The positive effect from incremental volumes under the Soda +200 project on Ciech’s 9M17 earnings was offset by lower soda ash prices and raw materials cost inflation. More recently, soda spot prices in China have risen amid local supply curbs. However, supply from Ciner’s new facilities in Turkey may put pressure on 2018 contract prices. Ciech’s competitive response includes focus on product quality, strengthening the logistics chain and client relationships, as well as extending contract length. The company also aims to further improve product portfolio diversification. Ciech’s shares trade on a 2017e P/E of 8.1x, c 40% below its peer group.
Ciech |
Turnaround success, but supply risks ahead
|
Chemicals |
QuickView
20 November 2017 |
Share price graph
Share details
Business description
Bull
Bear
Analyst
|
||||||||||||||||||||||
The positive effect from incremental volumes under the Soda +200 project on Ciech’s 9M17 earnings was offset by lower soda ash prices and raw materials cost inflation. More recently, soda spot prices in China have risen amid local supply curbs. However, supply from Ciner’s new facilities in Turkey may put pressure on 2018 contract prices. Ciech’s competitive response includes focus on product quality, strengthening the logistics chain and client relationships, as well as extending contract length. The company also aims to further improve product portfolio diversification. Ciech’s shares trade on a 2017e P/E of 8.1x, c 40% below its peer group.
Lower soda prices combined with cost inflation
Ciech is currently facing margin pressure, with group adjusted EBITDA margin down 4.1pp to 21.3% and adjusted EBITDA declining by 13.9% to €557m in 9M17. This is mainly due to lower profitability in Ciech’s core soda segment (87% of group adjusted EBITDA in 9M17) resulting from slightly lower soda ash prices vs the prior year, coupled with the higher costs of gas, coal and furnace fuel. Soda sales were broadly stable y-o-y in 9M17 despite the planned production outage in Janikowo. In the Organic division, the increase in the price of raw materials for the production of foams and resins was offset by strong sales of MCPA- and glyphosate-based products, good foams volumes and positive portfolio effects in resins.
Strengthening core while seeking diversification
The company has undergone a multi-year restructuring process initiated in 2012 and last year completed its flagship Soda +200 project, which was aimed at boosting soda capacity at its Inowroclaw site from 600,000 to 800,000 tonnes per year. Ciech aims at a shift towards higher-margin sodium bicarbonate and salt products. It is also investing in expanding other revenue streams such as plant protection products, where its target is to double its market share in Poland by 2019 (from c 6% in 2014). The company continues to de-leverage, with net debt/EBITDA down from 3.9x in 2011 to 1.35x in Q317 and a target set for 2019 at <1.0x.
Valuation: Discount reflects limited visibility
Ciech’s shares currently trade at a 2017 consensus P/E of 8.1x, which represents a c 40% discount to the peer group, although the valuation gap narrows somewhat to c 26% in 2018e. This most likely reflects the uncertainty around the impact of new supply from Turkey on soda ash prices and Ciech’s capacity utilisation in 2018.
|
Consensus estimates
Source: Ciech accounts, Bloomberg |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
|
Disclaimer
|
|
Disclaimer
|
Research: Healthcare
PDL BioPharma recently reported strong Q317 earnings, mainly due to royalties related to Depomed as well as an increase in the fair value of the Depomed assets due to a settlement agreement with Valeant related to underpayment. In addition, PDL made public its attempt to acquire Neos Therapeutics, an attention deficit hyperactivity disorder (ADHD) focused specialty pharmaceutical company, for $10.25 per share (approximately $300m based on the latest share count). Neos declined the offer, which expired on 8 November. PDL has expressed that it believes this is a fair offer and has not indicated that it will increase it.