three-year EBITDA CAGR of 10%
While aluminium/alumina prices fell 8%/26% respectively over the last six months and FY20 is not hedged in advance, we expect the new efficiency plan, additional output from recently acquired EPALME (an aluminium scrap recycling business, which adds 37k tonnes/year of ‘green aluminium’ to total production capacity, now 222k tonnes/year; further investments in scrap recycling operations will boost capacity to 250k tonnes/year by 2022) and the strong US dollar vs the euro to mitigate the impact on earnings. We expect a small EBITDA decline in FY20 followed by a significant recovery in FY21 and accelerating in FY22, which includes the full benefit of the new 826MW power plant. Overall, for FY19–22e we forecast CAGRs of 10% for EBITDA and 15% for net income. We have made minimal forecasts changes, further reducing our alumina/aluminium price assumptions, offset by cost cutting and a stronger dollar vs the euro.
Valuation: Strong cash flow generation
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 the EBITDA growth (FY22 EBITDA 34% higher than FY19) and yielding strong returns on our calculations. Considering the robust growth profile and cash flow generation, the balance sheet headroom for new investments and the recent decline in the country risk premium for Greece, we believe the current valuation multiples (c 8x P/E and 5x EV/EBITDA) are attractive. Our valuation of €14.5/share (from €14.4) offers significant upside potential.
Revised forecasts
Exhibit 1: We forecast an EBITDA CAGR of 10% FY19–22
Adjusted EBITDA (€m) |
FY17 |
FY18 |
FY19e |
FY20e |
FY21e |
FY22e |
Metallurgy |
124 |
166 |
164 |
135 |
150 |
177 |
Power & gas |
75 |
64 |
104 |
106 |
110 |
176 |
EPC & infrastructure |
89 |
55 |
69 |
90 |
94 |
99 |
Others |
11 |
5 |
0 |
0 |
0 |
0 |
Total |
299 |
290 |
337 |
330 |
355 |
452 |
% y-o-y growth |
-3% |
16% |
-2% |
8% |
27% |
Source: Mytilineos data, Edison Investment Research.
Exhibit 2: Forecasts changes
Year end December (€m) |
FY18 |
FY19e |
FY20e |
FY21e |
FY22e |
|
Revenues |
New |
1,527 |
1,941 |
2,088 |
2,266 |
3,025 |
Old |
1,943 |
2,118 |
2,311 |
3,091 |
||
% change |
0% |
-1% |
-2% |
-2% |
||
Adjusted EBITDA |
New |
290 |
337 |
330 |
355 |
452 |
Old |
339 |
330 |
356 |
450 |
||
% change |
-1% |
0% |
0% |
0% |
||
Adjusted net income |
New |
139 |
169 |
175 |
198 |
257 |
Old |
170 |
175 |
199 |
255 |
||
% change |
-1% |
0% |
0% |
1% |
||
Net debt |
New |
390 |
419 |
477 |
521 |
401 |
Old |
418 |
476 |
520 |
401 |
||
% change |
0% |
0% |
0% |
0% |
Source: Mytilineos data, Edison Investment Research.
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 data, Edison Investment Research.
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