RHI Magnesita NV

RHI Magnesita NV (LON: RHIM) supplies refractory products, systems, and solutions for high-temperature processes. It employs around 12,000 people across over 70 sales offices.

On 19 October 2021, RHIM expects to release its Q3 FY21 trading update.

Investment Rationale – SPECULATIVE BUY at GBX 3,470.00

• RHIM demonstrated a positive revenue momentum in H1 FY21, while it has order book visibility into FY22.
• It is on track to achieve €310 million in Adjusted EBITA in FY21. Meanwhile, the working capital is expected to remain in the range of 15-18%.
• RHIM is evaluating the additional share buyback programmes to further enhance shareholder returns.
• From a technical standpoint, 14-day RSI (~24.14) is in the oversold position, while the stock price is trading close to the lower Bollinger Band.
• On a forward 12-month basis, key valuation multiples of RHIM (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) are lower against the median of the Basic Materials industry.

Key Risks

• It is facing intense pricing pressure arising from higher raw-material prices and supply chain costs. It can pass on to customers through increased prices, which can eventually impact the customer demand as well.
• Following the increase in net debt, its leverage (Net debt to adjusted LTM EBITDA) has increased from 1.5x in H1 FY20 to 2.2x in H1 FY21. It can increase the finance cost and impact profitability.

Recent News

Completion of share buyback programme: On 05 August 2021, RHI Magnesita completed a share buyback programme of up to €50 million. It was managed by Barclays Bank Ireland PLC.

Financial Highlights (for the six months ended 30 June 2021, as on 28 July 2021)

 (Source: Company Website)

• RHIM reported a 9.3% year-on-year revenue growth in H1 FY21 at constant currency to €1,200 million (H1 FY20: €1,099 million).
• Similarly, adjusted EBITDA was 1.1% higher year-on-year to €128 million in constant currency terms (H1 FY20: €126 million).
• The Company declared an interim dividend of €0.50 per share, while the shareholder returns increased to €108 million (H1 FY20: €25 million).

Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

RHIM witnessed demand recovery with good order book visibility in H1 FY21. However, material global supply chain challenges can lead to significant delays and higher freight costs. Notwithstanding, it has navigated significant challenges and is on track to meet its FY21 adjusted EBITDA guidance. On the back of stronger market conditions, it has re-established its inventory level as well. Meanwhile, the expected cost-saving initiatives shall also support the H2 FY21 results. The stock made a 52-week High and Low of GBX 4,762.00 and GBX 2,398.00, respectively.

Based on the positive trading momentum, revenue growth, increased shareholder returns, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on RHI Magnesita NV at the current market price of GBX 3,470.00 (as on 15 September 2021, 7:10 AM GMT), with lower double-digit upside potential based on 12.29x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

iEnergizer Ltd

iEnergizer Ltd (LON: IBPO) is a FTSE AIM 100 index listed Company that provides technology services and media solutions for the digital age.

Rationale for Valuation – SPECULATIVE BUY at GBX 275.00

• IBPO reported higher profitability and margin improvement in FY21 on the back of continued focus on higher margin, active cost management, accrual of several new customers, and deepening of existing customer relationships.
• The increase in full-year dividends showed the Board’s confidence in the Company’s prospects.
• The Company has solid foundation, differentiated offerings, healthy balance sheet, and proven strength in operational execution to continue the growth.
• From a technical standpoint, 14-day RSI (~32.18) is in the oversold position, while the stock price is trading close to the lower Bollinger Band.

Key Risks

• The increase in net debt can cause significant finance risk, while the Company can significant operational challenges with the Covid-19 disruption.
• The Company is operating in a highly competitive market, which requires continuous investment in product differentiation and new customer acquisition through promotions.
• The subdued economic outlook has impacted consumer confidence. Moreover, the labour shortage and inflationary market conditions can impact the Company’s margins.

Financial Highlights (for the year ended 31 March 2021, as on 24 June 2021)

 (Source: Company Website)

• During FY21, iEnergizer reported 2.8% and 7.6% year-on-year growth in revenue and EBITDA, respectively.
• Following a special dividend of 49.4 pence per share, net debt stood at US$115.9 million in FY21 (FY20: Net Cash of US$1.6 million), representing 1.8x EBITDA for the period.
• The total dividend of 14.12 pence in FY21 increased from 13.6 pence in FY20.
• The Group also entered into a five-year senior secured term loan facility of US$165 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Conclusion 

IBPO has a sizeable project pipeline to continue the solid trading momentum. The recurring nature and longevity of contracts supports the progressive dividend policy of the Company. Following the revenue growth and enhanced profitability in FY21, the Group seems optimistic about the future. The encouraging market trends shall also create substantial opportunities for further growth. It is likely to benefit from the dual disruptive waves of cloud computing and big data in the digital age. The stock made a 52-week High and Low of GBX 400.00 and GBX 222.00, respectively.

Considering the record revenue growth, robust forward sales, healthy balance sheet, encouraging industry dynamics, we have given a “SPECULATIVE BUY” recommendation on iEnergizer Ltd at the current market price of GBX 275.00 as on 15 September 2021, 8:00 AM GMT).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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