Vesuvius PLC

FTSE-250 listed Vesuvius PLC (LON: VSVS) provides molten metal flow engineering and technology services. It serves the steel and foundry industries.

The final dividend is expected to be paid on 27 May 2022 to shareholders on the register by 19 April 2022.

Rationale for Valuation – Buy at GBX 345.80

• Board Appointment: On 6 April 2022, Vesuvius appointed Mr Carl-Peter Forster as a non-executive Director and Chairman designate.
• Financial Growth: During FY21, revenue and profit jumped over 13% and 136% year-on-year, respectively.
• Positive Outlook: Vesuvius showed positive momentum at the start of FY22 across the end markets in Steel and Foundry verticals, and it has been able to manage cost inflation through price increases. Vesuvius expects continuing structural growth in its end markets of steel and foundry, which shall present attractive organic growth opportunities, supported by the expansion of Steel Flow Control production capacities in Asia and EMEA.
• Acquisition Benefits: On 6 December 2021, Vesuvius completed the acquisition of Universal Refractories which holds strategic importance for Vesuvius. It will significantly expand the North American presence and strengthen the Foundry business. Despite the acquisition of Universal Refractories, Net debt/EBITDA stood at 1.4x on 31 December 2021.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, Price/Book, and Price/Cash Flow valuation multiples of VSVS are undervalued against the average of the Industrials sector.
• Technical Indicator: From a technical standpoint, the stock price is trading close to the lower Bollinger Band, while the 14-day RSI (~42.08) is also indicating an oversold zone.

Key Risks

• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Emerging Risk: The automotive market production can remain challenging in 2022, due to the global shortage of semiconductors. Moreover, an additional price increase can impact the Company’s margins.
• Macroeconomic Risk: The Russian invasion in Ukraine has already jolted the market, while the slow retail growth and battered consumer spending in the UK amid rising fuel costs can keep the equity market under pressure.

Financial Highlights (for the twelve months ended 31 December 2021, as of 3 March 2022)

(Source: Company Website)

• Solid Platform for Growth: Vesuvius has reinforced its technology leadership, increased penetration of value-creating solutions, captured growth in developing markets, and improved cost margins. Vesuvius continued to launch new products since FY21 to gain market share and improve margins.
• Dividend: The Company proposed a final dividend of 15 pence per share, equating to a 22% year-on-year increase in the total dividends.

One Year Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: IMI PLC, Bodycote PLC, and TT electronics PLC.

*All selected peers are LSE-listed Companies from the Industrial sector.

Conclusion

Based on the strong commercial performance, end markets recovery, incremental selling prices, market share gains, upcoming growth opportunities, and favorable valuation conducted above, we have given a “Buy” stance on Vesuvius PLC at the current market price of GBX 345.80 (as of 11 April 2022, at 11:00 AM GMT+1), with lower double-digit upside potential based on 9.82x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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