Semapa
Holding Company / Portugal
Reuters/Bloomberg: SEM.LS / SEM PT
December 21, 2017
Semapa: The Navigator & more – Initiating coverage with a Buy Rating Buy vs. previous NR recommendation
Target Price (€/sh.) We initiate coverage on Semapa (SEM PT) with a Buy rating and a target price of EUR 20.5/share, implying a 15% 8.0 20.5 upside from current levels. Current Share Price* (€/sh) 7.0 17.95 Semapa’s holdings include a 69.6% stake in The Navigator Company (NVG), the fully-owned Secil (cement and *18 /12/ 2017
aggregates) and the fully-owned ETSA (environment and waste management). Our valuation reflects the upside potential of the Navigator, driven by the positive conditions in the pulp and paper 6.0 Stock Data markets and NVG’s drive to expand to other lucrative segments and also expectations for an improving performance of Secil. Market5.0 Cap (€m) 1,449
EV (€m) Specifically, we are positive for the medium-term prospects of the Navigator as we consider the positioning of the 4.0 3,581 company in the global pulp and paper markets as well as the prospects and the pricing conditions in these markets. In Free Float 28% addition, we view that NVG’s new investments in pellets and tissue paper production will be adding to the value of the 3.0 company. Num. of shares (m) 80.7 For Secil we note the ongoing cost-cutting actions taken by the management but we also expect an improving 2.0 performance on the back of increased sales In Portugal and Brazil, as demand in these countries is expected to improve. Performance 1m 3m 12m We also note the medium-to-longer term economic prospects of the other markets in focus (Lebanon, Tunisia and Absolute (%) 15.3% 17.9% 40.3% Angola) as well as the positive demographics of these markets. 1.0 PSI 20 (%) 2.8% 2.4% 17.5% Finally, the contribution of ETSA to Semapa’s portfolio accounts is small but ETSA is the largest player in Portugal in the
waste management segments where it operates and thus well placed to benefit from the further consolidation of the 0.0 local market but also as a regional consolidator (potential acquisitions in Spain). Trading Data Daily volume (3M avg)* Healthy top line growth 0.04 Semapa revenues for 2017 are estimated at EUR 2.17bn (+4.7% y-o-y), while for the 2017-21 period are forecasted to 12M high (€/sh) EDP18. 35RENOVÁVEIS S.A. PSI-20 Index (Rebased) grow at 1.8% CAGR. For the Navigator Company (accounting c75% of Semapa’s revenues), we expect sales to grow 2.0% 12M low (€/sh) p.a. between 2017 and 2021. For Secil, sales are forecasted to grow 7.6% y-o-y in 2017 to EUR 506m, and at a 1.2% 12.71 CAGR for the period 2017-21 on the back of the recovery of cement and clinker sales in Portugal and Brazil. * 000’s shares
EBITDA and Net income 20,0
We forecast higher operating profitability from both the Navigator Company and Secil, supported by operating leverage 15,0 and cost containment. Semapa EBITDA is seen settling at EUR 508m in 2017 (+3.9% y-o-y), while we estimate a 2017- 21 EBITDA CAGR at 2.2%. Although net income attributable to shareholders is seen declining 9% y-o-y to EUR 105m in 10,0
2017 (tax benefits boosted net income in 2016), for the period 2017-21 is estimated to grow at a CAGR of 8%, reaching 5,0 EUR 143m at the end of the period. 0,0
Dividend yield estimated at 3.6% in 2017 and 4% in 2018 Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. We expect Semapa to use the dividends to be received from the Navigator Company – cEUR 700m between 2017 and PSI-20 Index
2021 – to reduce net debt and distribute dividend to its shareholders. In our model we incorporate a dividend payout ratio for Semapa of 50% for the period 2017-21, which translates into a cumulative distribution of cEUR 300m over the Semapa – Sociedade de Investimento e Gestão, 5-year period. Dividend yield is estimated at c3.6% in 2017 and 4% in 2018. At the same time, although we incorporate SGPS, S.A., through its subsidiaries, produces a capex of cEUR 375m between 2017 and 2019, net debt to EBITDA is seen decreasing from 3.6x in 2016 to 2.2x in 2019. and sells cellulose pulp and paper, and related
products. It operates through three segments: Upside potential of 15% - Initiating coverage with a Buy Pulp and Paper, Cement and Derivatives, and Our valuation exercise for Semapa results in a target price of EUR 20.5 per share. Based on our estimates, the company Environment. The company also produces and currently trades at an EV/EBITDA and PE ratio for 2017 and 2018 of 7x/6.6x and 13.8x/12.8x, respectively. sells cement, clinker, ready mixed, aggregates, At current price levels, the market seems to incorporate Semapa’s stake in NVG, the holding debt and a discount, but precast concrete, and mortar products. In apparently fails to assign any equity value to the other subsidiaries and mainly to Secil. We argue that although the addition, it is involved in environment related cement subsidiary has been impacted by adverse market conditions, it is taking steps to optimize its cost structure, activities. The company has operations in while it is well placed to benefit from the economic recovery in its markets. Portugal, Other European countries, the United EUR m 2014 2015 2016 2017E 2018E States, Africa, and Asia. Semapa was incorporated in 1991 and is headquartered in 1 998 2 132 2 075 2 168 2 224 Revenues Lisbon, Portugal. EBITDA 410 478 489 508 520 Shareholding structure: Grupo Queiroz Pereira Net Income 113 81.5 115 105 113 50.4%, Cimo Gestão de Participações 20.08%, Net Debt 1 386 1 803 1 780 1 648 1 483 Bestinver Gestión 8.05% and Santander Asset Management 2.81% P/E 9.89 14.94 9.45 13.8 12.8 EV/EBITDA 3.4 3.9 3.5 7.0 6.6 Analysts Maria Almaça, CFA Net Debt/EBITDA 3.4 3.8 3.6 3.2 2.8 [email protected] Dividend Yield 19.0% 7.7% 3.3% 3.6% 3.9% +351 21 936 4447 Source: AXIA Research Axia Ventures Group - Avenida da Liberdade 240, 4th floor, Tel: +351 219364444, Fax: +351 966049598, Web: www.axiavg.com Please refer to the last page for disclosures and analyst certification
Semapa-Initiation of Coverage
Table of contents
Section Page
Investment Case 3
Valuation 6
Company Overview 8
Business Segments 11
Capex, Capital Structure & Funding 23
Assumptions and Forecasts 26
Detailed Financials 28
Disclosures 30
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Investment case
We initiate coverage on Semapa, a holding company with stakes in the Pulp & Paper, Cement and the Environment sectors, with a Buy rating and a target price of EUR 20.5 per share, implying a 15% upside from the stock’s current market price. The main driver of the company’s value lies within its 69.4% stake in the Navigator Company and its cash flow and growth prospects. Expectations for improved performance by the cement subsidiary (Secil) further supports the positive view on Semapa.
The Navigator Company, is a significant player in the global pulp and paper market. We are positive on the prospects of the Navigator given: Its leadership position in the EU premium paper market, coupled with the recent improvement in the short-term pricing outlook for both pulp and paper. The new lines of growth within the tissue production segment and the pellets production in the US. Its attractive dividend distribution. Based on our forecasts the NVG’s dividend yield currently stands at 6.1% in 2017 and 5.8% in 2018. We expect NVG’s total sales in 2017 to come in at EUR 1,634m (+3.6% y-o-y), EBITDA at EUR 414m (+4.1% y-o-y) and net income at EUR 192m (-11.7% y-o-y). Between 2017 and 2021, revenues, EBITDA and net income are forecasted to grow at compound rates of 2.0%, 2.3% and 2.4%, respectively.
Secil is expected to increase its contribution to Semapa’s results: Secil to benefit by the improved demand for cement and clinker in Portugal and Brazil. Revenues are forecasted to grow 7.6% in 2017 to EUR 506m on the back of some volume increase but mainly improved pricing of cement and clinker sales. The company is working towards further improving its expense structure Secil’s EBITDA is expected to reach EUR 87m in 2017 (+3% y-o-y), while we would expect a rather stable EBITDA margin over the period 2017-21 of c.17.5%.
Dividends received from the Navigator Company to continue (i) to reduce Semapa’s debt levels and (ii) be used for the distribution of dividend to Semapa shareholders: We expect Semapa to receive almost EUR 700m in dividends from the NVG between 2017 and 2021. Semapa’s net debt is forecasted to decrease from EUR 1,780m in 2016 to EUR 1,648m in 2017, while net-debt to EBITDA to decline from 3.6x in 2016 to 2.2x in 2019. We incorporate a payout ratio for Semapa of 50% in our model, which translates into the payment of EUR 53m of dividends in 2017 and implies a dividend yield of 3.6%.
We initiate coverage on Semapa with a Buy rating and a price target of EUR 20.5 per share, implying a 15% upside potential from current levels. We set our target price based on a SOTP exercise considering our DCF valuation on the Navigator, while we derive the equity value of Secil and ETSA applying adjusted market multiples. We also incorporate a holding company discount of 20%. We view that Semapa’s current price does not fully reflect the value of the subsidiaries and especially that of the non-listed entities.
Upside risks to our valuation include: Stronger performance by the Navigator driven by o Positive evolution of market prices of paper, tissue and pellets or improved demand for the Navigator’s products o Additional operational cost containments and productivity gains o Lower effective tax rate on the back of fiscal benefits and tax reversals o Favorable ruling on the anti-dumping tax procedure by US authorities Stronger demand and/or improved pricing for cement and cement products in the markets where Secil operates Value-enhancing acquisitions by ETSA as well as the creation of higher value added product lines
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Risks
Currency risk Portion of the Navigator and Secil sales is denominated in currencies other than Euro, with the USD having the higher expression. Therefore Semapa is exposed to both transaction and translation currency risk. When considered appropriate, the group manages foreign exchange exposures through the use of derivative financial instruments.
Risks related to the Pulp & Paper segment:
Negative evolution of the price of paper products Weaker paper prices will impact NVG’s turnover and profitability.
Anti-dumping process in the US American authorities are still reviewing the process after which a decision is expected to be disclosed. The risk is that the anti-dumping tax is maintained at the current level of 7%. In 2016 the US market accounted for 9% of UWF paper sales.
Political Risk in Mozambique The political scene in Mozambique is currently far from stable. The company has delayed its project to build a pulp and biomass plant in the country with a decision not expected to be made within the next five years. Regarding the plantation of eucalyptus in the African country, the Navigator is scaling down the pace of investment in the country.
Risks related to the forestry sector and the supply of raw materials Risks related to the productive capacity of the plantations, the risk of wildfires, drought, and the regulatory risk related with the upcoming legislative revision of the legal regime applicable to forestation and reforestation with resort to forestry species (DL nr 96/2013) which can lead to the increase of the average cost of wood purchases.
Risks related to the Cement segment:
Country risk Secil holds investments in Brazil, Tunisia, Lebanon and Angola, owning production units. Any political instability in these regions might impact demand as well as Secil’s ability to operate.
Economic risk Economic cycles and policies have an impact on demand and on profitability of the cement operations.
Operating risks Increasing fuels and energy costs impact profitability if Secil is not able to pass the increases to customers.
Risks related to the Environment segment:
Negative evolution of sale prices ETSA’s business is exposed to the volatility of cereal and cereal products prices in international markets, since those are substitutes for the products sold by the company.
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Valuation We attribute to Semapa’s shares a Buy rating, with a price target of EUR 20.5 per share, implying an upside potential of 15% from current levels. Our valuation is based on a SOTP exercise for the three business groups of the company: the Navigator Company, Secil and ETSA.
The company’s stock has gained 40.3% over the past 12 months. Vs. the 17.5% gain registered by the PSI20 index. We note that the Navigator Company shares have increased 37.6% during the same period. Over the past 5 years, Semapa’s share price performance has outperformed that of its main shareholding (in the Navigator Company) and of the PSI-20 index.
Chart 1. Stock performance vs. PSI 20 index Chart 2. Stock performance vs. The Navigator company
400,0 400,0
300,0 300,0
200,0 200,0
100,0 100,0
0,0 0,0 dez/12 jun/13 dez/13 jun/14 dez/14 jun/15 dez/15 jun/16 dez/16 jun/17 07/12/2012 07/12/2013 07/12/2014 07/12/2015 07/12/2016
Semapa PSI-20 Semapa The Navigator Company
Source: Capital IQ
Semapa owns a 69.4% stake in the Navigator Company. Our DCF exercise returns an equity value for the NVG of EUR 2,230m or EUR 5.00 per share (see full report and last update here), which represents an upside from the current market price of c.12.5%. We value the fully owned subsidiaries ETSA and Secil using a multiples approach based on an adjusted EV/EBITDA of each sector of activity (2018 is the focus year). The SOTP exercise, that incorporates a holding discount of 20% due to the structure of the group and the fact that the three subsidiaries operate as stand-alone entities, leads us to a 12-month forward target price for Semapa of EUR 20.5 per share.
Table 1. Semapa’s valuation 2018e EV Stake's EV (EUR Implied Division Method Semapa's stake % of total EBITDA 2018e (EUR m) m) EV/EBITDA
The Navigator DCF (WACC @ 7.9%) 4279 69.4% 2 969 79% 424 10.1 Secil Multiples 737 100.0% 737 20% 89 8.3 ETSA Multiples 52 100.0% 52 1% 7 7.5 Group EV 3 758 100% 520 7.2 (-) Net Debt
Semapa 502.7
The Navigator 740.0
Secil 422.9
ETSA 15.7 SOTP Equity value 2077 Discount 20% Estimated NAV 1661.2 Num of Shares (mn-fully diluted) 81,0 Target Price 20.5 Current price 17.95 Upside/(Downside) (%) 15% Source: AXIA Research, The Company Navigator’s current market capitalization is at EUR 3,167m, with Semapa’s stake worth cEUR 2,200m and Holding net debt at cEUR 500m. At the same time Semapa’s current market capitalization is at EUR 1,449m. Assuming a holding discount of c20%, the current price suggests no equity value for the other two subsidiaries.
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Looking at peers, as a holding company that has operations in three different industries, there is no direct comparison between Semapa and other listed entities. We present a set of multiples of peers in each sector Semapa operates.
Table 2. Semapa’s listed peers in each industry Company Name Country Mcap P/E EV/EBITDA Net Debt/EBITDA
(EUR m) FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 Pulp & Paper Altri, S.G.P.S., S.A. Portugal 1 129 12.3 12.8 11.7 8.2 8.2 7.8 2.3 2.0 1.6 ENCE Energía y Celulosa, S.A. Spain 1 196 15.4 21.2 19.0 6.5 7.5 6.8 0.9 1.0 1.1 Holmen Aktiebolag (publ) Sweden 3 584 20.5 19.4 19.6 12.3 11.6 11.9 0.1 0.1 0.1 Iberpapel Gestión, S.A. Spain 289 15.9 17.0 23.7 6.4 6.4 6.3 -2.3 -2.8 0.1 Metsä Board Oyj Finland 2 316 16.9 14.2 12.7 10.2 9.0 8.6 1.4 0.9 0.6 Mondi plc UK 10 222 14.1 13.1 12.7 8.3 7.8 7.6 0.9 0.8 n.m. Stora Enso Oyj Finland 10 696 16.1 14.7 13.5 9.1 8.6 8.2 1.7 1.4 1.1 UPM-Kymmene Oyj Finland 13 925 14.8 14.9 14.7 9.3 9.4 9.4 0.4 0.4 -0.2 Sappi Limited S. Africa 3 200 11.6 11.4 10.5 6.4 6.4 6.0 1.4 1.4 1.2
Average EMEA 15.0 15.0 14.8 8.6 8.3 8.0 1.1 0.9 0.9 The Navigator Company, S.A. Portugal 3 146 16.2 16.2 15.8 9.6 9.4 9.1 1.8 1.7 1.4 Empresas CMPC S.A. Chile 6 590 53.8 32.4 27.1 10.6 9.7 9.1 2.8 2.4 2.1 Fibria Celulose S.A. Brazil 7 666 15.4 9.9 10.1 8.8 7.0 6.4 0.7 0.5 0.4 Suzano Papel e Celulose S.A. Brazil 5 948 9.7 12.0 10.9 7.4 7.1 6.7 0.6 0.5 0.4 Clearwater Paper Corporation US 651 20.2 14.1 10.5 7.7 6.5 6.0 3.5 3.2 2.6 Domtar Corporation US 2 450 16.8 15.2 12.8 6.6 6.1 5.7 1.5 1.1 0.8 KapStone Paper and Packaging Corporation US 1 827 18.5 13.9 11.7 9.0 7.8 7.2 3.0 2.4 1.9 Mercer International Inc. Canada 783 13.6 13.1 12.1 6.3 6.0 6.1 1.8 1.6 1.5 Neenah Paper, Inc. US 1 254 20.3 17.8 15.3 11.4 9.8 9.1 1.0 0.6 P. H. Glatfelter Company US 717 16.7 12.7 10.8 7.5 6.6 6.2 1.7 1.3 1.0
Average NA-LatAm 18.4 14.0 16.1 7.4 6.7 6.4 1.4 1.1 1.0 Lee and Man Paper Manufacturing Limited Hong Kong 4 637 9.0 8.6 7.9 8.2 7.7 7.1 0.2 0.2 0.1 Nine Dragons Paper (Holdings) Limited Hong Kong 7 219 n.a. 9.0 9.1 n.a. 7.2 6.9 0.3 0.3 0.2 Nippon Paper Industries Co., Ltd. Japan 1 986 n.a. 21.3 15.9 n.a. 11.3 10.3 0.1 0.1 0.0 Oji Holdings Corporation Japan 4 941 n.a. 18.3 14.9 n.a. 9.6 8.9 0.0 0.0 0.0
Average Asia/Pacific 18.8 15.0 12.3 8.2 8.6 8.0 0.1 0.1 0.1 Cement LafargeHolcim Ltd Switzerland 27 350 16,9 14,4 12,5 8,8 8,2 7,6 2,4 2,0 1,7 Buzzi Unicem SpA Italy 4 185 17,2 14,6 12,2 8,5 7,7 7,0 1,3 0,9 0,4 HeidelbergCement AG Germany 17 877 15,4 12,8 10,8 8,9 8,2 7,5 2,6 2,2 1,8 Vicat SA France 2 947 19,8 17,0 14,0 9,2 8,4 7,7 1,9 1,4 1,1 James Hardie Industries plc Ireland 6 248 0,0 28,1 22,8 0,0 16,5 13,3 1,3 1,9 1,8 Titan Cement Company S.A. Greece 1 587 22,9 14,2 11,2 8,2 7,4 6,7 2,4 1,9 1,4 Sector Average 15.4 16.8 13.9 7.3 9.4 8.3 2,0 1.7 1.4
Environment Cleanaway Waste Management Limited Australia 1 609 0.0 30.5 24.1 0.0 8.8 7.5 1.1 1.4 1.0 Derichebourg1 France 1 489 0.0 17.5 15.7 0.0 7.0 6.7 0.7 0.2 0.1 Waste Management, Inc US 31 338 26.4 24.3 22.5 11.5 11.0 10.5 2.3 2.1 1.9 Republic Services, Inc US 18 468 27.1 25.2 23.0 10.6 10.0 9.5 2.9 2.7 2.6 Clean Harbors, Inc US 2 573 158.9 55.2 38.6 10.1 8.9 8.4 2.8 2.1 1.6 Stericycle, Inc US 4 899 15.0 15.0 14.2 10.2 10.0 9.5 3.2 2.7 2.0 Sector Average 37.9 27.9 23.0 7.1 9.3 8.7 2.2 1.9 1.6 Semapa Portugal 1 409 13.4 12.5 11.8 6.9 6.5 6.0 3.2 2.8 2.2 Source: Capital IQ; AxiaVG Research
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Company Overview
Description Semapa is a public company with head office in Lisbon and its shares traded on the regulated Euronext Lisbon market since 1995.
Semapa, through its holdings, is one of Portugal’s largest industrial groups, with a workforce of more than 4,500 and a production presence on several countries. More than three quarters of its turnover is generated on foreign markets. Its business activities consist of indirectly managing its holdings in three industrial areas: Paper & Pulp, Concrete & Aggregates and Environment. The number of employees working directly for Semapa at YE16 was 27 (25 in 2015).
The company was incorporated in 1991, focusing primarily on the cement sector. In 2004 it acquired a 30% interest in the share capital of Portucel (currently the Navigator Company) upon its re-privatization and a few months later launched a takeover offer for Portucel shares which resulted to an increase of its stake in the company to 67.10%. Gradually the stake increased to 81.19% and was reduced to 69.4% in July 2015. In 2008 Semapa acquired the entire share capital of the ETSA Group and its respective holdings, thus entering in the environmental sector and, more specifically, in the waste management industry.
The Navigator Group is the most relevant segment for Semapa, representing c76% of Semapa group sales and c81.3% of its EBITDA in 2016. In the first nine months of 2017, the NVG accounted for 75% and 80%, respectively, of Semapa’s turnover and EBITDA.
Table 3. Description of Semapa’s holdings Business Segments Company Stake (%) Acquired (yr) Turnover 2016 (EUR m) Turnover 2016 (% of Total)
Paper and Pulp The Navigator Company 64.84 2004 - 2015 1,577.4 76.03 Secil Group Concretes and Aggregates 92.1* 1991 470.5 22.68 ETSA Group Environment 100 2008 26.7 1.29 Source: AXIA Research, Company Reports; Note: *The remaining 7.9% are treasury shares
Semapa’s operations, through its 3 subsidiaries are located all over the world, with plants and offices in the following countries:
Source: The Company
The company’s major shareholder has been the family Queiroz Pereira through the Grupo Queiroz Pereira’s holding company Sodim. Pedro Queiroz Pereira is Semapa’s Chairman, as well as the Chairman of the Navigator.
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Chart 3. Shareholder Structure (Aug’17) 14,66% 71,93% Sodim SGPS
Bestinver
8,88% Santander 2,46% Norges bank
Outros
2,06
Mr. João Nuno Castello Branco is the group’s CEO (hired from McKinsey in 2015) and Mr. José Miguel Paredes the CFO (works for the Group since 1994).
2016 Financials In 2016, Semapa recorded a consolidated turnover of EUR 2,075m, a decrease of 2.7% over the previous year on the back of a lower appropriation of results from the Navigator following the decrease in Semapa’s holdings in Navigator in July 2015 (69.40% stake versus 81.19%, previously). Exports and foreign sales accounted for 77.4% of total turnover.
In 2016, the Navigator’s turnover came in at EUR 1,577.4m (-3.1% y-o-y), the Cement business’ at EUR 470.5m (-1.3% y-o-y) whilst the ETSA Group recorded a turnover of EUR 26.7m in 2016 (-3.3% y-o-y).
Chart 4. Turnover evolution (2010-2016) Chart 5. Breakdown by business segment (FY2016)
2 500 CAGR: 3.5% 2132,32074,6
2 000 1628 1577,4
1 500 476,7 470,5 1 000 27,6 26,7 500 Paper & pulp Cements Environment Total 0 2015 2016 2010 2011 2012 2013 2014 2015
Source: The Company
Despite the decrease in total sales, total EBITDA increased by approximately 2.3% y-o-y, standing at EUR 489.1m. The consolidated EBITDA margin stood at 23.6%, comparing positively with the previous year (+1.2pp).
The Navigator’s EBITDA for 2016 totaled EUR 397.4m, up from EUR 390m registered in the previous year, reflecting a margin of 18.1% (vs. 17.9% recorded in 2015). Secil’s EBITDA stood at EUR 85.1m flattish y-o-y, whilst the EBITDA margin increased by 0.2pp y-o-y to 18.1%. EBITDA of the ETSA Group amounted to EUR 6.9m in 2016 (-14.7% y-o-y) with the EBITDA margin coming in at 25.8%, down by around 3.4pp vs. YE15.
Chart 6. EBITDA evolution (2010-2016) Chart 7. Breakdown by business segment (FY2016)
600 CAGR: 1.3% 478,2 489 500 390 397,4 400
300
200 85,4 85,1 8,1 6,9 100
0 Paper & pulp Cements Environment -Holdings5,3 -0,4 Total 2010 2011 2012 2013 2014 2015 2015 2016
Source: The Company
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Net income in 2016 totaled EUR 114.9m, up by 40.9% y-o-y. The EBITDA increase, improved financial results and a favorable income tax evolution, more than offset the effects of higher depreciation and provisions and the decrease in Navigator’s stake from July 2015 onwards.
Chart 8. Net income evolution (2010-2016) Chart 9. Breakdown by business segment (FY2016)
160 CAGR: -1.6% 140 139,8143,3 120 115 100 81,6 80 60 3,8 3 40 20 Paper & pulp Cements Environment Holdings Total -13,3 -25,3 -18 0 -36,7 2010 2011 2012 2013 2014 2015 2015 2016
Source: The Company
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Business Segments
The Semapa Group has controlling stakes in three companies. The Navigator is the key subsidiary accounting for 81.3% of Semapa’s revenues in 2016 and c.70% of the EBITDA (9M17: 75.2% of revenues and 80% of EBITDA), while the dividend paid by the Navigator is crucial for Semapa’s deleveraging program. We are positive on the medium term prospects of the Navigator as we consider the positioning of the company in the global pulp and paper markets, the prospects and the pricing of these markets as well as NVG’s strategy to expand in other areas. Out target price on the Navigator is EUR 5.00 per share and our recommendation on the company is Buy.
Pulp and paper: The Navigator Company Public Exchange Offer In June 2015, Semapa launched The Navigator Company (listed on the Lisbon stock exchange - ticker: NVG PL) is a leading producer of an exchange offer of its own premium and branded office paper, bleached eucalyptus kraft pulp (BEKP), and also produces and shares for shares of Navigator with the purpose of increasing markets tissue paper. Moreover, the group is active in the energy sector (biomass) and in the agro- Navigator’s liquidity and forestry sector, managing c.120k hectares of woodlands. streamlining Semapa and Navigator’s shareholder The group sells its products to 123 countries, with its prime markets in Europe and the United States, structures, decreasing its stake making it the Portuguese company with the broadest international sales base. in the Navigator from 75.85% to 64.84% of the share capital and Please find the most recent report on The Navigator here and our initiation of coverage of the stock 81.19% to 69.40% of non- suspended voting rights. released in May 2017 here.
Leadership position in the EU premium paper market
Pulp and paper account c85% of the Navigator sales and even a larger part in the company’s profitability. These divisions are expected to remain the largest contributors of the company although it is venturing into new market segments.
Despite the volatility in pulp and paper prices, the company has been able to maintain an average EBITDA margin of above 24% over the last 6 years reaching 25.2% in 2016 (+120bps y-o-y) on the back of volume sales growth, increasing capacity utilization (leveraging on a modern and efficient asset base), and good access to raw materials.
Going forward, as demand for pulp and paper remains healthy the group is benefiting from its global reach, while the evolution of prices should remain positive in the short term.
Focusing on prices, contrary to what was initially forecasted in early 2017, for both pulp and paper, prices are exhibiting an upward trend. The pulp positive momentum is forecasted to continue in the 2H17, with the upward pressure on prices supported also by strategic maintenance stoppages and the possible consolidation among Latin American producers. As for demand, it is growing at a strong pace, whilst the stock levels remain low.
In the paper segment, there is a clear upward trend of prices, with a very strong order book allowing for a fourth price increase in 2017 and another already announced for January 2018. At the same time, the company has been able to extract additional capacity, increasing volume sales, expanding exports into higher-growth developing markets, while further efficiency efforts should support the profitability of the pulp & paper divisions.
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New promising ventures: pellets & tissue paper
In any case, for the medium-to-longer term the main driver of top line growth for the Navigator is expected to come from its new divisions: (primarily) tissue paper and pellets.
Regarding tissue paper, the Navigator is currently increasing its tissue production and converting capacity from the current 60/65ktn to 130/135ktn, which are estimated to come online in 2019.
The company announced recently a price increase for its tissue products in Portugal and Spain, to be gradually implemented until January 2018. The Navigator intends to extract additional benefits from these price increases through the optimization of its products mix, gearing sales towards the higher margin segment (i.e, the consumer tissue segment vs. away-from-home tissue segment).
The production of wood pellets in South Carolina (installed capacity of 500k tons per year – the 3rd largest in the US) started in September of 2016. Demand for pellets is expected to continue to grow at a healthy pace, while the Navigator has already negotiated contracts with fixed price and tenure of 10 years, guaranteeing the sale of around 40% of the output. The company’s focus is global (industrial markets of Europe and potentially Japan / Korea and in the residential markets of Europe and of the US) while its offering is of higher quality (high calorific value) allowing it to negotiate a premium price.
Table 4. Total sales evolution per segment (EUR m) 2016 2017E 2018E 2019E 2020E 2021E CAGR 2017-2021 % of total sales (FY16) Pulp 139 160 157 147 146 146 -2.3% 8.8% y-o-y n.a. 15,8% -2,1% -6.2% -1,0% 0,0% UWF Paper 1227 1 238 1 260 1 266 1 266 1 266 0.6% 77.8% y-o-y n.a. 0,9% 1,7% 0,5% 0,0% 0,0% Energy 74 80 80 62 50 50 -10.9% 4.7% y-o-y n.a. 8,4% 0,5% -23,1% -18,3% 0,0% Tissue Paper 67 91 98 159 182 205 22.4% 4.3% Reels 8 8 8 14 16 18 21.9% 0.5% Finished Goods 59 83 90 145 166 187 22.4% 3.8% y-o-y n.a. 36% 8% 62% 14% 13% Pellets 12 35 55 66 66 66 17.4% 0.7% y-o-y n.a. 198% 58% 21% 0% 0% Others 59 30 35 35 35 35 3.9% 3.7% Total Sales 1 577 1 634 1 685 1 735 1 745 1 768 2.0% 100% y-o-y n.a. 3,6% 3.1% 3.0% 0,6% 1,3% Source: AXIA Research
For the Navigator we forecast Sales, EBITDA and Net income to increase 2%, 2.3% and 2.4%, respectively, between 2017 and 2021 NVG turnover is estimated at EUR 1,634m in 2017 (+3.6% y-o-y), while for the period 2017-21 are forecasted to grow at a 2% CAGR, on the back of additional pulp capacity and the new revenue streams (tissue and pellets) and positive market outlook for pulp and paper prices.
Group EBITDA is seen at EUR 414m in 2017, while the estimated 2017-21 CAGR is 2.3%, as NVG should benefit by operating leverage as well as its integrated production model.
2017-21 EPS CAGR is expected at 2.4%, following a 17% decline to EUR 192m in 2017 from EUR 217.5m in 2016 because of higher taxation (the company had enjoyed tax benefits over the last 4 years that come to an end) as well as higher depreciation and amortization charges from 2017 due to increased investments.
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Table 5. Key financial estimates 2017-2021E 2016 2017E 2018E 2019E 2020E 2021E Revenues 1 577 1 634 1 685 1 735 1 745 1 768 y-o-y - 3,6% 3.1% 3.0% 0,6% 1,3% EBITDA 390* 414 424 432 443 454 y-o-y - 6,1% 2,3% 2,0% 2,4% 2,4% D&A (119) (150) (155) (156) (158) (159) Net income 217.5 192 189 195 202 211 y-o-y - -11,7% -1,4% 2,9% 3,5% 4,7% Source: AXIA Research; * adjusted EBITDA
Attractive dividend yield estimated at c.6.1% in 2017 and 6.0% in 2018 Navigator remains a very attractive dividend payout story. The payout has remained very high over the last few years, the dividend for 2016 totaled EUR 250m (payout ratio of 115%), while according to company’s guidance, this strategy will be maintained. In our model, we incorporate a dividend payout ratio of 100% for the period 2017-2021, which translates into an accumulated distribution of EUR 990m over the 5-year period. Dividend yield estimated at c.6.1% in 2017 and 6.0% in 2018.
Table 6. AXIA Research’s estimates vs. Consensus (EUR m) Revenues FY2017E FY2018E FY2019E
Revised estimates 1 634 1 685 1 735
Previous estimates 1 629 1 681 1 756
Consensus 1 639 1 707 1 771
EBITDA FY2017E FY2018E FY2019E
Revised estimates 414 424 432
Previous estimates 407 402 397
Consensus 409 421 441
EBITDA Margin FY2017E FY2018E FY2019E
Revised estimates 25,3% 25,1% 24,9%
Previous estimates 25,0% 23,9% 22,6%
Consensus 24,9% 24.7% 24,9%
Net Income FY2017E FY2018E FY2019E
Revised estimates 192 189 195
Previous estimates 180 173 167
Consensus 195 199 206
Source: AxiaVGResearch; CapitalIQ
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Cement and derivatives: Secil
Supremo Group Secil and its subsidiaries produce and sell cement and related products. In 2016 with sales of EUR 471m Since July 2015, Secil holds a Secil accounted for c23% of Semapa’s total revenue and c17% of its EBITDA (EUR 85m). Following net 100% interest in Supremo losses registered in 2015 and 2016, management has proceed to a series of measures to improve the Cimentos, S.A., (vs. 50% cost structure, while the effort is ongoing. For 2017, we expect Secil to show improved performance y- previously owned) a cement company operating in southern o-y, on the back of increased sales In Portugal and Brazil. Brazil, with an installed cement capacity of two million tons. Secil has cement production facilities in Portugal, Tunisia, Angola, Lebanon and Brazil as well as sale The subsidiary is now fully operations in Cape Verde, the Netherlands and France. In 2015, it exported c.60% of its production to consolidated in the group. more than 20 countries.
Table 7. Secil operations per country Installed Main Competitors Market Additional Comments capacity (ktn) share Portugal 4,000 Cimpor 35% Cimpor sold 4,427ktn of cement in 2015 (vs Secil’s 1,048ktn)
Lebanon 1,200 Cimenterie Nationale; Holcim c.20% Secil owns a 51% stake in Cements de Sibline Secil is the 3rd largest Lebanese cement and clinker producer The country is characterized by a high cement consumption per capita (c.1,000 ktn), although impacted by the war in Syria. Prices are expected to remain relatively stable until the end of the war Angola 350 Chinese CIF; New Cimangola 4% Secil owns a 51% stake in Secil Lobito
Tunisia 1,200 Societé Ciment d’Enfi dha; Société Ciment c.17% First international plant to join the Secil group, back in 2000 Jebel Ouest (Cimpor); Ciment Artifi ciel The plant has access to port facilities, trading mainly with the regions in the Tunisien South of Tunisia Brazil (Supremo 2,400 Votorantim Cimentos (32.1%); c.3% In Brazil there are a number of players in the sector with relevant market Group) InterCement Brazil S.A. (21.6%); shares LafargeHolcim (13.6%); Cimento Nassau (7.85%), Brennand Cimentos (4.57%); CRH (3.37%); Cimento Tupi (3.27%) CSN Cimentos (3.14%)
Source: Secil
Secil sells 8 different types of cement and cement derivatives, as well as concrete ready to apply. Grey cement is the biggest product in terms of sales, accounting for 4,988 tons in 2016 (+5% y-o-y).
Table 8. Geographic dispersion of sales by product line Portugal Lebanon Tunisia Brazil Others*
Grey Cement (ktn) X X X X x White Cement (ktn) X X X X X Clinker (ktn) X X X X x
Ready-mixed (km3) X X X X Agregates (ktn) X X Pre-Cast Concrete (ktn) X x Mortars (ktn) X Hydraulic Lime (ktn) X Mortar Fixative (ktn) x Source: The Company; * Includes Angola and Cape Verde
Weak performance over the last few years reflecting adverse conditions in most of Secil’s markets
Secil’s annual cement production capacity currently stands at 9,750 tons.
Cement and clinker sales, the higher margin products, account for the majority of the volumes sold by Secil, having reached 5,450 ktn in 2016 (+3.8% y-o-y) reflecting the consolidation of the Supremo Group which added 2,000ktn of installed capacity.
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Aggregates account for the second highest sales volume having stood at 2,437 ktn in 2016, registering a y-o-y growth of 16.9% y-o-y.
Regarding the sales of ready mixed concrete, it decreased in quantity by 12.6% in 2016, more so in Portugal (-28% y-o-y) following the end of the construction of the Marvão tunnel at YE15, but also in Lebanon on the back of strong competition.
Chart 10. Sales per product line (ktn) Chart 11. Sales per product line and geography (YE16; ktn) 2012 2013 2014 2015 2016 6 000 5 450 Annual Cement production capacity (ktn) 8 010 8 010 7 650 9 750 9 750 5 000 Sales
Grey Cement (ktn) 4 902 4 997 4 668 4 731 4988 4 000
White Cement (ktn) 92 87 73 80 84 3 000 2 437 Clinker (ktn) 315 231 633 482 418 2 000 Ready-mixed (km3) 1 406 1 214 939 1 389 1214 1 214
Agregates (ktn) 2 432 2 346 1 792 2 179 2547 1 000 143 199
Pre-Cast Concrete (ktn) 87 74 24 29 200 0 Mortars (ktn) 141 99 90 100 102 Cement and Ready Mixed Aggregates Mortars Precast Clinker Hydraulic Lime (ktn) 15 22 24 26 24 Portugal Lebanon Tunisia Angola Brazil total Mortar Fixative (ktn) 10 12 12 15 16
Source: The Company
Group turnover over the past 6 years registered a negative CAGR of 2.1%, reflecting the economic and construction crisis in Portugal but also the weakness in other countries the group operates. Focusing on 2016, we note that this was a challenging for Secil year, especially in the Portuguese and Tunisian markets, leading to a 1.3% y-o-y decrease in turnover to EUR 470.5m. Actually, in 2016, only the Brazilian operations registered top line growth (+119.6%) because of the full consolidation of the Supremo Group, reaching EUR 78.2m.
This consolidation along with the construction of the Adrianópolis factory has led Brazil to gain in relevance for the group. In 2016, Brazil accounted for 17% of Secil’s turnover and 8% of EBITDA (vs. 8% and 2%, respectively, in 2015).
Despite the abovementioned changes in the relative weights per country, Portugal continues to be the most relevant market for Secil, accounting for 46% of total turnover and 37% of EBITDA generated by the company, immediately followed by Lebanon – 20% of turnover and 39% of EBITDA -, where the market for cement is strong (high consumption per capita at c.1,000k tons per inhabitant) and the prices are relatively stable.
Note that sales in Lebanon and Angola are USD-denominated, while in Tunisia and Brazil contracts are made in local currency.
Chart 12. 2010-16 Turnover evolution (EUR m) Chart 13. Turnover per geography (FY16)
476 470 536 507 496 463 477 471 430 245 217
95 94 70 56 78 36 30 25
Portugal Lebanon Tunisia Brazil Others* Total
2010 2011 2012 2013 2014 2015 2016 2015 2016
Source: The Company; * includes Angola and Cape Verde
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Improved economic conditions and demographic trends to drive sales growth
Economic growth forecasts and demographic trends are positive in the markets Secil operates.
According to data from the World Bank the Angolan GDP is expected to increase by 1.2% this year, and remain positive (albeit decelerating y-o-y) in 2018, whilst Brazil’s economy is forecasted to see its growth accelerating over the next years reaching 2.1% in 2019.
Tunisia is expected to expand at a rate of 3% and 3.5% in 2018 and 2019 according to the World Bank, and might benefit from a possible upside in the oil producing countries in case oil rebounds to higher levels.
In respect of Portugal, the key market for Secil, the recent acceleration of economic recovery, is having a positive impact in the construction sector, benefitting from both private and public construction (linked also with the local government elections in 2017). The construction confidence indicator has been improving continuously since the low levels attained in November 2012, currently standing at -20.3. Economic growth in Portugal is expected to be maintained in the medium term, assisted by private investments and the impact of reforms.
Finally, Lebanon is a special case for the group. The country is expected to benefit from a soft recovery, according to the IMF, but the group takes a more strategic approach in this market and in the Middle East market in general: the post-conflicts reconstruction programs in the area, although an end for these conflicts is far from certain. On this point we note Secil’s operations in Lebanon (and also in Tunisia) have access to port facilities.
Chart 14. Urban Population (% of total) Chart 15. GDP growth estimates (%)
100,0 2017 2018 2019 90,0 80,0 Portugal 2.5 2.0 n.a. 70,0 Lebanon 2.5 2.6 2.6 60,0 Tunisia 2.3 3.0 3.5 50,0 Angola 1.2 0.9 1.5 40,0 Brazil 0.3 1.8 2.1 30,0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Portugal Lebanon Tunisia Angola Brazil
Source: IMF | World Bank
Apart from expectations for economic growth, we note that positive longer term prospects for cement demand is these regions, associated with demographics: population growth and urbanization.
IMF forecasts population to grow between 2017 and 2022 in all regions where Secil operates, except in Portugal, where population is forecasted to decrease at a rate of 0.3% p.a. Angola’s population is forecasted to grow at the highest rate (CAGR of 3%), followed by Lebanon and Tunisia (CAGR of 1.0%), whilst population in Brazil is expected to grow by 0.7% p.a. until 2022.
Strong sales growth in 2017 to be driven by demand in Portugal
We forecast cement and clinker sales volume (in ktn) to grow 7.5% in 2017, mainly reflecting a strong increase in demand in Portugal but also higher sales volumes in Brazil and in Lebanon on the back of improved economic performance. Specifically, we assume increased cement and clinker sales in Portugal, Brazil and Lebanon in 2017 (+15% y-o-y, +6% y-o-y and +2% y-o-y, respectively) and constant sales in the remaining regions.
Furthermore, we anticipate prices in these markets to adjust higher, in local currencies.
On the other hand, we don’t expect volume growth in Angola in 2017 as recovery should remain weak. Similarly, in Tunisia volume growth to remain subdued although Secil should benefit from pricing efforts.
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Overall, we forecast sales to grow by 7.6% in 2017 to EUR 506m. Top line is forecast to grow at a compound rate of 1.2% between 2017 and 2021, the result of improved pricing in Secil’s biggest market, Portugal.
Chart 16. Evolution of sales (EUR m) Chart 17. Cement & Clinker sales per geography (EUR m)
531 408 413 417 421 427
523 518 513 506
2017f 2018f 2019f 2020f 2021f
2017E 2018E 2019E 2020E 2021E Portugal Lebanon Tunisia Angola Brazil
Source: AxiaVG Research
Operating leverage and cost cutting efforts to enhance operating profitability
The weak sales of the past few years has prompted the company to work on a restructuring plan focusing on cutting costs. This plan is mostly related with the reduction of employee costs. Hence, the total number of employees decreased from 2,647 to 2,615 due to the restructuring occurred in Angola.
We note that total costs have registered a slight decrease between 2012 and 2016 (CAGR of -0.1%) although on a per ton basis (due to the increased cement production capacity from 8,010 ktn in 2012 to 9,750ktn in 2016), costs have declined at a CAGR of 4.9% during the period.
The company has managed to gradually improve EBITDA, reaching EUR 85.1m at the end of 2016 from EUR75m in 2013 in 2013. Still profitably remains significantly lower vs. the 2010 and 2011 levels, when the company had register an EBITDA of EUR 129m and EUR 102m respectively.
Chart 18. Total cost evolution & Cost per ton of installed capacity* Chart 19. EBITDA and EBITDA margin evolution
390,0 60,0 140 25,0% 380,0 120 50,0 20,0% 370,0 40,0 100 360,0 80 15,0% 30,0 350,0 60 20,0 10,0% 340,0 40 10,0 5,0% 330,0 20 320,0 0,0 0 0,0% 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Total Costs Cost / ton EBITDA EBITDA margin
Source: The Company; * of total installed capacity
The EBITDA margin has increased from 16.7% in 2012 to 18.1% in 2016. We note that the EBITDA margin of Cement and Clinker has been relatively stable over the past years, standing at 22% in 2016 but the remaining product lines have exhibited a significant volatility during this period, with Ready Mixed and Precast sales still registering negative EBITDA margins, whilst Aggregates and Mortars have registered a consistent margin recovery since 2012 up to 18% and 22%, respectively, in 2016.
As previously mentioned, the group has been pursuing initiatives aimed at optimizing operations and improve profitability, which translated into improved EBITDA margins in all geographic regions in 2016, except in Lebanon where cement and clinker production stopped for a while.
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Chart 20. EBITDA per geography (FY16) Chart 21. EBITDA margin per geography
85 85 40,0% 35,0% Total 30,0% 25,0% Portugal 35 35 32 33 20,0% Lebanon 15,0% Tunisia 11 10 10,0% 6 4 2 2 5,0% Angola 0,0% Portugal Lebanon Tunisia Brazil Others* Total Brazil -5,0% 2012 2013 2014 2015 2016 -10,0% 2015 2016
Source: The Company
We expect the restructuring efforts made by the company regarding personnel costs to continue to yield results and thus costs to grow at a more restraint pace vs. sales. (2017-20 CAGR of 1.0% vs. 1.2%, respectively).
These efforts, plus the operating leverage form the increased volumes, should allow EBITDA to grow at a compounded annual rate of 2.0% over the 5 year period, from EUR 85m in 2016 to EUR 95m in 2021. We forecast the EBITDA margin to remain relatively stable at 17.5% in the coming years.
Chart 22. EBITDA evolution (EUR m)
95
91 91 89 87 85
2016 2017E 2018E 2019E 2020E 2021E
Source: AxiaVG Research
Net Income
Net losses attributable to Secil’s shareholders in 2016 settled at EUR-18m (vs. EUR-25m in 2015). Operating profitability was flattish y-o-y and depreciation charges increased but on the other hand net financial expenses came lower while tax benefits gave some support to the bottom line.
Going forward, although still negative, we expect an improvement in the bottom line, due to a stronger EBITDA. Net income (after minorities) is seen at cEUR-5m per year over the next few years due to higher depreciation charges (increased capex in Brazil to connect the quarry to the factory) and higher income taxes.
Chart 23. Net Income evolution (EUR m)
50
27
9
2010 2011 2012 2013 2014 2015 2016 -13 -18 -27 -25
Source: The Company
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Net debt
During the year ended 31 December 2016, Semapa proceeded to additional paid in capital contributions to Secil, for a total amount of EUR 140m, which allowed for the reduction of Secil’s debt. Net debt decreased from EUR 457m in 2015 to EUR 423m in 2016. 58% of the debt has a fixed rate, granting the company some protection against interest rate increases.
Chart 24. Secil’s Net debt evolution (EUR m)
457,4 422,9
323,1 298,8
178,4 142,4 77,7
2010 2011 2012 2013 2014 2015 2016
Source: The Company
Valuation
We value Semapa’s stake in Secil using a multiples approach, considering the company’s European listed peers below weighted by the fact that these peers are global players of a significantly bigger dimension than Secil.
Table 9. Secil listed peers
Company Name Country Mcap P/E EV/EBITDA Net Debt/EBITDA
EUR m FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 LafargeHolcim Ltd Switzerland 27 350 16.9 14.4 12.5 8.8 8.2 7.6 2.4 2.0 1.7 Buzzi Unicem SpA Italy 4 185 17.2 14.6 12.2 8.5 7.7 7.0 1.3 0.9 0.4 HeidelbergCement AG Germany 17 877 15.4 12.8 10.8 8.9 8.2 7.5 2.6 2.2 1.8 Vicat SA France 2 947 19.8 17.0 14.0 9.2 8.4 7.7 1.9 1.4 1.1 James Hardie Industries plc Ireland 6 248 0.0 28.1 22.8 0.0 16.5 13.3 1.3 1.9 1.8 Titan Cement Company S.A. Greece 1 587 22.9 14.2 11.2 8.2 7.4 6.7 2.4 1.9 1.4 EU average 15.4 16.8 13.9 7.3 9.4 8.3 2.0 1.7 1.4 Source: Capital IQ Forecasting net debt for 2018 of EUR 423m and EBITDA of EUR 89m we apply an EV/EBITDA multiple of 8.3x. This leads to calculate a value for Secil of EUR 314m.
Environment: ETSA
ETSA leads the Enterprise Group of environment, operating in Portugal. Total sales stood at EUR 27m in 2016 whilst EBITDA dropped to EUR 7m (from EUR 8m in 2015). The company accounted for 2.3% of Semapa’s net income in 2016.
ETSA was acquired by Semapa in 2008 for EUR 59.9m. At the end of 2016 it employed 275 people, 12 less than in 2015.
ETSA business model is focused on the collection of residues and their recycling to further use. The firm operates mainly in the animal waste sector and the food oil recovery of the waste management market, which ranges from the industrial waste, medical waste, maritime waste, urban waste among many others.
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The firm operates 5 different branches:
1. BIOLOGICAL: which is the firm’s branch that focuses on the collection and recovery of food oil. The firm reconverts the collected oil into biodiesel. This branch has more than 10,000 collection points around the country (among town halls, restaurants and associations).
2. SEBOL: collects bones and diverse fats from animal that were not consumed. It then converts it into low acid animal fats and flours that are then sold to produce pet rations.
3. AISIB: collects animal parts coming from Spanish slaughterhouses. This branch is focused only on the collection of theses animal wastes to then some of the other branches transform such wastes.
4. ABAPOR: is a services branch of the firm, dedicated to the management of animal sub products used later in one of the other branches.
5. ITS: operates partly similarly to AISIB in what regards the collection of the animal wastes, but also operating in the Portuguese territory. Furthermore, it transforms the animal wastes collected (from both ITS and AISIB) into fats to be reused as energy sources and flours to be used in the cement industry. This branch has a long standing partnership with the Agriculture Government Department.
Table 10. Operating Indicators (ktn) 2011 2012 2013 2014 2015 2016 Collection of raw materials Animal waste (cat 1 and 2) 51.6 47.5 44.1 40.1 43.3 12.6 Animal waste (cat 3) 67.8 71.7 70.5 73.3 73.0 76.2 Collection of used food oil 2.9 2.2 2.0 2.1 1.7 1.6 Sales Animal fats 15.0 18.1 13.0 14.8 12.7 15.1 Meal 16.0 18.7 19.7 19.1 21.3 21.7 Used food oil 2.9 2.1 1.9 1.8 1.9 1.4 Frozen products for pet food 2.2 0.0 0.0 0.0 0.0 0.0 Source: The Company
The ETSA Group recorded a turnover of EUR 26.7m in 2016, down by around 3.3% when compared with 2015, whilst EBITDA dropped by 14.7% y-o-y to EUR 6.9m. Profitability was impacted by the (i) a temporary interruption (between Aug’16 and Oct’16) of SIRCA, a state service of collecting dead animals waste; (ii) the reduction in gross margin due to the increasing costs of raw materials; (iii) the decreasing sale prices.
The EBITDA margin decreased 3.5pp between 2015 and 2016, standing at 25.8% at YE16.
Chart 25. EBITDA evolution (EUR m) Chart 26. Net income evolution (EUR m) 29,3% 25,3% 3,8 22,3% 9,0 14,8% 8,1 2,9 2,9 2,9 6,5 2,5 2,5
3,9
0,6
2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2016 EBITDA Margin EBITDA
Source: The Company
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Net debt at YE16 stood at EUR 15.7m, declining from EUR 18.1m a year earlier. The net debt to EBITDA ratio stood at 2.28x at the end of 2016.
Operating in a shrinking market, acquisitions the only way to grow
ETSA is already the biggest player in its sector in Portugal, with competition for the waste (as a raw material) coming mostly from Spanish players. In the Portuguese market there are few players within the waste collection, recovery and sale, including the local authorities of different town halls and local waste collection firms.
Despite being the major player on this market, according to INE, waste production has been decreasing over the past years which might be a consequence of the increasing environmental awareness. Although it is a positive indicator for the society as a whole, this trend should lead to a reduction of the ETSA’s market in the following years.
According to company sources, in the medium to long term the company may look to grow into the Spanish market through the acquisition of a small player or through the creation of higher value added product lines to be manufactured from the waste collected. However, none of these options is currently being contemplated in the short run.
Valuation
We value the stake using a multiples approach, considering ETSA’s listed peers below.
Table 11. ETSA listed peers Mcap P/E EV/EBITDA Net Debt/EBITDA
Company Name Country EUR m FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019
Cleanaway Waste Management Limited Australia 1 609 0.0 30.5 24.1 0.0 8.8 7.5 1.1 1.4 1.0
1 Derichebourg France 1 489 0.0 17.5 15.7 0.0 7.0 6.7 0.7 0.2 0.1
Waste Management, Inc United States 31 338 26.4 24.3 22.5 11.5 11.0 10.5 2.3 2.1 1.9
Republic Services, Inc United States 18 468 27.1 25.2 23.0 10.6 10.0 9.5 2.9 2.7 2.6
Clean Harbors, Inc United States 2 573 158.9 55.2 38.6 10.1 8.9 8.4 2.8 2.1 1.6
Stericycle, Inc United States 4 899 15.0 15.0 14.2 10.2 10.0 9.5 3.2 2.7 2.0
Sector Average 37.9 27.9 23.0 7.1 9.3 8.7 2.2 1.9 1.6
Assuming a stable level of net debt in 2018 – at EUR 16m – and a 2018 estimated EBITDA of EUR 6.9m, we attribute to ETSA a value of EUR 48m.
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Capex, Capital Structure & Funding
Semapa’s capex needs over the next years will be mostly related to the expansion plans of Navigator Company. In terms of debt, we expect the deleveraging efforts to persist, assisted by the dividends received from the Navigator (estimated to amount to c.EUR 714m over the next 5 years), with Semapa’s net debt/EBITDA ratio moving closer to 2.2x in the coming years from 3.6x at YE16.
Capex needs
We estimate total capex to amount to EUR 140m in 2017 and EUR 183m in 2018, dropping to cEUR 51m per year between 2019 and 2021.
Semapa is not anticipating any significant capex needs from ETSA and Secil, but the Navigator’s expansion plan contemplates significant investments in the next years. We estimate the NVG to spend almost EUR 430m over the next five years investing in a new tissue line in Cacia, increasing pulp production capacity in Figueira da Foz and in Mozambique. For Secil, the company’s investment in Brazil to construct a connection between the quarry and the factory is scheduled for 2017/18 and the estimated cost is EUR 20m. We also assume maintenance capex for Secil and ETSA of EUR 3m per year, respectively.
Chart 27. Total Capex evolution (EUR m) Chart 28. Estimated capex breakdown per segment (EUR m) 183 183
140 140
51 51 51 51 51 51
2017E 2018E 2019E 2020E 2021E 2017E 2018E 2019E 2020E 2021E
NVG Secil ETSA Total Source: AxiaVG Research
Debt levels
At the end of 2016, total financial debt amounted to EUR 1,964m of which c.86% correspond to non- current liabilities. Total debt has followed an overall decreasing trend since 2013, having decreased at a compound rate of 3.4% p.a. between 2013 and 2016. Note that debt management is not centralized, with each subsidiary managing its own debt needs.
At the end of 2016, Semapa’s total net debt amounted to EUR 1,780m, representing a decrease of EUR 23m over YE15. Out of the total net debt, the majority is attributed to the Holding (39% of the total or EUR 700m), c.36% is attributed to the Pulp and paper segment, c.24% to the Cement segment and the remainder to the Environment segment.
Chart 29. Total debt evolution (EUR m) Chart 30. Total Net debt evolution per segment (EUR m)
2 180 1 803 1 780 1 610 1 386 1 395 1 075 2 009 1 989 1 964 1 964 1 924 1 924
2014 2015 2016 2017E 2018E 2019E
2013 2014 2015 2016 2017E 2018E 2019E Paper & Pulp Cement Environment Holding Total
Source: The Company; AxiaVG Research AXIA Research Page 21
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Semapa is looking to decrease the Holding debt through the use of dividends received from the Navigator. Semapa has received almost EUR 1bn in dividends from the Navigator since 2013, of which EUR 174m in 2017. We estimate the Navigator to distribute a total of EUR 753m in dividends between 2018 and 2022, which represents almost EUR 530m attributable to Semapa. As there are no direct capex needs, the use of dividends from the Navigator should lead to lower debt levels.
In addition, Semapa is acting to decrease its financing costs, not only through early repayments of higher- coupon bonds but also through the renegotiation of some bond lines in more favorable terms, namely at the Navigator level. In 2016 net financial expenses amounted to EUR 77m, from EUR118m in 2015.
Going forward, the company is not expected to issue additional debt instruments, thus we assume a stable average cost of debt over the next years of 3.6%.
Following the above actions net debt to EBITDA is seen declining progressively from 3.6x at YE2016 to close to 2.0x in 2019 and onwards. In any case, we understand that the company is comfortable with the current net debt to EBITDA levels and that there is no set targets allowing the company to consider any investment opportunities.
Chart 31. Debt repayment schedule Chart 32. Net debt-to-EBITDA evolution 3,3 493 496 2,9 432 397 2,2 358 333 256 1,6 226 175
44
1-2 yrs 2-3 yrs 3-4yrs 4-5yrs > 5 yrs 2017E 2018E 2019E 2020E 2015 2016
Source: The Company; AxiaVGResearch Dividends
Semapa has distributed dividends consistently since 2010, more significantly in 2014 and 2015 were total dividends distributed reached EUR 300m. Regarding the fiscal year of 2016, the company distributed dividends amounting to EUR 36m which represents a payout ratio of 32%.
Although the company does not provide any guidance regarding the payment of dividends, we assume a constant dividend payout ratio of 50% which translates into a dividend yield of 3.6% in 2017.
Chart 33. Dividend yield* 19,0%
8,4% 7,7% 4,4% 4,9% 3,3% 3,6% 3,9% 4,1%
2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Source: Capital IQ; AXIA Research; *historical yield based on YE closing price, future yield based on current price
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Assumptions and forecasts
Group revenues are forecasted to grow to EUR 2,168m in 2017 from EUR 2,075m in 2016, mostly on the back of increased sales of the Navigator Company. Overall revenues are seen growing at a compound rate of 1.8% p.a. over the next 5 years, reaching EUR 2,326m in 2021.
We forecast Navigator’s total sales to grow at a compound rate of 2% per year between 2017 and 2021, reaching EUR 1,768m in 2021. Due to the size of the company we assume stable financials for ETSA in the period 2017 to 2021. For Secil, we also anticipate a slight growth in revenues between 2017 and 2021, on the back of improved sales in Portugal, Brazil and in Lebanon. Note that Portugal accounts for almost 50% of the company’s revenues.
Table 12. Total sales evolution per segment (EUR m) 2017E 2018E 2019E 2020E 2021E
The Navigator 1 634 1 685 1 735 1 745 1 768
y-o-y - +3.1% +2.9% +0.6% +1.3% Secil 506 513 518 523 531
y-o-y - +1.4% +1% +1% +1.5% ETSA 27 27 27 27 27 Total Sales 2 168 2 224 2 280 2 295 2 326
y-o-y - +2.6% +2.5% +0.6% +1.4% Source: AXIA Research
Total expenses are estimated to rise at a compound rate of 1.7% per year over the next 5 years – up to EUR 1,797m in 2021. We expect the cost rationalization efforts undertaken by Secil and the Navigator to continue to yield results. On the other hand, we note the costs associated with the capacity increases to be undertaken by the Navigator. For 2017, group expenses are seen growing by 0.8% assisted by the cost cutting efforts by the Navigator.
Due to slower pace of expenses, Semapa’s EBITDA in 2017 is seen up 3.9% y-o-y to EUR 508m, while EBITDA CAGR over the 2017-21 period is estimated at 2.2%, with EBITDA reaching EUR 555m in 2021.
We estimate capex for to stand at EUR 140m in 2017 and EUR 183m in 2018 mainly due to Navigator investments (cEUR 476m of investments between 2017 and 2021). Therefore we account for increasing depreciation and amortization charges, reaching EUR 248m in 2021 from EUR 235m in 2017.
Net financial expenses are seen settling at EUR 65m in 2017, decreasing progressively to c.EUR 44m in 2021, on the back of a reduction in the total debt level due to the repayment of maturing bonds in 2018, 2020 and 2021. In our projections we assume a constant average cost of debt at 3.6%.
We assume a stable tax rate of 25% per year for Semapa. Note that in 2016, Semapa benefitted from a series of reversals of tax provisions as well as the positive impact of the adoption of an asset revaluation regime, which gave place to positive income taxes. Thus, in 2017, we expect an impact from this account in net income of EUR-44m.
Net profits attributable to Semapa shareholders are seen declining 9% y-o-y to EUR 105m in 2017 on the back of higher taxes. However, we expect net income to grow at a compound rate of 8% between 2017 and 2021 reaching EUR 143m in 2021.
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Table 13. Key financial estimates 2017-2021E 2017E 2018E 2019E 2020E 2021E Revenues 2 168 2 224 2 280 2 295 2 326
y-o-y - 2.6% 2.5% 0.6% 1.4%
EBITDA 508 520 530 540 555
y-o-y - 2.3% 2.0% 2.0% 2.7% D&A (235) (241) (244) (246) (248) Net income 105 113 119 127 143 y-o-y - 7.8% 5.5% 6.5% 12.3% Source: AXIA Research
Finally, we also assume a dividend payout ratio of 50% of net profits between 2017 and 2021. In our estimates, total dividends payments should add up to cEUR 300m over the period under analysis (2017- 21), of which EUR 53m pertaining to 2017 results.
Estimates vs. Consensus
Table 14. AXIA vs. Consensus (EUR m) Revenues FY2017 FY2018 FY2019 AXIA 2 168 2 224 2 280 Consensus 2 037 2 122 2 212 % diff. 6.4% 4.8% 3.1% EBITDA FY2017 FY2018 FY2019 AXIA 508 520 530 Consensus 476 499 523 % diff. 6.8% 4.2% 1.3% EBITDA Margin FY2017 FY2018 FY2019 AXIA 23.5% 23.4% 23.2% Consensus 23.4% 23.5% 23.6% % diff. +10bps -10bps -40bps Net Income FY2017 FY2018 FY2019 AXIA 105 113 119 Consensus 109 123 146 % diff. -3.6% -8.0% -18.2% Source: AXIA Research, Capital IQ
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Detailed Financials
Income Statement 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Revenues 1 688 1 780 1 953 1 991 1 998 2 132 2 075 2 168 2 224 2 280 2 295 2 326 O&M (1 276) (1 405) (1 543) (1 637) (1 662) (1 707) (1 666) (1 679) (1 725) (1 771) (1 780) (1 797) EBITDA 453 427 495 422 410 478 489 508 520 530 540 555 Depreciation & Amortization (166) (165) (200) (169) (172) (199) (247) (235) (241) (244) (246) (248) EBIT 283 263 304 239 226 288 245 273 279 286 294 307 Net Financial expenses (45) (38) (64) (87) (104) (118) (77) (65) (62) (58) (54) (44) Income from Associates/Investments 0,3 1,1 1,0 0,4 0,0 (4,3) 3,1 - - - - - EBT 238 226 241 152 122 166 170 208 217 227 240 264 Effective tax rate 26,8% 25,1% 29,4% -26,0% -24,6% 21,0% -11,2% 21,2% 21,2% 21,2% 21,2% 21,2% EAT 174 169 171 191 152 131 189 164 171 179 189 208 Minorities 48 45 44 45 39 49 74 59 58 60 62 65 Net Income 127 124 127 146 113 82 115 105 113 119 127 143 EPS 1,12 1,10 1,12 1,29 1,01 0,85 1,42 1,30 1,40 1,48 1,57 1,77 DPS 0,03 0,62 0,62 0,69 1,91 0,98 0,45 0,65 0,70 0,74 0,79 0,88 Balance Sheet 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Total Fixed assets 2 113 2 046 2 301 2 197 2 010 2 337 2 313 2 218 2 161 1 967 1 772 1 575 Intangible assets & Goodwill 490 495 631 626 577 632 649 649 649 649 649 649 Investments 1 1 2 1 1 1 1 1 1 1 1 1 Other 165 188 188 206 266 202 215 215 215 215 215 215 Total non-current assets 2 769 2 730 3 122 3 031 2 854 3 172 3 179 3 084 3 027 2 833 2 638 2 441
Inventories 227 243 317 300 286 310 309 323 331 339 341 346 Receivables 272 317 291 281 284 310 305 319 327 335 337 342 Other 37 81 85 66 78 70 112 112 112 112 112 112 Cash and equivalent 265 416 414 666 603 206 184 205 297 535 786 834 Total current assets 801 1 056 1 106 1 313 1 251 896 909 957 1 067 1 321 1 576 1 634 Total Assets 3 570 3 786 4 228 4 344 4 105 4 068 4 088 4 041 4 093 4 154 4 214 4 075
Share Capital 71 71 71 71 10 82 75 75 75 75 75 75 Reserves & Retained Earnings 862 978 725 810 891 635 742 769 829 892 960 1 039 Minority rights 311 333 335 328 336 415 410 469 526 586 648 713 Total Equity 1 244 1 382 1 131 1 209 1 237 1 132 1 227 1 312 1 431 1 553 1 683 1 827
Long term debt 1 258 1 157 1 682 1 929 1 276 1 497 1 698 1 577 1 500 1 428 1 357 1 140 Provisions 36 36 35 76 82 104 75 75 75 75 75 75 Other non-current liabilities 466 485 480 390 334 354 320 320 320 320 320 320 Total non-current liabilities 1 760 1 677 2 197 2 396 1 692 1 955 2 092 1 971 1 894 1 823 1 751 1 534
Short term debt 150 252 333 251 713 512 266 266 266 266 266 196 Payables 348 372 415 339 344 358 380 368 378 388 390 394 Other current liabilities 66 103 152 149 119 111 123 123 123 123 123 123 Total current liabilities 565 726 900 739 1 175 982 769 758 768 778 780 714 Total Equity and Liabilities 3 570 3 786 4 228 4 344 4 105 4 068 4 088 4 041 4 093 4 154 4 214 4 075 Cash Flow 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E EBT 238 226 241 152 122 166 170 208 217 227 240 264 Depreciation & Amortization 166 165 200 169 172 199 247 235 241 244 246 248 Net Financial expenses 45 38 64 87 104 118 77 65 62 58 54 44 Non-Cash Adjustments (99) (12) (56) (106) (57) (40) (181) (42) - - - - WC Changes - (37) (5) (48) 15 (36) 27 (39) (7) (6) (2) (6) Income tax paid (64) (57) (71) 39 30 (35) 19 (44) (46) (48) (51) (56) Net Cash from operating activities 287 324 373 294 387 372 360 383 467 475 487 494 Capex - (31) (87) (90) (40) (145) (105) (140) (183) (51) (51) (51) Other investing (60) (94) (614) 12 (15) (114) (33) 1 1 3 4 4 Change in debt 91 5 490 228 (143) (190) (58) (121) (77) (72) (72) (287) Dividends Paid (103) (4) (70) (69) (77) (212) (94) (36) (53) (57) (60) (64) Other (41) (49) (94) (116) (166) (124) (92) (66) (64) (61) (58) (48) Net increase/(decrease) in cash and equivalent 174 151 (2) 258 (55) (412) (22) 20 93 238 251 49 Year Start Cash 89 265 416 414 649 603 206 184 205 297 535 786 Year End Cash 263 416 414 672 594 190 184 205 297 535 786 834 Source: The Company, AXIA Research
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2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E EPS 1,12 1,10 1,12 1,29 1,01 0,85 1,42 1,30 1,40 1,48 1,57 1,77 BVPS 8,27 9,29 7,05 7,80 8,09 7,47 10,09 10,42 11,17 11,95 12,78 13,76 DPS 0,03 0,62 0,62 0,69 1,91 0,98 0,45 0,65 0,70 0,74 0,79 0,88
Valuation ratios 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E P/E 7,4 x 4,9 x 5,1 x 6,3 x 9,9 x 14,9 x 9,4 x 13,8 x 12,8 x 12,2 x 11,4 x 10,2 x EV/EBITDA 2,1 x 1,4 x 2,0 x 2,9 x 3,4 x 3,9 x 3,5 x 7,0 x 6,6 x 6,0 x 5,4 x 4,8 x EV/EBIT 3,3 x 2,3 x 3,3 x 5,1 x 6,1 x 6,5 x 7,1 x 13,0 x 12,3 x 11,2 x 10,0 x 8,7 x EV/Sales 0,6 x 0,3 x 0,5 x 0,6 x 0,7 x 0,9 x 0,8 x 1,6 x 1,6 x 1,4 x 1,3 x 1,1 x P/BV 1,0 x 0,6 x 0,8 x 1,0 x 1,2 x 1,7 x 1,3 x 1,7 x 1,6 x 1,5 x 1,4 x 1,3 x Div. yield 0,4% 11,5% 10,8% 8,4% 19,0% 7,7% 3,3% 3,6% 3,9% 4,1% 4,4% 4,9% FCF yield % (vs. EV) 0,0% 43,9% 38,7% 23,5% 28,4% 11,6% 32,6% 15,1% 15,3% 25,2% 26,3% 27,4% ROA 4,9% 4,5% 4,0% 4,4% 3,7% 3,2% 4,6% 4,1% 4,2% 4,3% 4,5% 5,1% ROE 14,0% 12,2% 15,1% 15,8% 12,3% 11,6% 15,4% 12,5% 12,0% 11,5% 11,2% 11,4% ROIC 7,2% 6,8% 6,6% 9,4% 9,3% 6,7% 8,0% 6,4% 6,7% 7,2% 8,0% 8,9%
Growth rates 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Revenues n.a. 5,4% 9,7% 1,9% 0,4% 6,7% -2,7% 4,5% 2,6% 2,5% 0,6% 1,4% EBITDA n.a. -5,6% 15,8% -14,7% -2,9% 16,6% 2,3% 3,9% 2,3% 2,0% 2,0% 2,7% EBIT n.a. -7,0% 15,7% -21,6% -5,3% 27,4% -15,1% 11,7% 2,2% 2,3% 3,1% 4,4% EBT n.a. -5,2% 6,9% -37,2% -19,5% 35,6% 2,8% 22,1% 4,5% 4,7% 5,5% 9,9% Net Income n.a. -2,0% 1,9% 15,5% -22,8% -27,7% 40,9% -8,6% 7,8% 5,5% 6,5% 12,3%
Profitability ratios 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E EBITDA margin 26,8% 24,0% 25,3% 21,2% 20,5% 22,4% 23,6% 23,5% 23,4% 23,2% 23,6% 23,9% EBIT margin 16,8% 14,8% 15,6% 12,0% 11,3% 13,5% 11,8% 12,6% 12,6% 12,5% 12,8% 13,2% Net Income margin 7,5% 7,0% 6,5% 7,3% 5,6% 3,8% 5,5% 4,8% 5,1% 5,2% 5,5% 6,1%
Leverage Ratios 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E LT Debt / Total Capitaliztion 134,6% 190,8% 261,8% 209,9% 114,4% 122,9% 156,4% 108,5% 103,2% 98,3% 93,3% 78,4% Total Debt / Total Capitalization 150,7% 232,4% 313,7% 237,2% 178,3% 165,0% 181,0% 126,8% 121,5% 116,6% 111,6% 91,9% Net Debt/EBITDA 2,5 x 2,3 x 3,2 x 3,6 x 3,4 x 3,8 x 3,6 x 3,2 x 2,8 x 2,2 x 1,5 x 0,9 x FFO / Total Debt 24,9% 29,7% 22,3% 13,9% 17,2% 22,0% 15,9% 25,3% 29,4% 31,3% 33,3% 41,6% Gearing (Total debt / Debt+Equity) 53,1% 50,5% 64,0% 64,3% 61,7% 64,0% 61,5% 58,4% 55,2% 52,2% 49,1% 42,2% Net Debt / Equity 0,0 x 0,0 x 1,4 x 1,3 x 1,1 x 1,6 x 1,5 x 1,2 x 1,0 x 0,7 x 0,5 x 0,3 x
Coverage Ratios 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Interest Coverage (EBITDA / Int.) 10,1 x 11,1 x 7,7 x 3,7 x 3,9 x 3,89 x 6,00 x 7,8 x 8,4 x 9,1 x 9,9 x 12,6 x Pretax Interest Coverage (EBIT / Int.) 6,3 x 6,8 x 4,8 x 2,7 x 2,2 x 2,4 x 3,2 x 4,2 x 4,5 x 4,9 x 5,4 x 7,0 x Source:The Company, AXIA Research
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Disclosures
General information This research report was prepared by AXIA Ventures Group Limited, a company incorporated under the laws of Cyprus (referred to herein, together with its subsidiary companies and affiliates, collectively, as “AXIA”) which is authorised and regulated by the Cyprus Securities and Exchange Commission (authorisation number 086/07). AXIA is authorized to provide investment services in the United Kingdom, Cyprus, Greece and in Portugal pursuant to its permissions under the Markets in Financial Instruments Directive and may also provide similar services in other countries, inside or outside of the European Union, subject to the applicable provisions. AXIA Ventures Group Limited is not a registered broker- dealer in the United States (U.S.), and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. In the U.S., this research report is intended solely for persons who meet the definition of “major U.S. institutional investors” in Rule 15a-6 under the U.S. Securities and Exchange Act, as amended, or persons listed under Rule 15a-6(4)) and is meant to be disseminated only through “Axia Capital Markets LLC”, a wholly owned subsidiary of AXIA Ventures Group Limited and associated US registered broker-dealer in accordance with Rule 15a-6 of the US Securities and Exchange Act.
Content of the report The persons in charge of the preparation of this report, the names of whom are disclosed below, certify that the views and opinions expressed on the subject security, issuer, companies or businesses covered by this research report (each a “Subject Company” and, collectively, the “Subject Companies”) are their personal opinions and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report.
Whilst all substantial sources of information for the research are indicated in this report, including, without limitation, bases of valuation applied to any security or derivative security, such information has not been disclosed to the Subject Companies for their comments and no such information is hereby certified.
All information contained herein is subject to change at any time without notice. No member of AXIA has an obligation to update, modify or amend this research report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the Subject Company is withdrawn. Further, past performance is not indicative of future results.
Persons responsible for this report: Maria Almaça (analyst)
Key Definitions AXIA Research 12-month rating* Buy The stock to generate total return** of and above 10% within the next 12-months Neutral The stock to generate total return**between -10% and 10% within the next 12-months Sell The stock to generate total return** of and below -10% within the next 12 months Under Review Stock’s target price or rating is subject to possible change Applicable Laws / Regulation and AXIA Ventures Group Limited policies might restrict certain types of Restricted communication and investment recommendations Not Rated There is no rating for the company by AXIA Ventures Group Limited * Exceptions to the bands may be granted by the Investment Review Committee of AXIA taking into account specific characteristics of the Subject Company **Total return: % price appreciation equals percentage change in share price from current price to projected target price plus projected dividend yield.
Rating history for Semapa
Date Rating Share Price (€) Target Price (€)
21/12/2017 Buy 17.95 20.5
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AXIA Ventures Group Limited Rating Distribution as of today Of which Investment Coverage Universe Count Percent Count Percent Banking Relationships Buy 16 76% 2 2 10% Hold 2 10% Sell Restricted Not Rated Under Review 3 14%
Independence and objectivity, conflicts of interest management None of the analysts in charge of this report are involved in activities within AXIA where such involvement is inconsistent with the maintenance of that analyst’s independence or objectivity. None of them has received or purchased shares in any Subject Company prior to any private or public offering of those shares. However, the analysts responsible for the preparation of this report may interact with trading desks or sales personnel for the purpose of gathering and interpreting market information with regard to the Subject Companies. As an investment services provider engaging in a wide range of businesses, AXIA is active in the field of activities which may include the provision of services to issuers of securities, with respect to underwriting or placing of financial instruments or with respect to advice on capital structure, industrial strategy and related matters (“investment banking services”). The nature of such activities, in conjunction with the activity of production and issuance of research reports, may be considered as leading to situations of conflict of interests when the research reports cover an issuer with whom AXIA has an ongoing or has recently had a business relationship for the provision of investment banking services. AXIA has all the necessary internal structures and arrangements in order to identify and avoid or, should avoidance be impossible, to manage such situations in a manner consistent with the highest standards, in accordance with its internal conflicts of interest policy. In compliance with such arrangements, analysts and other staff who are involved in the preparation and dissemination of research (including, without limitation, this report) operate independently of management and the reporting line is separate from AXIA’s investment banking business. “Chinese Wall” procedures (procedures separating the availability of information of any Subject Company) are in place between the investment banking and research businesses to ensure that any confidential and/or price sensitive information is handled appropriately. In all cases when, at the time of preparation or issuance of a report, an issuer covered by such report is in a business relationship with AXIA for the provision of investment banking services, Axia includes a note in the report, drawing the attention of the recipients to such fact. The same note is included when such business relationship has been terminated less than 12 months before the issuance of the report. However, it cannot be fully precluded that issuers covered by a report may be in discussions with AXIA’s investment banking department for a potential future cooperation in investment banking matters, even though a business relationship does not already exist. In such cases AXIA may not be able to announce the fact of such discussions in the reports even if such reports cover the specific issuer. Therefore, even if this research report does not mention any existing or recent business relationship with an issuer whose securities are covered by the report, such issuer may be a potential future customer of AXIA in the field of investment banking services. It is noted that, even in such case, the persons in charge of this report do not participate in any such discussion and their remuneration is not determined based on the proceeds of the department providing investment banking services and that such situation is not reasonably expected to impair the independence or objectivity of AXIA’s reports.
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Axia Ventures Group
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Constantinos Zouzoulas [email protected] +30 210 7414460 Jonas Floriani [email protected] +44 208 068 3516 Argyrios Gkonis [email protected] +30 210 7414462 Maria Almaça [email protected] +351 21 936 4447 Damiani Papatheodotou [email protected] +357 22 742013 Celia Jjioannou [email protected] +357 22 742016
Equity Capital Markets
Thanos Adamantopoulos [email protected] +44 207 9876033
Equity Sales / Trading
Stavros Agrotis [email protected] +357 22 742000
Constantinos Koufopoulos [email protected] +30 210 7414422
Harry Smyrnopoulos [email protected] +30 210 7414425
Maria Mitsouli [email protected] +30 210 7414424
Elias Calfoglou [email protected] +30 210 7414429 Athanasia Markidi [email protected] +30 210 7414428 Ioanna Georgiou [email protected] +30 210 7414427
George Baroumis [email protected] +30 210 7414426
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