RHI Magnesita N.V. (LON: RHIM) – Will Deliver an Adjusted EBITA of €310 million for FY21 

RHI Magnesita N.V. is an FTSE 250 listed global leader in refractories having its presence across several locations around the world. Moreover, the Company has a vertically integrated value chain right from raw materials to refractory products and full performance-based solutions. RHIM’s customers are from various industries like steel, cement, non-ferrous metals, and glass.

(Source: Company presentation) 

Recent trend of Dividend Payments

The Company will pay an interim dividend of 50 euro cents per share on 14 September 2021, with an ex-dividend date of 26 August 2021. Moreover, the Company had declared an H1 FY21 interim dividend equivalent to one-third of the total dividend paid during FY20, benefited by the strong business performance and confidence in the outlook over the second half of 2021.

(Source: LSE; Analysis done by Kalkine Group)

Growth Prospects

• Robust Shareholders’ Returns: RHIM had managed to return €50 million to the shareholders through a share buyback programme that begun on 05 May 2021 and ended on 04 August 2021.
• Accelerated Progress of Strategic Initiatives: RHIM had projected to target incremental EBITA ranging from €140 million to €160 million from 2022 through various strategic initiatives focused on efficient cost management.
• Production Optimisation Plans: RHIM had long-term plans to modernise and reduce production costs through the advancement of strategic projects at Hochfilzen and Brumado.
• Global Steel Production: The Company is the global leader in the manufacturing of advanced refractory materials for the steel industry. Moreover, the global steel production had managed to show decent growth in July 2021 despite a drop in output from the top producer, China.

Key Risks

• Global Inflation: The risk of Inability to execute key strategic initiatives had grown with rising inflation in capex-based construction material costs and related services.
• Declining PMI Figures: The manufacturing and construction PMI for August 2021 in the UK had dropped from July 2021 levels.
• Global Logistic Disruptions: The risk associated with single-source suppliers had increased and created a cost burden on the Company.
• Environmental Impact: The failure to adopt or apply ethical standards and environmental compliance can contribute to climate change. The chemicals industry is already one of the most regulated industries, and the regulatory environment is becoming more complex. It requires a constant audit of the chemicals manufacturing facilities.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of RHI Magnesita N.V.

MSP Foundation is the most significant shareholder as it holds nearly 13.33 million shares as of 30 June 2021.     

H1 FY21 Financial & Operational Highlights (for the six months ended 30 June 2021, as of 28 July 2021)

(Source: Company result)

• The top-line revenue had shown a modest jump of around 9.30% from €10 billion during H1 FY20 to €1.20 billion for H1 FY21.
• On a constant currency basis, the adjusted EBITA grew by around 1.1% to €128 million during H1 FY21.
• With regards to the balance sheet, the Company had increased the net debt from €582 million as of 31 December 2020 to €812 million as of 30 June 2021.
• In terms of shareholders returns, RHIM had managed to return €108 million to shareholders comprised of 2020 final dividend payments and €73 million through a share buyback programme.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 06 September 2021, at 09:46 AM GMT, RHIM’s shares were trading at GBX 3,768.00, down by around 0.27% from the previous day closing price. Stock 52-week High and Low were GBX 4,762.00 and GBX 2,398.00, respectively.

From a technical standpoint, RHIM is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~39.08 is supporting an upside momentum in the stock price.

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

Business Outlook Scenario

The Company had shown accelerated recovery in demand levels with strong order book visibility for 2022. However, RHIM also incurred higher freight costs caused by supply chain disruptions during H1 FY21. Furthermore, the Company remained on track to achieve adjusted EBITA of €310 million for FY21, with earnings weighted towards H2 FY21. The working capital is forecasted to be ranging from 15.0% to 18.0% for FY21. Meanwhile, RHIM had anticipated reducing the net debt in H2 FY21 due to the receipt of €96 million post-tax proceeds from the Magnifin disposal and robust cash flow from operations. Overall, the Company would generate regular long-term returns for the shareholders with strong dividend payout, efficient cost management and strategic sales initiatives.

Considering the decent H1 FY21 financial numbers, strong contribution from strategic sales initiatives, various projects to reduce costs, consistent dividend payments, strong dividend yield, and support from the valuation as done using the above method, we have given a “BUY” recommendation on RHI Magnesita N.V. at the current price of GBX 3,768.00 (as on 06 September 2021 at 09:46 AM GMT), with lower-double digit upside potential based on 13.06x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

*All forecasted figures and Peer information have been taken from REFINITIV.

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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