ElvalHalcor
Basic Resources-Nonferrous Metals / Greece Reuters/Bloomberg: ELHA.AT / ELHA GA March 27, 2018
ElvalHalcor: “Metal works” - Initiating with a Buy Rating Buy
ElvalHalcor (“ELHA”) is a global aluminium and copper products manufacturer with production facilities in Greece and Bulgaria, while 90% of its output is directed to the international markets. The company was Target Price 2.30 launched in Dec’17 following the merger of two established and with long history companies, Elval (a leading (EUR) aluminium products fabricator) and Halcor (the biggest copper tubes producer in EMEA). The shares of the Current Share Price* 1.69 new entity begun trading in Athex in early Feb’18. ELHA holds no interest in primary metal production, while *26 /03/ 2018 its business model makes it immune to metal price fluctuations. The company, that holds significant market (EUR) shares in various products classes in the EU, is now focusing on further penetrating niche markets and increasing capacity and utilization by taking advantage of its size. Growth of both volumes and realized Stock Data margins is seen driving profitability sharply higher (2017-20 adj. EBITDA CAGR of 12.4% vs. sector at c6.5%). Market Cap (EUR m) 630.4 Our valuation takes into account both EV/EBITDA multiples and DCFs (to capture the phasing of the new Free Float 8.5% investments) yielding a target price of EUR 2.30/sh and pointing to a 36.9% upside from current levels. We EV (EUR m) 1,188 initiate coverage with a Buy rating. Num. of Shares (m) 375.4
Aluminium segment-Upside through investments and market penetration Performance 1m 3m 12m The aluminium segment (Elval) in 2017 booked shipments of 292kMT generating EUR 82m of adj. EBITDA (67% Absolute (%) -9.7 NM NM of ELHA total). Elval serves a 5.0mMT market that is expected to grow by 3.0-4.0% p.a. over the coming years ASE (%) -4.1 2.2 25.4 and is holding amongst other significant market shares in niche product ranges. Elval is looking to capitalize on Day avg. no traded shr (k-12m) 75 demand trends by increasing its installed capacity as of 2020-21. The investment that comes at a cost of EUR Price high-12 m (EUR) 2.10 150m, is expected to add 15.5% to the output leading adj. EBITDA 34% higher. Additionally, Elval is looking to benefit from further penetrating niche markets and opportunities to improve sales mix. In total we forecast Elval Price low-12m (EUR) 1.31 adj. EBITDA to reach EUR 93.8m in 2018 and EUR 103.4m in 2019 and grow by 10.4% CAGR in 2017-21. 2.50
Copper segment-Operating leverage amid a market in limbo 2.00 The copper segment (Halcor) in 2017 contributed 50% of group comparable revenues and 33% of adj. EBITDA. EU copper manufacturing industry has been facing the headwinds of modest demand growth and shifting trends, 1.50 with the capacity utilization at just 80%. Halcor, the owner of the biggest copper tubes plant in the EMEA has 1.00 Dec 17 Dec 17 Jan 18 Mar 18 managed to shift its production to industrial application products (c70% of 2017 sales) that have more stable ELVALHALCOR HELLENIC COPPER AND ALUMINIUM INDUSTRY demand trends and better margins. Also with the transfer of knowhow from Elval, the copper rolling and S.A. ATHEX Composite Index (Rebased) extrusion subsidiary Sofia Med is not only ramping up production but also expected to realize higher commercial margins by targeting higher value products amid a less competitive environment. Overall we expect copper ElvalHalcor Hellenic Copper and Aluminium industry segment sales volumes to grow by 3.0% CGR in 2017-22, with adj. EBITDA growing by 12.4% CAGR for the same S.A. (ElvalHalcor, “ELHA”) is a leading global period. manufacturer of aluminium and copper products. The Company was formed in December 2017 via the Strong operating FCF generation to put leverage on a declining path merger of Elval, a leading European aluminium We estimate that ELHA’s gross operating FCF will reach EUR 115.1m in 2018 (+4.0% y-o-y) and EUR 127.7m in rolling company, and Halcor, the largest copper tubes producer in Europe. In 2017 the company sold 2019 (+11.0% y-o-y). This should allow the company to serve the EUR 214m of required capex for growth and 192kMT of aluminium products and 156kMT of maintenance over the period 2018-19, while keeping leverage on a declining trend. Specifically, we expect net copper and alloy products. As a combined entity, debt/adj. EBITDA from 4.1x in 2017 to decline to 3.0x in 2019. With FCF generation of above EUR 90m p.a. after ElvalHalcor capitalises on natural synergies in 2020 (c15% FCF yield) we believe the company can start dividend distribution as soon as 2021. innovation and technology, R&D, procurement, marketing, infrastructure and environment to
Valuation: Things can be deceiving produce value added, high quality solutions for its global client base. The company is subsidiary of ELHA trades at 2018-19 EV/EBITDA of 7.6x-6.8x vs. 7.4x-6.6x of aluminium and copper peers EBITDA weighted Viohalco. average. Yet looking a bit further ahead, ELHA is trading at a widening discount to peers at 5.6x-4.6x on 2020-21 EV/EBITDA vs. sector historical long term average of 7.7x. We believe that static valuation multiples fail to Shareholding Structure: Viohalco 91.4% free float 8.6% capture the expected profitability upside generated by the new investments and the operating leverage, thus we use a blended DCF and peer multiples valuation, yielding a target price of EUR 2.30/sh and pointing to 36.9% upside from current levels. On our target price ELHA is trading at 7.2x-6.5x on 20-2021 EV/EBITDA, vs. sector 10- year historical average of 7.7x
Key metrics FY2017 FY2018E FY2019F FY2020F FY2021F Analyst adj. EBITDA (EUR m) 129.2 147.8 165.6 183.5 203.0 Argyrios Gkonis Net Income (EUR m) 60.7 45.0 55.9 58.0 74.7 [email protected] +30 210-7414 462 EPS (EUR/sh) 0.09 0.12 0.15 0.15 0.20 P/E (x) 12.4 14.0 11.3 10.9 8.4 Head of Research EV/EBITDA (x) 9.9 7.6 6.8 5.6 4.6 Constantinos Zouzoulas FCF yield NM 4.6% 0.3% 15.2% 16.5% [email protected] Net Debt/adj. EBITDA (x) 4.1 3.4 3.0 2.2 1.5 +30 210-7414 460 all figures are comparable Source: AXIA Research, The Company AXIA Ventures Group - 4 Vas. Sofias Ave., 10674 Athens Greece, Tel: +30 210 7414400, Fax: +30 210 7414449, Web: www.axiavg.com Please refer to the last page for disclosures and analyst certification
ELVALHALCOR – Initiation of Coverage
Table of Contents
1. Investment case summary
2. Risks
3. Valuation
4. Introductions
5. Aluminium business line
6. Copper business line
7. Cenergy overview and other participations
8. Group financial estimates
9. Balance sheet and cash flow outlook
10. Detailed Financials and ratios
11. Appendix
a. Management overview
b. Viohalco overview
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Investment case summary
ElvalHalcor (ELHA) is a global aluminium and copper products manufacturer with production facilities in Greece and Bulgaria and a clear export orientation (90% of sales in international markets). The company is essentially a leverage play on global economic growth and solid underlying trends (urbanization, energy efficiency, electric vehicles) offering exposure to the demand of nonferrous metals without the sensitivity of primary metal prices volatility of upstream producers. With the profitability and leverage profile of the company expected to materially improve going forward, we believe the market will gradually price in the positive prospects for the company and thus we initiate coverage on ELHA with a Buy rating and a target price of EUR 2.30/share pointing to an 36.9% upside from current levels.
A metal play with no metal price risk ELHA fabricates aluminium and copper products for value-added applications in industrial usage, household and the construction envelope. The company’s contractual agreements and financial hedges remove volatility related to LME prices and FX rates, by passing through or offsetting the associated costs. This allows management to run a metals business without heavy focus on metal price fluctuations, focusing on market positioning, production mix improvement, cost base streamlining and innovation. In this context we note that the commercial margins reported under both aluminium and copper segments exhibit little correlation to primary metal prices.
Solid aluminium demand outlook and presence in key markets Global aluminium demand grew by 6.0% y-o-y in 2017, while aluminium consumption in Europe (63% of Elval sales) grew by 3.2% y-o-y. Demand is expected to remain solid (3.0-6.0% CAGR in the medium term) as apart from the increased usage in traditional markets (construction, aerospace, industry, and packaging), aluminium is rapidly increasing its exposure to the automotive sector with many ELVAL’s competitors shifting their production to serve new demand. Elval is focusing on tapping and further developing its presence in niche markets where it holds significant market share in the EU (33% of packaging market, 12% of construction, and 22% of marine products). This should allow the company to further streamline its production mix and improve commercial margins.
New investment to increase aluminium output by 50-60kMT p.a. and add 34% in segment EBITDA Supporting the efforts to keep up with the rising demand for aluminium products, the company announced in early 2018 an EUR 150m investment in its rolling products line in Greece. The new investment will be executed in 2018-19, with ramping up expected at the second half of 2020. Financing has already been agreed under favourable terms with EIB, contributing EUR 70m for up to 8-years and the rest provided by a foreign commercial bank. Upon full ramp up (2022) we model for additional output for the aluminium segment of 55kMT p.a. (+15.5% vs. 2019 output), leading adj. EBITDA to increase by cEUR 28m (+34% vs. 2019E) assisted by operating leverage and cost streamlining.
Copper segment: market share gains and operating leverage amid a competition in limbo Amid slow demand growth (+1.0% in 2017 and +0.4% 2012-17 CAGR), substitution trends, shifting product range and leveraged balance sheets, EU’s copper production industry is struggling to reach steady ground. Halcor, the biggest copper tubes producer in EMEA region, has managed to shift its product range from the construction sector (traditional customer) to industrial applications (c70% of 2017 sales vs. 30% before 2010) that present more stable demand trends with better prices and margins. Moreover with the transfer of knowhow in metal rolling from Elval to the copper rolling and extrusion subsidiary, Sofia Med (46% of 2017 copper volumes) has managed to increase its utilization (72% in 2017 vs. 57% in 2015) by shifting product range focus while also taking into advantage the limited competition to further penetrate higher margin products leading to higher realized commercial margins.
Competitive cost base and the benefit of operating leverage Opex consumes about 70% of the group’s commercial margin. With about 30% of it being related to labour, the location of the facilities of the company in Greece and Bulgaria. Greece, following the implementation of a number of structural reforms during the previous years in various sectors of the economy, especially in labour market, has become very competitive on an EU level. Additionally, with about 45% of the cost base AXIA Research Page 3
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fixed, the ramping up of utilization rates (especially for the copper segment) offers significant operating leverage. Finally, with the energy market in Greece both for electricity and natural gas undergoing a restructuring phase, we believe that additional cost benefits could be realized going forward.
Benefit of size Upon the merger of the two leading copper and aluminium companies, ELHA presents a balance sheet with EUR 1.5bn of assets, EUR 1.9bn of revenues and combined sales of 450kMT of metal products, placing the company amongst the biggest metal fabricators on a global scale. This is expected to allow management to negotiate better pricing terms with both suppliers and creditors while, importantly, the sizable and healthy balance sheet can support the group’s market positioning efforts, offering clients a solid and credible counterparty.
Member of Viohalco ELHA is owned by 92% from Viohalco, a leading Belgium based metal holdings company with more than 90 years of activity in the metal markets. ELHA’s management and BoD comprises of experienced Viohalco executives, with top management being with Viohalco for more than 20 years. We have to note that ELHA has access to own port facilities of other Viohalco subsidiaries as well as extensive R&D network within the affiliates. In addition access to Viohalco’s metal scrap/recycling business allows for the improvement of metal margins, especially in the copper segment, while centralized procurement (energy) enhances cost structure competiveness.
25% stake in Cenergy Holdings ELHA has inherited from Halcor a 25% stake in Cenergy Holdings, a global steel pipes and cables company. Cenergy Holdings companies have recently completed a strategic investment cycle that brings them to the forefront of all major mid-stream energy projects globally. Cenergy Holdings, offering high-end and innovative product lines and being approved supplier by major Oil and Gas companies and electricity utilities, is expected to significantly improve its financials over the next couple of years as execution of current contracts and the booking of new projects start to materialize.
Solid growth prospects with 2017-22 volume and adj. EBITDA CAGR at 3.4% and 11.0% respectively On a snapshot our estimates call for stable volumes in the near term from the aluminium segment and a ramp up after the new investment in 2H20 kicks in. On copper we model an accelerated rise in volumes in the near term, gradually moderating on the back of increasing utilization of Sofia Med plant. On pricing we assume modest increases in aluminium and copper tube products realised commercial margins on the back of sales mix profitability. Operating leverage in the near term and cost savings from new aluminium capacity in the medium term drive our cost assumptions. All in all our estimates for ELHA call for 2017-22 growth in Net Added Revenue of 4.6%, with adj. EBITDA reaching EUR 147.8m in 2018 (+14.4% y-o-y) and EUR 165.6m in 2019. Net profits for 2018 are expected at EUR 45.0m taking into account the cumulated tax assets steaming form the merger of the two entities and are seen increasing to EUR 56m in 2019, with 2017-22 reported EPS at 20.5%
Strong operating FCF generation to put leverage on a declining path We estimate that ELHA’s gross operating FCF will reach EUR 115.1m in 2018 (+4.0% y-o-y) and EUR 127.7m in 2019 (+11.0% y-o-y). This should allow the company to serve the EUR 214m of required capex for growth and maintenance over the period 2018-19, while keeping leverage on a declining trend. Specifically, we expect net debt/adj. EBITDA from 4.1x in 2017 to decline to 3.0x in 2019. With FCF generation of above EUR 90m p.a. after 2020 (c15% FCF yield) we believe the company can start dividend distribution as soon as 2021.
Valuation: Things can be deceiving ELHA trades at 2018-19 EV/EBITDA of 7.6x-6.8x vs. 7.4x-6.6x of aluminium and copper peers EBITDA weighted average. Yet looking a bit further ahead, ELHA is trading at a widening discount to peers at 5.6x-4.6x on 2020- 21 EV/EBITDA vs. sector historical long term average of 7.7x. We believe that static valuation multiples fail to capture the expected profitability upside generating by the new investments and the operating leverage, thus we use a blended DCF and peer multiples valuation yielding a target price of EUR 2.30/sh, pointing to 36.9% upside from current levels. On our target price ELHA is trading at 7.2x-6.5x on 20-2021 EV/EBITDA, vs. sector 10-year historical average of 7.7x
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ELVALHALCOR – Initiation of Coverage
Risks
“Trade wars”: About 75% of ELHA sales is directed in Europe, with only a small percentage directed to the US market (about 6.0% of aluminium segments sales and in total 6.0% of group total sales), so the direct impact on the group following the application of import tariffs on aluminium in the US is seen as rather limited. Moreover the product range directed to the US market is on the high margin as it attends niche markets. Potentially the company could offer a small discount to its clients to maintain its presence, but still we would not expect any material impact. On a secondary read, preliminary market estimates call for the excess volume to be redirected from the US to other markets being about 3.0-4.0% of the global aluminium trade, thus no structural impact on market dynamics is envisaged at this point. Finally, note that EU has in place import tariffs on aluminium (3.0% on both primary metal and products) and copper (4.8% on semis and products). Also the recently applied anti-dumping duties introduced by Turkey on copper tubes did not hinder the rising trend of sales in 2017 as strong demand from other markets easily absorbed any excess volume. An issue that could potentially affect ELHA is the high dependence of Cenergy Holding (ELHA holds a 25% stake) steel pipe business (Corinth Pipeworks) in the US market (40% of 2008-15 sales). It is noted that the subsidiary mainly supplies products to its US customers that cannot be manufactured in the US, such as 26- inch pipelines. Corinth Pipeworks has already initiated all actions required in cooperation with its US customers in order for them to obtain relief from the tariffs on imports of steel pipes since the products sold in the US market by Corinth Pipeworks are customized unique products which are not produced by local US pipe mills. Taking this into account, Cenergy Holdings management considers that the said tariffs will have a limited impact on the subsidiary.
Rising competition in the EU: Other aluminium and copper producers could open new capacity or increase their capacities in Europe and in other key markets, having an impact on volumes and margins. This could be primarily relevant for the aluminium market, were Elval is also investing. The company has taken though a strategic decision to focus on niche markets, were is well positioned (packaging), while the announced investments by major players mainly target the automotive sector. On the copper market subdued demand is keeping capacity a low levels (80% for EU) thus it will take time before a new round of expansion, while shifting production requires time and knowhow.
Substitution trends: This has been a key concern especially for the copper segment. The company is trying to mitigate this risk by targeting specific product ranges that present healthy demand and reducing its exposure to other sectors (construction). Yet we have to note that many on the substitutes of copper products are based on aluminium alloys, something that could potentially mitigate the impact on a group level.
Operating costs inflation: Operating costs consume about 70% of the total commercial margin captured by ELHA with energy and labour related expenditure being the primary contributors. An inability to pass through cost inflation to product prices might cause margin erosion.
Copper segment leverage: Copper segment leverage remains at very high levels, even when compared to competition. Higher metal prices and volumes could further stretch WC needs. The company has managed to maintain though these levels for a long period of time assisted by its lucrative asset base and strict financial management. At a consolidated level (ELHA), leverage is less pronounced, while with the expected ramping up of operations, leverage should gradually improve.
Scrap/recycled metal prices and availability: Especially for the copper industry, access to scrap/recycled metal represents a significant part of the profitability as availability and scrap price fluctuations can impact margins. In this context ELHA is utilizing the extensive network of Viohalco companies in the recycling segment.
Greek Macro: ELHA has a clear export orientation, with c90% of the sales directed to international markets, still any tension in the Greek economy, the local banking system and additional productions costs could have an impact on ELHA’s competitiveness (access to financing, funding costs, opex etc.).
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ELVALHALCOR – Initiation of Coverage
Valuation
We initiate coverage on ELHA with a Buy recommendation and a target price of EUR 2.30/sh (36.9% upside from current levels). We believe that although current valuation metrics appear to be demanding, the increasing operating profitability of the group in the next couple of years is expected to widen the discount to sector peers. This should be eventually priced in as the market digests the profitability potentials of the group in the medium term.
In this context on our estimates, ELHA currently trades at 7.6x-6.8x on EV/EBITDA for 2018-19E, in line with the EBITDA weighted average of aluminium and copper sector names. Looking though on 2020-21E figures, ELHA is seen trading at 5.6x-4.6x on EV/EBITDA which screens at an average 33% discount to the sector 10- year average of 7.7x.
Our target price is premised on a sum-of the parts methodology. As a first step we value independently the two operating segments (aluminium and copper) using a weighted DCF and multiples approach. Finally we adjust on a group level for net debt, other participations and minorities.
Table 1: ELHA headline valuation Asset Method EV Implied EV/EBITDA 2018 2019 2020 Copper Business DCF/Multiples 433.5 8.0 7.0 6.3 Aluminium Business DCF/Multiples 882.0 9.4 8.5 7.7 Total Operating EV 1,315.4 8.9 7.9 7.2 (-) Group Net Debt FY2017 526.8 (+) Cenergy 25% stake MCap (26/03/2017) 57.6 (+) Other participations 0.8xBV 15.0 (-) Minorities 1.0xBV 13.9 Appraised Equity Value 847.4 Num. of shares (m) 375.2 Target Price 2.30 Current 1.69 Upside 36.9%
Copper Business Method Comment EV Weight Implied EV/EBITDA 2019 DCF 8.0% WACC, 6.0x exit multiple 466.3 50% 7.6 Multiples (EV/EBITDA) 6.5x 2019 EBITDA 400.7 50% 6.5 Weighted EV 433.5 7.0
Aluminium Business EV Weight Implied EV/EBITDA 2019 Method Comment 948.7 9.1 DCF 7.5% WACC, 6.0x exit multiple 925.9 70% 8.9 Multiples (EV/EBITDA) 7.5x 2019 EBITDA 779.5 30% 7.5 Weighted EV 8.5 Source: AXIA Research
Table 2. ELHA trading multiples highlights Current 2018 2019 2020 2021 2022 Targeted 2018 2019 2020 2021 2022 EV/EBITDA 7.6 6.8 5.6 4.6 4.0 EV/EBITDA 8.9 7.9 7.2 6.5 6.1 P/E 14.0 11.3 10.9 8.4 7.5 P/E 18.8 15.2 14.6 11.3 10.1 FCF yield 4.6% 0.3% 15.2% 16.5% 16.4% FCF yield 3.4% 0.2% 11.3% 12.3% 12.2% Div yield NA NA NA 5.3% 6.0% Div yield NA NA NA 4.0% 4.5%
Peers Peers EV/EBITDA 2018 2019 2020 10y avg P/E 2018 2019 2020 10y avg Aluminium 8.1 7.2 7.3 8.2 Aluminium 13.4 11.4 8.6 14.9 Copper 6.3 6.3 5.8 6.6 Copper 11.2 11.1 10.7 13.9 Diversified 5.5 5.6 5.5 6.2 Diversified 10.7 10.9 10.3 12.7 EBITDA weighted 7.4 6.9 6.8 7.7 Source: AXIA Research, Capital IQ
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Aluminium segment valuation
We value the aluminium segment operations using a weighted DCF and multiples (EV/EBITDA) methodology. We believe the DCF method to be the most appropriate to value the business given phase of the current investment cycle, thus we apply higher weight (70%). Additionally we use a target EV/EBITDA multiple of 7.5x on 2019 EBITDA estimates taking into account the sector trading levels (40% weight).
Our valuation for the sector returns an EV of EUR 898m (67% of group total EV), implying a 2019 EV/EBITDA of 8.6x. Recall that the aluminium segment accounts for about 50% of group revenues and 65% of EBITDA.
Table 3. Aluminium segment valuation exercise Method Comment EV Weight Implied EV/EBITDA 2019 DCF 7.5% WACC, 6.0x exit multiple 925.9 70% 8.9 Multiples (EV/EBITDA) 7.5x 2019 EBITDA 779.5 30% 7.5 Weighted EV 882.0 8.5 Source: AXIA Research
Key drivers of our valuation for the sector are: Solid growth in global aluminium demand close to mid-single digit figures driven by urbanisation, energy efficiency needs and global economic growth Stable volumes for 2018-29 and ramping up of new capacity as of 2H2020 Presence in niche markets and strengthening of market positioning to drive more profitable sales mix Gradually expanding unit EBITDA margin on better pricing and efficiencies on the back of new/upgraded capacity No other major expansion projects in the investment horizon WACC of 7.53% (11.5% CoE, 5.0% cost of debt, 50% gearing) Terminal value defined by exit multiple of 6.0x EV/EBITDA on 2027 estimates
Table 4. Aluminium segment DCF exercise EUR m 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Volume sales (kMT) 297 303 310 317 350 350 350 350 350 350 y-o-y 1.8% 1.9% 2.4% 2.1% 10.4% 0.0% 0.0% 0.0% 0.0% 0.0% Commercial margin (EUR/MT) 1,392 1,422 1,426 1,431 1,402 1,431 1,460 1,489 1,520 1,550 y-o-y 2.5% 2.1% 0.3% 0.4% -2.0% 2.0% 2.0% 2.0% 2.0% 2.0% adj. EBITDA/MT (EUR/MT) 315.4 343.1 370.9 407.4 399.8 411.6 423.6 435.9 448.5 461.5 y-o-y 5.8% 8.8% 8.1% 9.8% -1.8% 2.9% 2.9% 2.9% 2.9% 2.9% adj EBITDA 93.8 103.9 115.1 129.1 139.9 144.0 148.2 152.5 156.9 161.4 (-)Depreciation 45.7 49.7 52.7 54.1 55.6 54.9 55.1 55.4 55.6 55.6 EBIT 48.0 54.2 62.4 75.0 84.2 89.1 93.0 97.1 101.3 105.8 NOPAT 34.1 38.5 44.3 53.3 59.8 63.2 66.1 68.9 71.9 75.1 (+)Depreciation 45.7 49.7 52.7 54.1 55.6 54.9 55.1 55.4 55.6 55.6 (-)Capex -72.0 -112.0 -15.0 -20.0 -25.0 -20.0 -20.0 -25.0 -20.0 -20.0 (+/-) Net WC change 0.6 0.5 1.4 -0.5 -7.4 -3.4 -3.5 -3.5 -3.6 -3.7 FCF to firm 8.4 -23.3 83.4 86.8 83.1 94.7 97.7 95.8 103.9 107.0 NPV 457.1 Terminal Value (6.0x EV/EBITDA 2027) 468.8 EV 925.9 Source: AXIA Research
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Copper segment valuation
We value the copper segment operations using a weighted DCF and multiples (EV/EBITDA) methodology. We apply a 50% weight on the two valuation methods. Our valuation for the sector returns an EV of EUR 433.5m (33% of group total EV), implying a 2019 EV/EBITDA of 7.0x. Recall that the copper accounts for 50% of group revenues and 35% of EBITDA.
Table 5. Copper Business valuation exercise Method Comment EV Weight Implied EV/EBITDA 2019 DCF 8.0% WACC, 6.0x exit multiple 466.3 50% 7.6 Multiples (EV/EBITDA) 6.5x 2019 EBITDA 400.7 50% 6.5 Weighted EV 433.5 7.0 Source: AXIA Research
Key drivers of our valuation for the sector are: Modest growth in global copper consumption (low single digit), with stronger trends in the industrial application products. We are not pricing in any major impact for EV penetration at this step as the timing it will become pronounced is not easily definable Increasing utilization of existing plants driving volumes higher in 2018-21 Increased presence in industrial application products in the near term. Expanding margins moving forward on product mix profitability and market positioning Expanding unit EBITDA margin on better pricing but more importantly economies of scale on higher output No major expansion projects in the investment horizon WACC of 8.0% (11.5% CoE, 6.5% cost of debt, 50% gearing) Terminal value defined by exit multiple of 6.0x EV/EBITDA on 2027 estimate
Table 6. Copper segment DCF exercise EUR m 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Volume sales (kMT) 161.0 167.0 173.0 181.0 181.0 181.0 181.0 181.0 181.0 181.0 y-o-y 3.4% 3.7% 3.6% 4.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Commercial margin (EUR/MT) 845.7 872.5 892.0 907.0 920.6 934.4 948.4 962.7 977.1 991.8 y-o-y 3.0% 3.2% 2.2% 1.7% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% adj. EBITDA/MT (EUR/MT) 335.8 369.1 395.6 408.1 412.0 416.1 420.2 424.3 428.5 432.7 y-o-y 24.1% 9.9% 7.2% 3.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% adj. EBITDA 54.1 61.6 68.4 73.9 74.6 75.3 76.1 76.8 77.6 78.3 (-) Depreciation -15.8 -17.2 -18.3 -18.7 -19.3 -19.0 -19.1 -19.2 -19.2 -19.3 EBIT 38.2 44.4 50.2 55.1 55.3 56.3 57.0 57.6 58.3 59.1 NOPAT 27.1 31.5 35.6 39.1 39.3 40.0 40.4 40.9 41.4 41.9 (+) Depreciation 15.8 17.2 18.3 18.7 19.3 19.0 19.1 19.2 19.2 19.3 (-)Capex -15.0 -15.0 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 -20.0 (+/-)Net WC Change 4.7 2.8 0.5 0.0 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 FCF to Firm 32.7 36.6 34.4 37.9 38.2 38.6 39.2 39.7 40.3 40.8 NPV 249.8 Terminal Value (6.0x EV/EBITDA 2027) 216.5 EV 466 Source: AXIA Research
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Table 7. Aluminium and Copper sector peers trading multiples Company Country MCap P/E EV/EBITDA FCF yield Net Debt/EBITDA 2017-20 USD m FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 EBITDA CAGR
Alumetal S.A. Poland 239.9 11.6 11.0 0.0 8.7 7.5 8.0 7.6% 8.4% 10.9% 0.6 0.3 0.5 10.8% Constellium N.V. Netherlands 1,432.5 9.6 7.8 7.0 6.4 5.9 5.6 3.8% -0.6% 3.6% 3.6 3.1 0.1 4.8% Gränges AB (publ) Sweden 873.2 10.5 9.9 8.9 7.0 6.5 6.0 -1.2% 1.7% 5.6% 2.0 2.1 NA 5.6% AMAG Austria Metall AG Austria 2,195.8 29.4 24.3 NA 11.9 10.8 9.9 -0.8% 3.9% 5.2% 1.7 NA -0.1 13.2% Grupa Kety S.A. Poland 969.0 13.0 12.3 11.2 8.6 8.0 7.5 3.9% 6.5% 7.9% 1.7 1.9 0.2 9.0% United Company RUSAL Plc Jersey 8,811.1 4.1 4.4 4.3 6.7 6.9 7.2 17.1% 17.6% 23.4% 2.3 1.8 0.7 2.7% Arconic Inc. United States 10,983.1 15.1 12.1 10.5 7.7 7.1 NA 4.9% 7.4% 7.7% 2.1 1.8 NA NA Kaiser Aluminum Corporation United States 1,672.6 15.1 12.9 12.7 8.5 7.7 7.3 5.8% 5.5% 6.9% 0.2 -0.1 0.4 5.7% Century Aluminum Company United States 1,459.2 12.3 8.0 14.4 7.0 4.9 6.9 7.5% 12.9% 10.6% -1.1 NA 0.5 10.7% Average Aluminium 13.4 11.4 8.6 8.1 7.2 7.3 5.4% 7.0% 9.1% 1.5 1.5 0.3 7.8%
Aurubis AG Germany 3,692.5 13.0 12.2 11.5 6.3 6.1 5.8 1.5% 4.0% 5.0% -0.3 -0.7 0.1 -7.7% KGHM Polska Miedz Spólka Akcyjna Poland 5,320.1 6.3 6.0 5.5 4.0 4.1 3.7 12.1% 12.8% 15.1% 0.8 0.6 0.3 10.2% Jiangxi Copper Company Limited China 7,673.6 11.3 9.9 NA 7.3 6.7 NA 7.1% 8.3% NA 1.7 NA NA 4.4% Dowa Holdings Co., Ltd. Japan 2,100.9 8.2 8.0 7.8 5.9 5.8 5.5 -1.9% 4.3% 5.4% 1.2 1.1 -0.1 4.8% Southern Copper Corporation United States 41,326.1 19.6 18.7 18.0 11.0 10.2 10.2 3.0% 3.6% 2.8% 0.9 0.6 0.3 11.3% Antofagasta plc United Kingdom 13,127.6 15.4 14.0 14.5 5.7 5.6 5.3 6.0% 9.9% 9.2% 0.2 0.1 0.3 6.8% Freeport-McMoRan Inc. United States 25,366.2 8.2 12.2 9.3 4.6 6.3 4.9 14.1% 8.4% 12.1% 0.4 0.2 0.5 8.9% Boliden AB Sweden 9,474.9 10.3 11.4 11.5 5.7 6.0 6.0 7.7% 8.3% 9.3% 0.0 -0.2 0.4 0.2% KAZ Minerals plc United Kingdom 5,458.5 8.1 7.8 7.4 5.7 5.6 5.3 4.1% 9.5% 10.2% 1.3 1.1 0.2 16.0% Average Copper 11.2 11.1 10.7 6.3 6.3 5.8 6.0% 7.7% 8.6% 0.7 0.4 0.2 6.1%
BHP Billiton Limited Australia 117,717.3 12.9 13.1 14.1 5.8 5.9 6.0 10.2% 9.6% 10.3% 0.3 0.2 0.5 4.6% Rio Tinto plc United Kingdom 87,901.4 10.6 11.6 11.7 5.4 5.8 5.8 8.4% 8.0% 8.0% 0.2 0.2 0.4 0.8% Anglo American plc United Kingdom 32,836.3 9.1 10.8 10.8 4.8 5.7 5.6 11.0% 10.0% 9.2% 0.2 0.0 0.5 0.8% Vale S.A. Brazil 65,331.1 10.1 10.1 8.9 5.5 5.9 5.8 10.8% 12.3% 12.8% 0.5 0.2 0.5 NA Glencore Plc Switzerland 72,530.1 10.7 11.6 11.1 5.9 6.1 5.7 10.0% 11.7% 13.9% 0.9 1.0 0.4 15.2% Vedanta Resources plc United Kingdom 2,813.9 10.9 9.6 6.0 5.1 4.0 4.1 34.5% 110.9% 108.0% 2.2 1.3 0.2 9.2% Hindalco Industries Limited India 7,288.0 9.8 8.5 8.0 6.5 6.1 6.0 16.1% 14.4% 17.4% 2.9 2.3 0.5 7.4% South32 Limited Australia 12,635.3 11.4 11.6 12.0 4.9 4.9 5.2 10.3% 10.6% 9.7% -1.0 -1.3 0.6 2.1% Average Diversified 10.7 10.9 10.3 5.5 5.6 5.5 13.9% 23.4% 23.7% 0.8 0.5 0.5 5.7%
ELVALHALCOR Greece 778.9 14.0 11.3 10.9 7.6 6.8 5.6 4.6% 0.3% 15.2% 3.4 3.0 2.2 12.4% Source: AXIA Research, Capital IQ
Introductions
ELVALHALCOR (ELHA) is a non-ferrous metals manufacturing company, specializing in the fabrication of aluminium and copper products. The company operates in two distinct business lines, aluminium (Elval) and copper (Halcor). ELHA was officially established in late 2017, following the merger by absorption of, the Athex listed Halcor (copper business, 68.28% previously owned by Viohalco) and the privately held ELVAL (aluminium business, 100% previously owned by Viohalco). The shares of the entity started trading in Athex on February 2018. Both ELVAL and Halcor have a long history and leading position in the metal markets that dates back to the beginning of the 20th century.
The group holds production facilities in Greece and Bulgaria, while has participations in a unit in Turkey. The company in 2017 realised sales of EUR 1.86bn amid total shipments of 292kMTs of aluminium and 156kMTs of copper products, from a diversified client base, with c92% generated in international markets. More specifically 64% of group sales came from euro-area countries (excluding Greece), other European countries accounted for 11.5% of the sales, while Asia and US were 6.0% and 7.8% of the total sales.
Table 1a. ELHA group key financials (2017, pro-forma) Chart 1b. ELHA group 2016 sales (%) by region EUR m Halcor Elval Group ELHA 7.8% 2.0% 0.1% Greece 8.2% Volumes (kMT) 156 292 448 6.0% Other EU Revenues 922.4 940.9 1,863 Other European Countries adj. EBITDA1 87.0 42.4 129.4 11.5% Asia Net Income 24.6 36.7 61.3 America Equity 99.5* 453.7* 655.5 Africa Assets 567.4* 855.8* 1,524.4 64.3% Oceania (1) Adjusted for metal price lag effect *Data as of 31/12/2016 Source: The Company, AXIA Research
ELHA divisions fabricate a wide spectrum of products that are used by the clients in the manufacturing of end- products across various markets. The company’s copper business (Halcor) is the largest copper tubes producer in Europe used in industry and construction, while holds a significant market share in copper rolled products used in electrical applications. The aluminium business (Elval) is one of the largest aluminium products players for the packaging industry (32% of EU food products), holding also significant market shares in construction (12% of EU market) and in marine products (22% of EU market). Importantly the group holds significant market shares in niche global markets (truck floors 80% of global market, fish farming nets etc.).
Chart 2a. Elval product sales mix (2017) Chart 2b. Elval sales volumes (kMT 2007-17)
Transportation 20.00% 283 292 27.00% 264 268 231 224 241 245 240 Building & 196 220 Construction Flexible Packaging 13.00%
Industrial 17.00% applications 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Rigid packaging 23.00% Rollded products Foil rolling and converting Panels
Chart 3a. Halcor sales mix (2017) Chart 3b. Halcor sales volumes (kMT 2007-17)
14.9% Tubes Cu 156 145 144 135 137 135 125 132 113 121 10.2% Rods & Tubes Ms 93 43.8%
Rolling Cu + Ms
31.1% Bus bars & rods Cu 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Tubes (Halcor) Rolling (Sofia) Cu Extrusion (Fitco) MS Extrusion (Sofia)
Source: The Company, AXIA Research
ELVALHALCOR – Initiation of Coverage
The merger
In November 2017 the EGM of Halcor (Athex listed, 68% controlled by Viohalco) approved the merger by absorption of Elval Hellenic Aluminium Industry S.A. (private, 100% owned by Viohalco). Note that Elval was delisted from Athex in 2016 (listed since 1996).
Based on the independent auditors’ valuation, the share exchange ratio for the shareholders of Elval was set at approximately 1:10, with each shareholder of Elval exchanging 0.099 shares in Elval for 1 share in the new entity. In total 273.9m new shares of Halcor were issued and allocated to Elval shareholders (Viohalco). According to our calculation, Elval (aluminium segment) for the merger purposes, was valued at 8.2x EV/LTM adj.EBITDA (1H17).
Following all relevant regulatory approvals the new entity under the name “ELVALHALCOR HELLENIC COPPER AND ALUMINIUM INDUSTRY S.A.” (ELHA) started trading at Athex on February 2018, with a starting price of EUR 2.00/share. Following the merger, Viohalco became the only major shareholder, currently owing 92% of the total shares.
Table 8. Shareholder structure pre and post-merger Entity Num. of shares % Entity Num. of shares % Viohalco 69,149,516 68.3% Viohalco (direct) 343,111,475 91.44% Other 32,130,111 31.7% Other 32,130,111 8.56% Total 101,279,627 Total 375,241,586 Source: The Company
The key rationale of the merger was the benefit of size of the new entity supported by the fact that both companies operate in a similar position in the metal value chain and share a common operating model. The new entity ranks amongst the biggest global non-ferrous metal industry producers making it a sizable and credible counterparty for its clients. Additionally the transfer of know-how and expertise between the two divisions should materially benefit production organization stream lining and overall competitiveness.
In addition the two companies hold adjacent facilities for their main production lines and the merger should allow them to better organise and extend their production and logistics facilities. Given the above, some synergies and economies of scale should be expected. The transfer of know-how and expertise between the two divisions should benefit production optimization and the overall competitiveness of the new entity.
The greater economic size is expected to significantly improve also the access to financing and the associated cost of debt. According to FY2016 data, gross debt of Halcor amounted to EUR 365.4m and of Elval at EUR 227.3m, with the companies realizing interest rates of 5.0% on their bond loans. In November 2017 and prior to the completion of the merger, the two companies refinanced bond loans of EUR 261.5m in total maturing within 2018 with new bond loans maturing in 2022 with the FY2017 average rate closing at 4.8% depicting already improvements in the liquidity and financing cost base of the company.
Finally the merger of the two entities under one company and the consolidation of various subsidiaries under ELHA has allowed the company to realise significant tax assets. According to the merger prospectus, cumulated tax losses of EUR 68m are estimated to be realised in the coming years. The entity will be able to offset these losses with future profitability starting 2017.
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ELHA business model-A common ground for both divisions
Both of ELHAs operating divisions are focused in the downstream of the non-ferrous metals value chain. The main pillars of the business model are: 1) Exposure to base metals demand, driven by technological developments, need for lighter and energy efficient products, urbanization and overall economy growth 2) Clear export orientation with commercial presence across all key regions promoting the portfolio in more than 80 countries resulting to c90% of derive from abroad 3) Focus on niche product markets in which ELHA has a competitive advantage, benefiting by attractive demand dynamics and higher margins 4) Neutrality to LME prices based on a focused pricing and hedging strategy 5) Continued focus in R&D in order to enhance product competiveness and offer integrated solutions to clients 6) Well invested, modern and flexible asset base that allows for a lenient cost structure and ability to meet clients demand specs 7) Solid financial background and commercial awareness important to attract and maintain clientele
Chart 4. ELHA business model
Revenues Raw material cost Commercial Raw material Opex Gross profit Margin sourcing value added
Source: AXIA Research
Achieving LME price neutrality Regarding the bulk of the orders it receives, ELHA passes the full cost of metal procurement directly to the client. Based on the agreement with the client, the price can be determined either at the delivery date, with ELHA hedging the exposure during the period or it can be agreed well ahead of the order delivery for a more niche and creditworthy clientele, again with ELHA hedging its exposure on the LME. This framework serves about 97% of both copper and aluminium segment clients. There is also a small number of clients providing their own metal for fabrication. The raw material price agreed with the client is based on the LME quoted prices and it additionally includes premiums related to the delivery and the primary fabrication of the metal as quoted by the major upstream industry players. The agreement on raw material cost usually takes into account product transportation, both primary and end product that is either undertaken by the client (about 15% of orders) or included in ELHAs commercial margin.
In respect of procurement, ELHA traditionally works with all the global major aluminium and copper producers as well as established commodity traders. The bulk of raw material used is imported. In this context we need to note that ELHA has access to own-port infrastructure of other Viohalco subsidiaries, across geographies that allows for the timely and effectively delivery and shipment of products.
Additionally, to the primary metal procured from the international metals market, ELHA has access to recycled/scrap metal either from the local markets or through Viohalco’s recycling business line. This secondary feed is complimentary used to the production mix and is being traditionally priced at a discount to primary metal. This feature creates a small but material additional margin for ELHA’s business units. We AXIA Research Page 12
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estimate this effect to be more profound on the copper business line due to the characteristics and availability of the metal.
In respect of currency, the bulk of the prices are quoted in euro terms, given that about 85% of the group sales are conducted in European continent (c75% in the EU). For the overseas clientele that requires pricing at local currency, ELHA hedges its exposure per order. We have to highlight that ELHA only moves to the metal and FX market after the order is placed, securing effectively a back to back hedge in all cases. Some quantities of metal are maintained by the company in the context of “strategic inventory”, including about 35kMTof aluminium (13% of sales) and about 15kMT of copper (10% of sales).
Metal result and adjusted EBITDA in financial statements The metal result as defined in the financial statements includes: 1) The time period that runs between the invoicing of the purchase, holding time and metal processing versus the invoicing of sales 2) The effect of the beginning inventory (which is affected by the metal prices of prior periods) in the cost of sales, from the valuation method which is the weighted average 3) Specific contracts with customers with closed prices that end in exposure to metal prices fluctuations between the period that the price was closed and the date the that the sale took place
Table 9. Metal result in financial statements and adjustments (amounts in EUR m)
1 Comparable figures Copper segment Aluminium segment FY2015 FY2016 FY2015 FY2016 Metal Price ($/MT) 5,493 4,884 1,749 1,657 EURUSD 1.11 1.11 1.11 1.11 Sales volumes (kMT) 137 135 268 283 Sales 751.1 692.9 859.3 842.7 Sales items not related to Metal result (70.5) (72.6) (404.9) (396.5)
(A) Value of metal in sales 680.6 620.3 454.4 446.2 Cost of sales (734.9) (653.0) (773.9) (768.6) Cost of sales items not related to Metal result 36.8 41.4 337.7 326.1 (B) Value of metal in the Cost of Sales (698.1) (611.6) (436.2) (442.5)
(C) hedging 2.8 (3.8) 0.8 (1.8) Metal results in gross profit (14.7) 4.9 19.0 1.9 EBIT (3.6) 19.6 58.6 48.9 D&A adjustments 18.5 15.7 39.1 40.5 Reported EBITDA 14.9 35.3 97.7 89.4 (+) Metal result (14.7) 4.9 19.0 1.9 adjusted EBITDA 29.6 30.4 78.7 87.5 (1) In the context of IFRS application during the merger process, the participation of aluminium segment is phased in only for the last 5 months of the year. Comparable data refer to a 12-month period. Source: The Company, AXIA Research
Cost structure Given what we discussed before on the neutrality on primary metal prices, the three main cost items driving ELHAs operating cost base are labour related expenses, energy utilities and complementary material (packaging etc.). For the group in total about 30% is labour related, 17% is energy related and about 50% is other complementary materials usage. Out of the total opex at current utilization rates c45% is fixed cost and 55% is variable, offering scope for significant leverage from the expected ramp up of the output going forward especially on the copper segment. Looking at segments, copper business in general is more energy intensive vs. aluminium that is more labour intensive.
The group in total employees about 2,600 workers in its production facilities, with about 2,000 of this workforce occupied in Greece (25% on copper segment and 75% on aluminium) and the rest in Bulgaria (copper operations). Unit labour costs in Greece have come down by about 13% since 2010 according to OECD estimates vs. an average 5.0-6.0% growth in other EU countries were competitors hold production facilities. Additionally Bulgaria presents one of the lowest hourly labour costs amongst EU countries. AXIA Research Page 13
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The group has a traditionally held a good relationship with its personnel given the importance of experienced and specialized personnel to the business lines marking labour an area of competitive advantage vs. peers.
Chart 5a. Hourly labour cost (EUR/hour, 2016) Chart 5b. Unit labour cost evolution 2010-2016
France 115.0 32.7 33.0 110.0 25.4 27.8 Greece 105.0 Austria 14.2 100.0 8.3 8.6 10.2 4.4 95.0 Czech Republic 90.0 Germany 85.0 Italy 80.0 2010 2011 2012 2013 2014 2015 2016 Poland
Source: OECD, AXIA Research
In respect of energy, the most sensitive division to consumption is the copper business and especially the units related to the smelting of the cathode and scrap/recycled metal. Currently the ELHA holds a contract with PPC’s supply division in Greece for the exclusive supply of electricity to its plants in a prevailing price of about EUR 55/MWh. The group also holds a small minority stake in the second largest IPP in the domestic electricity market (Elpedisson) that currently owns two natural gas fired units and is also present in electricity supply market. We have to note that Viohalco companies consist one of the largest single electricity consumers in the Greece.
According to EU Commission data for 3Q17, total electricity charges for industrial users in Greece are below the levels realised by central-western Europe users, yet they remain higher vs. the Eastern Europe and Balkans area, were a significant part of competition is based.
With the electricity market in Greece under a major restructuring phase driven by the alignment with the EU Target model for commonality among EU’s electricity markets, we believe the power prices could eventually come lower and support the competiveness of the domestic industries. This is especially true when taking into account the availability of a competitive fuel mix that includes the domestically sourced lignite and large hydro units.
Currently there is an ongoing tender for the sale of 3 lignite units and also discussions are taking place for the revamp of old and inefficient lignite units. We believe that any investor interested in these themes will eventually look to establish long term bilateral agreements with major consumers as ELHA in order to secure utilization. Additional supportive measures that are in place in other EU markets, like “interruptability” (industrial units go off-line in periods of high demand for a compensation), could also lower the electricity cost base.
Chart 6a. Electricity prices for industrial clients (EUR/MWh) Chart 6b. Gas prices for industrial clients (EUR/MWh-thermal)
154 150 272 275 258 138 249 235 243 118 218 223 100 101 190 191 88 74 78 69
Prices exclude VAT and other recoverable taxes. Source: Eurostat, AXIA Research
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In respect of natural gas, it is purchased to a great extend directly from the State controlled natural gas supply company, DEPA. Viohalco companies are one of the largest consumers in the country and has centralized natural gas contracts for all group units, achieving significant savings.
DEPA procures pipeline gas from Russia through the country’s Norther Borders and Turkey and LNG mainly from Algeria. The rather limited sourcing optionality of the Greek market has resulted to natural gas prices realised by industrials to be amongst the highest in the EU according to Eurostat data.
We believe that going forward there will be catalysts to support lower realized prices for end consumers. Among which: 1) natural gas discoveries in the Easter Mediterranean 2) new pipelines in the Northern borders of the country bringing Azeri gas to Europe (TAP); 3) privatization of distribution network (DESFA); 4) opening up of the domestic supply market via DEPA privatization and the entering of new players.
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Aluminium business line (Elval)
The aluminium segment of ELHA is well positioned in the global aluminium market, operating state of the art production facilities in Greece and a dynamic commercial presence across all key geographies. In 2017 the aluminium segment booked sales of EUR 940.9m, 50.5% of total group sales and EUR 87m of adj. EBITDA (67% of group total). Elval’s shipments have grown by 26% since 2008, driven by solid aluminium product demand and continued investments to increase capacity. This has increased adjusted EBIDTA by 180% since, with the company leveraging from its presence to niche markets and operational efficiencies. With global aluminium market across product lines estimated to grow by 3.0-6.0% CAGR in the coming years, the group is investing in a new production line that will increase its capacity by 50-60kMT (or 15.5%) by 2022, allowing adj. EBITDA to grow by an estimated 10% CAGR for 2017-22 to reach EUR 139.9m in 2022 vs. EUR 87m in 2017.
Chart 7a. Elval sales volumes 2007-17 (kMT) Chart 7b. Elval adj. EBITDA 2007-17 (EUR m)
87 87 283 292 79 264 268 241 245 240 70 69 231 224 220 61 66 196 60 50
31 32
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Rolled products Foil rolling and converting Panels
Source: The Company, AXIA Research, 2007-15 figures have been adjusted to exclude discontinued operations
Segment overview
ELHA’s aluminium business line, Elval, is active in the downstream operations of the aluminium value chain. More specifically it purchases raw materials from suppliers, transforms them into semi-finished and finished products that will eventually be used in a broad spectrum of markets. The company does not hold any interest in primary aluminium production, while its business model, as we explained in the previous part, does not entail any exposure to aluminium prices.
Chart 8. Aluminium production value chain
Primary Manufacturing/ Alumina Product Bauxite mining Aluminium semi- refining manufacture production fabrication
Source: AXIA Research
Rolled and extruded aluminium product prices are based generally on the price of metal plus a conversion fee (i.e., the cost incurred to convert the aluminium into a semi-finished product). The price of aluminium is not a significant driver of the financial performance, in contrast to the more direct relationship of the price of aluminium to the financial performance of primary aluminium producers. Instead, the financial performance of producers of rolled and extruded aluminium products, is driven by the dynamics in the end-markets they serve, their relative positioning in those markets and the efficiency of their industrial operations.
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Chart 9a. Elval product sales mix (2017) Chart 9b. Elval sales by region (2016)
Transportation 9% 1% 10% 20.00% Greece 27.00% 5% Building & EU (ex. Greece) Construction 11% Other Europe Flexible 13.00% Packaging Asia
Industrial America 17.00% applications ROW 23.00% Rigid packaging 64%
Source: AXIA Research, The Company
Facilities and key subsidiaries overview
Elval’s key production facilities are based in Greece, located within, or close to, Attica prefecture. The segment includes the aluminium rolling division, under Elval brand name, and the aluminium processing subsidiaries Symetal, Elval Colour and other smaller units. It operates 7 plants in total.
Table 10. Aluminium division key units Plant-Subsidiary Production line Capacity (kMT/year) Key products markets Transportation Packaging Elval Aluminium rolling 280 Construction Energy Flexible packaging Symetal (Oinofyta) Aluminium foil rolling 52 Pharmaceutical packaging Household foil Pharmaceutical packaging Flexible packaging Symetal (Mandra) Aluminium foil converting 26 Cigarette inner liners Confectionery Aluminium products used in Elval Colour Composite panels NM the building envelope (panels, sheets, shutters) Source: The Company, AXIA Research
Elval This is the segments largest and flagship plant and one of the largest aluminium processing plants in Europe. It is located in the outskirts of Attica, within the Oinofyta industrial complex. The capacity in 2010 increased to 240kMT following the completion of an extensive investment plan, while over the years efficiency improvements have pushed total capacity to about 280kMT currently.
The plants’ utilization in 2017 is estimated at about 92% (or c258MT). Out of the total output, about 220kMT are sold to third parties, while about 50kMT are used by Symetal, the foil processing subsidiary.
The plant’s flat rolled product line covers a wide range of markets, including transportation (sea, road and rail), packaging, construction, energy amongst other.
The group in early 2018 announced an agreement for the purchase and installation of a new four-stand tandem aluminium hot finishing mills in Elval plant. Following the hot finishing mill's installation, the plant's hot rolling capacity will more than double, while future additional investments will increase final production respectively. This is estimated to gradually increase capacity by 50-60kMT (c20%) starting from the second half of 2020.
Symetal The aluminium foil rolling and converting subsidiary operates two plants, one within the Oinofyta complex and another one in Western Attica region. The two plants have a capacity of 52kMT and 26kMT respectively (78kMT in total), with their combined output in 2017 reaching 66kMT vs. 48kMT in 2010.
Symetal uses rolled aluminium product output from Elval plant (50kMT), while it also procures additional foil from third parties to meet demand and product specs. AXIA Research Page 17
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Symetal plants caters mainly the packaging sector that Elval holds a significant market share (in the EU). More specifically it offers products mainly for the food and pharmaceutical usage market, as well as technical applications, cigarette inner linings etc.
Elval Colour This is the segment’s coated aluminium manufacturing subsidiary. The division offers market leading solutions for the broader construction envelope (roofs, panels, sheets, shutters), with its product lines used in major global landmark projects (Marina-Bay in Singapore, Bangalore airport etc.). The total sales of the subsidiary reached 15kMT in 2017.
End market outlook and earnings drivers
Global aluminium consumption in 2017 grew for another year with strong rates, by about 6.0% y-o-y to stand at about 64mMT. In Europe (63% of Elval sales), primary aluminium demand grew by 3.2% y-o-y in 2017 mirroring the underlying economic improvement. Strong growth rates were evident across all geographies with North America growing by 2.6% y-o-y, Asia (ex-China) 3.4% y-o-y, Russia & CIS by 11.0% y-o-y, while in China demand reached 34mMT growing by about 7.3% y-o-y.
Chart 10a. Global aluminium demand-supply Chart 10b. Aluminium consumption by region estimates (kMT) and product
Other 75.8 100% 73.5 73 90% 70.4 71.7 Machinery & 67.3 68.2 80% Equipment 64.1 64.9 70% Consumer Goods 63.4 60.5 60% 60.1 Packaging 56.6 57 50% 40% Electrical 30% Transport 20% 2015 2016 2017 2018E 2019E 2020E 2021E 10% Construction Demand Supply 0% EU NA China
Source: Rusal, AXIA Research,
In terms of products, rolled products demand (about 35% of total aluminium consumption) grew in 2017 by 3.5% in North America and Europe.
Transportation sector (automotive) has seen its share increasing rapidly over the last years, with consumption exceeding demand for lightweight vehicles on the back of increasing substitution trends. We believe this effect will have a continuously increasing impact on sector demand, taking into account the increasingly stringent EU and U.S. regulations relating to the reduction in carbon emissions and fossil fuel dependence. This is expected to force the automotive industry into substantially increasing its use of aluminium to lightweight vehicles. This has driven market to estimate a growth of 12% CAGR for 2017-2024 for aluminium from global automotive industry demand.
Packaging that accounts for 50% of the rolled products demand has seen consumption growing driven by the can stock industry and foil consumption in emerging economies. In Europe specifically, aluminium cans represent about 15% of total flat rolled demand and about 36% in the US. Due to its specs, aluminium usage by the industry has been rising, with its penetration in the EU can stock market increasing by about form 58% in 2002 to 85% in 2016. In the US, data indicate that penetration of aluminium in the can industry has been at 100% for many years. Market estimates that global demand for beverage cans will grow by about 3-4% per year up until the end of the decade, driven by increased penetration in Europe, demand from emerging markets and growth in high margin products such as the speciality cans used for energy drinks. Another growing market segment with strong trend dynamics is bottle caps and closures market following the increasing trend for the usage of aluminium caps in the wine and spirit bottles.
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Looking on the extruded products, aluminium extrusion is used for a wide range of purposes, including components of the transportation and industrial markets. The increased focus on green-building is also leading contractors and architects to use more extruded aluminium products as aluminium extrusions are flexible and corrosion-resistant. These diverse applications are possible due to the advantageous attributes of aluminium, from its particular blend of strength and ductility to its conductivity, its non-magnetic properties and its ability to be recycled repeatedly without loss of integrity. In this context global demand from the construction sector is expected to increase by about 2.1% CGR for 2016-2021.
Taking the above into account aluminium industry experts expect a solid market for the coming years with total aluminium’s demand growing by about 3.0-6.0% up to the mid of the next decade.
Chart 11. Global aluminium usage trends
8.9% 8.5% 8.4% Other 5.3% 5.1% 5.2% 17.5% 16.1% 15.7% Machinery & Equipment Consumer Goods 12.2% 12.4% 12.8% Packaging
32.9% 35.6% 39.4% Electrical Transport 18.1% 17.6% 14.3% Construction
2015 2020 2030
Source: Rusal, Hydro, AXIA Research
Competition-Solid and healthy
Amid this lucrative market, all major aluminium producers have improved their profitability over the years and cured balance sheets, while continued to invest to improve competitiveness and catch up with rising demand.
We estimate that global aluminium producing industry has managed to improve its unit profitably in terms of adj EBITDA/MT by about 20% on average since 2013. This translates to CAGR of 4.8% and compares to a global aluminium demand growth for the period of about 6.0% CAGR.
Chart 12. Major aluminium producers EBITDA/MT (EUR) evolution 2013-LTM
500
400
300
200
100
0 Aleris Novelis AMAG Alumetal Constelium Kaiser Elval Average Aluminium 2013 2014 2015 2016 LTM
Source: Companies FS, AXIA Research
Additionally shifting trends have emerged, with producers focusing on highest growing markets (automotive, aerospace) that would allow for higher profitability. All major players such as Alcoa, Aleris, Novelis are investing heavily in the automotive finishing capacity by converting production lines, with market estimating capacity for automotive applications to expand by about 12% in the world, ex-China, over the coming years.
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This loss in capacity for other product lines (packaging, cans) we believe could tighten this markets’ supply, while the faster the auto body-sheet market grows the greater the volume loss will be. This would eventually create opportunities for local/regional market players on the back of widening deficits in specific products lines (packaging, cans) and in niche markets to ensure strong margins in the future.
Focusing on Elval’s key market, Europe, total aluminium consumption currently amounts to c5.0mMT, while total production in 2017 reached c5.3mMT, with the continent being a net exporter of aluminium. Growth rates of 3.0-4.0% translate to demand increasing by about 200kMT per year providing to our view a sufficient space for market players to increase output, without structurally altering market demand/supply dynamics.
Elval’s positioning in the market and strategy
Elval over the years, acting on a clear extrovert strategy, has become a key player in the European aluminium market. The company is leading specific market segments, while its well invested asset base and know how makes it flexible to respond to demand dynamics. Moreover a lenient cost base and market positioning allows to translate market catchment gains to profitability.
Elval’s output in 2017 reached 292kMT growing by 3.7% y-o-y and by 20.2% since 2013. About 90% of 2017 volumes were exported to international markets, with Europe (ex-Greece) accounting for 75% of total. Greece accounted for 10% of the sales with the bulk of the domestic sales directed to a global can producer. In terms of products mix, packaging accounted for about 44% of total sales, transportation for 20%, industrial applications for 17% and construction envelope for 13%.
In terms of footprint in the European market, according to company estimates, Elval holds a 33% stake in food products (second largest player), 22% of marine and 12% of construction (3rd largest player). Additionally the company holds strong position in global niche markets like truck floors (~80% of global market).
In terms of clientele, the company serves as a supplier for a number of blue chip clients in various markets (Crown, Euramax, Canpack, Empire, Ardagh, JTI, Constantia). Yet it maintains a rather diversified client base with no major client representing more than 10% of its total sales, providing limited concentration risk for its sales.
Chart 13. Elval’s European market shares (2016)
Food products Construction/Building Marine Products
Elval Elval Elval 12% 22% 33%
Other Other 67% Other 78%
Source: Company estimates, AXIA Research
Over the years, Elval has constantly invested in its production lines targeting both increased capacity but also efficiency and innovation. In total the segment has invested more than EUR 400m over the last 10 years focusing on both on capacity and cost reduction.
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Chart 14a. Capex 2007-17 Chart 14b. Cumulative capex vs adj EBITDA/MT
500 350 49.5 49.6 47.2 300 47.0 400 250 39.3 300 38.4 37.6 200 150 32.0 32.1 32.9 200 30.6 100 100 50 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cumulative capex (EUR m)-lhs adj EBITDA/MT
Source: The Company, AXIA Research
Another key element for the improvement in profitability has been the ability of the company to maintain and expand its commercial margin. This has been achieved by i) strong market positioning and relationship with client base; ii) penetration in higher margin product range (Symetal-foil conversion unit- sales up 8.2% CAGR for 2007-17); ii) production flexibility enabling the company to meet shifting demand and maintain utilization.
In this context we estimate that the realized commercial margin for 2017 settled at EUR 1,358/MT, vs. just EUR 777/MT in 2008. In absolute terms this translates to net added value revenues of EUR 397m in 2017 from EUR 179m in 2008.
Chart 15a. Commercial margin evolution 2007-17 Chart 15b. Symetal sales volumes (kMT) (EUR/MT)
70 26% 1,386 1,382 1,340 1,358 60 1,252 1,252 22% 1,117 1,074 50 1,021 18% 40 777 730 14% 30
20 10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Symetal % of total shipments
Source: The Company, AXIA Research
At the same time the modern asset base and focused operations have kept total expenditure under control, with expenses for both production and SG&A growing by 5.7% in 2008-17 on a per unit basis vs. a commercial margin growth of 6.4%.
This has allowed the company to drive its profitability levels in adj. EBITDA terms to EUR 87min 2017 vs. EUR 30.7m in 2008 (+12.2% CAGR).
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100 305.3 309.3 350 284.6 295.1 298.1 273.7 262.1 300 80 254.0 225.6 250 60 200 133.2 143.9 87 87 40 79 150 70 69 60 61 66 100 50 20 31 32 50 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
adj. EBITDA-lhs unit margin (EUR/MT)-rhs
The figures have been adjusted to exclude discontinued operations Source: The Company, AXIA Research
Volume growth estimates
In total, the European market size for Elval’s products according to the company estimates amounts to 5.0mMT and it is expected according to converging market estimates to register an annual increase of 3.0- 4.0% by 2022. This translates to about 200kMT of additional demand per year. We believe that the actual figure on specific product ranges could eventually be higher on the back of shifting capacity from major players towards the automotive and aerospace sector.
In this context, we expect Elval’s sales going forward to be driven by i) growing market demand; ii) increasing market share; iii) efficiency/debottlenecking improvements that will allow slightly higher output in 2018-20; and iv) new capacity that the company is bringing online (50-60kMT by 2H of 2020).
Table 11. Elval’s product sales mix vs. global demand trends Elval product sales mix Global demand trends Industry (2016) (2016-21) CAGR Transportation 21.0% +4.9% Building & Construction 11.0% +2.1% Flexible Packaging 21.0% +3.5% Industrial applications 20.0% +4.2% Rigid packaging 27.0% +3.3% Source: The Company, Rusal, Alcoa, Kaiser, AXIA Research
More specifically, given the already high utilization of the rolling plant (92% in 2017), we expect sales volumes to third parties of the rolling division to slightly increase by 4.0-5.0kMTs per year in 2018-20. Thereafter, as new capacity is coming online we model for an output of above 310kMT by 2022 (91% utilization rate), with third party sales reaching 270kMT. Overall 2017-2022 output growth of the rolling division is estimated at 4.9% CAGR.
In respect of the foil subsidiary (Symetal), capacity utilization is estimated at about 84% currently (from 60% in 2010), with an output of 66kMT (23% of total sales). Given that the company has not announced any additional investments for Symetall, we maintain a conservative view and keep volume stable at current levels for the medium term. On the panel subsidiary (Elval Colour) sales in 2017 reached 15kMT (4.1% of total) and we expect then to remain at these levels going forward, noting as an upside risk the case of booking large international contracts.
All in all, we are looking for total aluminium segment sales volumes to grow by 3.7% CAGR during 2017-22 in line with overall market, and reach 350kMT from 292kMT in 2017.
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Chart 17. Aluminium segment sales volume estimates 2016-2022f (kMT)
350 15 310 317 303 292 297 283 15 15 15 66 15 15 12 66 66 66 66 65 66 269 236 222 229 206 212 216
2016 2017 2018f 2019f 2020f 2021f 2022f
ELVAL Symetal ELVAL Colour
Source: AXIA Research
Profitability growth estimates
On a headline our profitability assumptions are driven by i) expanding commercial margins in 2017-20 (mid to low single digit) amid slightly increasing output, market demand growth and sales mix evolution and ii) sharp rise in output and operational efficiencies during 2020-2022 as new capacity comes online.
Given the solid market demand and Elval’s positioning in the industry we conservatively account for mid to low single digit growth over the next couple of years steaming mainly from the company’s ability to steer sales to higher margin products. Moving forward (after 2020) we cautiously assume a small draw back in pricing as the company will have to push in the increasing output.
We estimate a blended commercial margin for the aluminium segment to move from EUR 1,360/MT in 2017 to EUR 1,422/MT in 2019 and we maintain at these levels going forward. Note that we also assume that Elval will be able to generate some additional profitability through the usage of scrap/recycled metals (about EUR 5.0-6.0m per year).
Looking on the opex, as we have detailed before, 30% is labour related expenses and about 14-17% to energy. Out of the total, about 40% is fixed and 60% variable. For 2017 we estimate a blended opex unit cost stood at EUR 988/MT.
Given the need for specialized personnel and the adjustment that has already taken place in labour costs in Greece we would not expect any material additional savings in payroll terms. The same applies for energy costs. On a medium to longer term view though we believe the new investments will benefit the operating cost base on the back of economies of scale and efficiencies despite the inflation and rising labour rates.
Additionally to those as we discussed previously we are positive on the prospect of lower energy costs for the industry in Greece. All in all, we believe that starting in 2020 the company could lower its operating cost base by about 11% in total up to 2022.
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Chart 18: Commercial margin and opex estimates
1,600 1,422 1,426 1,431 1,382 1,358 1,392 1,402 1,400 1,200 1,015 988 986 975 938 1,000 890 880 800 600 400 200 0 2016 2017 2018f 2019f 2020f 2021f 2022f
Commercial margin (EUR/MT) Opex (EUR/MT)
Source: AXIA Research
Taking into account the above our estimates call for an adj. EBITDA growth of 9.9% in 2017-22, with adj. EBITDA growing from EUR 87.1m in 2017 to EUR 103.9m in 2019 and to EUR 139.9m in 2022. In this context we see unit margin (adj. EBITDA/MT) expanding by EUR 100/MT during 2017-22 (from EUR 298.1/MT in 2017 to EUR 399.8/MT in 2022).
Chart 19. Aluminium segment adj. EBITDA (EUR m) and unit margin estimates
160.0 407.4 399.8 450.0 370.9 140.0 343.1 400.0 315.4 309.3 298.1 139.9 350.0 120.0 129.1 300.0 100.0 115.1 103.9 250.0 80.0 93.8 87.5 87.1 200.0 60.0 150.0 40.0 100.0 20.0 50.0 0.0 0.0 2016 2017 2018f 2019f 2020f 2021f 2022f adj. EBITDA-lhs unit margin (EUR/MT)-rhs
Source: AXIA Research
Table 12. Aluminium segment key model assumptions and estimates EUR m 2016 2017e 2018f 2019f 2020f 2021f 2022f Aluminium Price ($/MT) 1,657 2,023 2,200 2,200 2,200 2,200 2,200 EURUSD 1.11 1.13 1.25 1.25 1.25 1.25 1.25 Volume sales (kMT) 283 292 297 303 310 317 350 Revenues 843 941 989 1,016 1,042 1,066 1,166 Commercial margin 391 397 414 431 443 454 491 Opex 287 289 293 295 291 282 308 Gross Profit 114 116 125 135 147 162 174 adj. EBITDA 87.5 87.1 93.8 103.9 115.1 129.1 139.9 adj. EBITDA/MT 309.3 298.1 315.4 343.1 370.9 407.4 399.8 adj. EBITDA margin 10.4% 9.3% 9.5% 10.2% 11.0% 12.1% 12.0% Source: AXIA Research estimates
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Chart 20. Aluminium division business model (amounts for 2017 in EUR 000’s/MT)
3,222
1,358
1,358
395 298 395 297 Revenues Raw material Commercial Opex Gross profit SG&A adj. EBITDA cost Margin
Source: AXIA Research estimates
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Copper business line (Halcor)
Halcor is one of the major players in the European copper industry. Halcor is the larger producer of copper tubes in Europe having the largest and most efficient plant in EMEA region, with strong input in heat exchanging industry, electrical and industrial markets. The division’s sales volumes in 2017 reached 156kMT, booking revenues of EUR 992m (50% of ELHA total) and adjusted EBIDTA of EUR 42.2m (32% of ELHA total). Exiting a difficult period for the copper industry with overcapacity burdening producers despite the healthy (but modest) demand, Halcor has managed to increase its shipments by 68% since the lows of 2009 with its adj. EBITDA increasing in the respective period by more than 30% CAGR. Halcor is expected to continue to increase its utilization and profitability taking advantage of available production capacity and leading market position. We estimate total shipments to increase by 3.0% CAGR in 2017-22, with adj. EBITDA increasing by 12.1% CAGR for the same period to reach EUR 74.2m in 2022 from EUR 42.2m in 2017.
Chart 21a. Halcor sales volumes (kMT) Chart 21b. Halcor adj. EBITDA (kMT)
42.8 42.2 156 145 144 137 34.4 132 135 135 32.3 121 125 30.0 113 28.0 25.1 93 24.0 19.4
11.3 4.7
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: The Company, AXIA Research
Segment overview
Halcor is active in the downstream operations of the copper and copper alloys value chain. More specifically the company purchases pure copper cathode from copper refiners and with the additional input of recycled/scrap metal casts it to primary copper products and alloys. Thereafter using various methods (forging, extruding, and rolling) fabricates finished or semi-finished copper and copper alloy products to be used further down the manufacturing industry.
Chart 22. Copper production value chain
Source: The Company, AXIA Research
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In a similar framework to the aluminium business, copper product prices are based on the price of metal plus a conversion fee. The price of copper is not a significant driver of the financial performance. Instead, the financial performance of the producers, is driven by the dynamics in the end-markets they serve, their relative positioning in those markets and the efficiency of their industrial operations. A material part of the producer’s profitability is based on their ability to procure and convert scrap/recycled material. Scrap usage covers about 20% of the total copper consumption of the industry.
Halcor currently holds direct interest in the industrial, construction and manufacturing market of copper products following the spin-off of its cable business (Hellenic Cables) in 2015 that now operates under another Viohalco subsidiary (Cenergy Holdings). Halcor, and thereafter ELHA, currently holds a minority stake in Cenergy Holdings (25%).
Chart 23a. Halcor product sales mix (2017) Chart 23b. Halcor sales by region (2016)
3.0% 6.0% 14.9% Tubes Cu 6.0% 7.0% Greece 43.8% EU (ex. Greece) 10.2% Rods & Tubes Ms 13.0% Other EU
Asia Rolling Cu + Ms America
Africa 31.1% Bus bars & rods 65.0% Cu
Source: AXIA Research, The Company
Facilities and key subsidiaries overview
Halcor stands in the market as a versatile and flexible copper solutions provider through its copper tubes division under the Halcor brand name and the copper processing subsidiaries Fitco and Sofia Med (Bulgaria). Halcor’s tubes plant is the largest and most efficient in the EMEA region. Total third party shipments from the three main units of the segment in 2017 reached 156kMT.
Table 13. Aluminium division key units Plant-Subsidiary Production line Capacity (kMT/year) Key products markets Building/construction Air conditioning, refrigeration, heat Halcor Copper tubes 75 exchangers Renewable energy Industrial applications Construction Decoration Fitco Extruded copper alloys 40 Electrical equipment Fish farms Construction (roofing, gutters) Rolled and extruded Electrical engineering Sofia Med 120 copper (connectors, valves, batteries etc.) Decoration Source: The Company, AXIA Research
Halcor The tubes plant of Halcor is the biggest in the EMEA region with a production capacity of 75kMT per year. Its state of the art manufacturing equipment includes one of the three biggest extrusion presses worldwide. It is located in the Oinofyta industrial complex. The plant produces various types of copper tubes used in both construction and industry.
In 2017 total shipments from the plant amounted to 68kMT, increasing by more than 60% vs. 2009. Currently the product mix of the plant is skewed towards industrial applications, with a strong output in the heating
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industry (air-conditioning, refrigeration, heat exchangers). More than 70% of the products are currently geared towards industrial applications, with the rest 30% targeting the construction and building industry.
In respect of input mix, the plant uses copper cathode (65% of the input), while the remaining 35% is recycled/scrap metal sourced by various suppliers and Viohalco’s recycling arm. In terms of primary metal, apart from first grade cathode, the advanced production lines, allow the plant to use also second grade cathode, improving the profitability of its sales mix, while maintaining product specs at high standards.
Fitco Fitco plant is located in Attica and has a production capacity of 40kMT per year. The plant specializes in the production of extruded copper alloys using also zinc. Although the production has recovered from the sharp drop in demand towards the end of the previous decade, the utilization remains at low levels, with total shipments in 2017 reaching 16kMT from 11kMT in 2009. The plant’s product range is focusing in various applications used both in industry and in construction as well as more specialized products (aquaculture cage wires).
Sofia Med The facilities in Bulgaria were acquired by Halcor in the early 2000’s following a strategic decision to increase the company’s footprint in the European market. Currently ELHA controls 89% of Sofia Med, with the rest owned by Viohalco. The plant has a capacity of 120kMT and is producing rolled and extruded copper and alloy products serving both industrial and construction applications and importantly, having exposure to parts of the rapidly growing electric vehicles applications market.
The facility, with the transfer of knowhow from Elval in rolling product range is now ramping up its output as the exposure in industrial markets grows, while substitution trends in construction products lines persists. The support of the parent group has been instrumental for the turnaround of the business and has resulted in output in 2017 to reach 72kMT, growing by 25% y-o-y and being 77% higher vs. 2009.
Chart 24a. Sofia Med sales volumes (kMT) Chart 24b. Sofia Med adj. EBITDA and EAT
72 10.4 7.8 7.3 8.3 66 64 61 57 57 -2.3
-11.7 -13.8 -16.0 2013 2014 2015 2016 2012 2013 2014 2015 2016 2017 adj. EBITDA EAT
Source: The Company, AXIA Research
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End market outlook and earnings drivers
Global refined copper consumption in 2017 is estimated to have reached about 23mMT, growing by about 1.0% y-o-y according to the International Copper Study Group. Consumption growth in China for 2017 is seen at about 2.9% upon an estimated consumption of about 11mMT in 2017, accounting for 48% of the global consumption. In other regions, US consumption at 1.84mMT (8.0% of global) grew by 1.4% y-o-y, while Europe, the second largest consumer of refined copper demand reached of 3.7mMT in 2017 depicting a slight reduction y-o-y (-0.2%).
Looking on copper consumption by industry, according to market data construction envelope accounts for about 31% of the global copper consumption. Consumer products and electrification account for about 4% and 23% respectively, with industrial applications covering 11% of the volumes.
Chart 25b. Copper consumption by industry Chart 25a. Copper consumption by region (2016) (2016)
China 10.7% 11.0% Construction 31.0% India 47.6% 11.0% Consumer 16.8% Asia (ex. China- products India) Electrification USA 8.1% Industry machines EU 23.0% Transport 14.6% 2.2% ROW 24.0%
Source: Antofagasta, AXIA Research
Sustained growth in copper demand is expected to continue as copper is essential to economic activity and even more so to technology. Global economic growth is a major driver for consumption. Additional infrastructure development and urbanisation in major countries such as China and India are expected to sustain growth in copper demand. Looking forward, market expects demand to accelerate to 2.0% globally in 2018 vs. 1.0% in 2017, driven mainly by Chinese grid investments. Moderate growth rates of 1.0-1.5% are expected for Europe and for other advanced economies in 2018.
Chart 26. Copper consumption growth trends y-o-y
15.0% 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% 2012 2013 2014 2015 2016 2017e 2018e -6.0% -9.0% China Europe Global
Source: ICSG, market estimates, AXIA Research
Long term global trends estimates call for a CAGR of about 2.0% until the beginning of the next decade. This is expected to be driven by global investments in energy infrastructure and growing demand in renewable energy technologies. Additionally, urbanization in China and other emerging economies should keep consumption growth at mid-single digit rates for the respective regions.
Another factor contributing to the increase in global demand is the increase in demand of electric cars. An average electric car requires 80 to 90 kilograms of copper compared to an estimated 25 kilograms for a conventional passenger car. We believe this to be a long term demand driver for global copper consumption, with the effect closely tied to the timing of the penetration of EV in the market. Yet in this case substitution
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(HV wiring, thinner copper foil in the battery anode) remains an ever present risk. An additional upside (but hard to assess) could come from the charging infrastructure for these cars that could turn to be even more copper intense vs. building the vehicles.
Not everything though is green for the sector
Despite the recent healthy demand growth for copper, the sector is yet on a recovery mode from the deep downturn in 2008-2013. In the middle of the past decade market assessed that copper demand would double by 2020 with estimated growth rates of 8.0-12% on the back of economic growth and emerging market urbanization. These expectation have led copper supply to grow by 47% in 2003-2015.
Despite the fact that demand was healthy at 2.0-3.0%, economic slowdown and substitution trends had a negative impact on copper demand. Additionally, the drivers of the consumption have shifted over the years away from the construction building element and towards industrial use and electrification.
The need for new and more flexible products lines amid already stretched balance sheets has driven players to exit the market (or certain segments), shut down plants, reshuffle their production portfolios, while global commodity names lowered their exposure to copper to focus on other metals that had stronger growth trends (aluminium).
This has allowed the few remaining industry players to gain market shares and improve their competiveness in the recent periods by shifting sales mix to meet demand and taking advantage of price increases. Yet according to our estimates, utilization of the operational capacity of the Western Europe remains below 80%.
Chart 27. EBITDA margin (%) of major EU copper players
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Wieland KME Halcor Average
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 LTM
Source: Companies FS, AXIA Research
Regarding European market performance, the demand for copper and copper-alloy semi-finished products for the building sector continues to be characterised by underlying weakness, which dilutes the positive effect of the increase in added value obtained through a diversified range of products and the development of innovative solutions for the construction envelope. Taking this into account we believe that the less tense competition should be beneficial for players with financial strength and production flexibility, allowing the sector to gradually recover going forward.
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Halcor positioning in the market and strategy
In 2017 Halcor total volume sales reached 156kMT, increasing by 15.4% y-o-y. This has been driven by the gradual ramping up on industrial related product lines from Sofia Med (flat roll) and Fitco (extrusion), while industrial tubes of Halcor also posted a high single digit hike. In terms of sales mix, Europe absorbed the bulk of the sales (78%, ex Greece), while Greece accounted for just 6.0%. In respect of product lines about 60-70% of the total output is targeting industrial applications and the rest targeting the construction industry.
The company through a continued investment plan has emerged as one of the two biggest players in the industrial and construction copper products market in Europe, a segment that has an approximate size of about 850-900kMT. As the biggest and most efficient copper tubes producer in the EMEA region, the company is covering about 18% of the total market demand through its Halcor plant in Greece. Also through the conversion subsidiaries Fitco and Sofia Med holds a 16% share in the copper bus bars market and a 10% stake in the rapidly growing copper rolled products market.
In terms of clientele, the company serves as a supplier for a number of blue chip clients in various markets (Daikin, Schneider Electric, Interdryers, Sanha, Luvata). Yet it maintains a rather diversified client base with no major client representing more than 10% of its total sales, providing limited concentration risk for its sales.
Chart 28. Halcor European market shares (2016)
Copper tubes market Copper bus bars Copper and alloy rolled share of Halcor products 16.0% 10.0% 17% 18% 16% 14% 13% 84.0% 90.0%
2012 2013 2014 2015 2016 Halcor Other Halcor Other
Source: Company estimates, AXIA Research
Halcor volumes have grown by 60% since the lows of 2009 (6.0% CAGR), outperforming market growth. The market share gains have been driven by a focused strategy and the support of the parent group, Viohalco through the transfer of knowhow and technology from other Viohalco entities (especially from Elval in rolling products). This has allowed Halcor product mix to steer from the construction envelope market (accounted for 70% of output in late 00’s) towards the industrial applications (70% of current mix).
Currently capacity utilization for the tubes unit stands at about 80% vs. 70% in 2012, while for the Sofia Med unit (construction and industry) utilization is seen at about 60% currently, but with a differentiating sales mix. On Fitco, utilization remain low at 35-40% on the back of higher exposure to construction element.
Chart 29. Halcor volumes sales mix performance (kMT)
23 16 17 19 20 21 16 26 19 22 28 20 16 17 13 16 12 13 11 12 13 48 41 39 11 45 37 37 35 35 42 44 29 62 60 56 64 64 68 41 51 52 52 53
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Tubes (Halcor) Rolling (Sofia) Cu Extrusion (Fitco) MS Extrusion (Sofia)
The figures have been adjusted to exclude discontinued operations Source: The Company, AXIA Research
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In respect of pricing, the blended commercial margin in 2017 stood at EUR 821/MT, declining by 2.0% y-o-y. Overall commercial margins have shown limited volatility during the previous years, having recovered by just 3.0% since 2009. This could be attributed to a cautious pricing policy amid a trembling market, with the company primarily looking to maintain volume levels and utilization rates.
Chart 30a: Halcor commercial margin (EUR/MT) Chart 30b: Halcor adj. EBITDA margin (EUR/MT)
878 45 350 838 40 821 300 810 809 35 798 250 780 778 773 781 30 757 25 200
20 150 15 100 10 50 5 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 adj. EBITDA-lhs unit margin (EUR/MT)-rhs
Source: The Company, AXIA Research
The recovery in volumes has allowed adj. EBITDA to increase to EUR 42.2m in 2017 from EUR 4.7m in 2009 and EUR 28.0m in 2008. On the more recent period (2012-17) adj.EBITDA has grown by about 75% driven by both higher volumes and improved profitability on the back of better product mix and more efficient production.
In January 2018 ElvalHalcor announced the establishment of a JV in titanium zinc production with Nedzink BV (Netherlands).
Volume growth estimates
In a snapshot our estimates for the coper business line include i) volatile market for copper products in Europe with growth rates of >2.0% in the medium term, mainly driven by industrial demand; ii) market share gains on the back of positioning in the market and modest competition. More specifically, for Halcor we model in annual growth rate for 2017-22 of about 3.0%, with total shipments reaching 181kMT in 2022 vs. 156kMT in 2017.
This should be driven mainly by the ramp up of the rolling and extrusion production of Sofia Med that is geared towards industrial usage and EV applications. In our view these are the key markets for the sector. According to estimates these markets could comfortably register mid-to high single digit growth rates for the medium term. Additionally we believe the company to be well positioned to leverage on its solid financial profile and size to attract client orders. Thus we estimate utilization rate to increase to 90% by 2020 from 65- 70% in 2017 for Sofia Med unit with output growing by 4.7% annually in 2017-22.
In respect of the tubes plant, we estimate volume output to grow to 74kMT by 2022 from about 68kMT in 2017 (1.6% CAGR) in-line with market growth expectations. Further output increase at this step is capped by the already high utilization of the plant that is exceeding 90% in 2017-18. Given the still volatile market outlook, we would expect any decision for new investment to be based on solid underlying demand data.
Finally, on Fitco, we cautiously account for stable sales volumes, driven by the company’s exposure to the construction market. Yet we mark as an upside the recovery of niche markets for the subsidiary (aquaculture).
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Chart 31a. Halcor sales volume estimates 2016-22 Chart 31b. Halcor sales mix estimates 2017-22
181 181 173 167 15.3% 14.9% 15.1% 15.3% 15.5% 16.1% 16.1% 156 161 29 29 135 26 27 9.9% 10.2% 9.9% 10.2% 9.8% 9.4% 9.4% 23 24 17 17 17 16 17 21 16 27.3% 31.1% 31.5% 32.0% 32.4% 33.6% 33.6% 13 56 61 61 48 51 53 37
47.6% 43.8% 43.5% 42.5% 42.2% 40.9% 40.9% 64 68 70 71 73 74 74
2016 2017 2018f 2019f 2020f 2021f 2022f 2017 2018f 2019f 2020f 2021f 2022f Tubes (Halcor) Rolling (Sofia) Tubes (Halcor) Rolling (Sofia) Cu Extrusion (Fitco) MS Extrusion (Sofia) Cu Extrusion (Fitco) MS Extrusion (Sofia)
Source: AXIA Research
Looking on the pricing, the blended commercial margin of the copper segment stabilized during 2012-14 at levels of EUR 750-770/MT as the company focused on maintaining sales volumes and plants utilization. Over the last 3 years price levels have advanced by about 7.0% mainly on the back of more profitable sales mix, standing at about EUR 820/MT in 2017.
Looking further ahead, we estimate realized commercial margin to engage on an upward trend as the company will be looking to benefit from supressed competition and versatile capacity catering growing and margin accretive product ranges. Specifically for the industrial product lines coming out of Sofia Med unit (we model high single digit increases for 2018-20).
Overall our estimates call for a blended commercial margin to expand from EUR 820/MT in 2017 to EUR 873/MT in 2019 and reach EUR 900/MT by 2021.
Chart 32a. Net added revenue (EUR m) Chart 32b. Commercial margin (EUR/MT)
164 167 921 154 146 907 136 892 128 113 873 846 838 821
2016 2017 2018f 2019f 2020f 2021f 2022f 2016 2017 2018f 2019f 2020f 2021f 2022f
Source: AXIA Research, The Company
On the cost base, the segment is expected to be materially benefited from the increased utilization of the plants to realize economies of scale. Recall that the cost base is about 40% fixed. Upon the 15% hike in volumes in 2017 unit opex fell by about 9.0%, we expect the declining trend to continue for the next couple of years, as the company realizes economies of scale due to ramping up production.
Another profitability driver for the division (and overall of the copper industry) is expected to remain the ability to procure and utilize metals coming either form recycling/scrap markets or second grade cathode, allowing the plants to realize higher profitability margins. We estimate the copper segment to be able to realize metal gains of about 20m per annum.
Given the above assumptions for prices and opex, we expect profitability of the copper segment to grow over the medium term (2017-22) by about 8.0% annually, with adj. EBITDA margin reaching EUR 335/MT in 2018 vs. EUR 270.6/MT in 2017, and maintain a growing trend until it reaches EUR 410/MT in 2022.
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Chart 33a. Halcor unit opex estimates Chart 33b. Halcor adj. EBITDA (EUR m) estimates
412.0 600 574 80.0 395.6 408.1 450.0 369.1 70.0 335.8 400.0 550 521 350.0 60.0 270.6 239.1 300.0 500 471 472 50.0 465 460 464 250.0 40.0 74.6 68.4 73.9 200.0 450 30.0 61.6 54.1 150.0 20.0 42.2 400 32.3 100.0 10.0 50.0 350 0.0 0.0 2016 2017 2018f 2019f 2020f 2021f 2022f 300 2016 2017 2018f 2019f 2020f 2021f 2022f adj. EBITDA-lhs unit margin (EUR/MT)-rhs
Source: AXIA Research
Table 14. Copper business line model assumptions EUR m 2016 2017 2018e 2019f 2020f 2021f 2022f Copper Price ($/MT) 4,884 6,248 7,000 7,000 7,000 7,000 7,000 Zinc Price ($/MT) 2,102 2,800 3,000 3,000 3,000 3,000 3,000 EURUSD 1.11 1.13 1.25 1.25 1.25 1.25 1.25 Volume sales (kMT) 135 156 161 167 173 181 181 Revenues 691 922 979 1,018 1,059 1,111 1,114 Net added revenue 113 128 136 146 154 164 167 Opex 574 521 471 465 460 464 472 adj. EBITDA1 32.3 42.2 54.1 61.6 68.4 73.9 74.6 Commercial margin (EUR/MT) 821.3 845.7 872.5 892.0 907.0 920.6 934.4 Opex (EUR/MT) 520.7 471.1 465.2 459.8 463.8 471.7 479.6 adj. EBITDA (EUR/MT) 270.6 335.8 369.1 395.6 408.1 412.0 416.1 (1) Adj. EBITDA excluded metal price lag effect Source: AXIA Research
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Cenergy Holdings overview and other participations
ElvalHalcor currently owns a 25% stake in Cenergy Holdings (steaming from its previous ownership of the cables division), while Viohalco owns an additional 57% (Viohalco controls a total of 82% of Cenergy) and the rest is free float. The stake of ELHA in Cenergy is held at the balance sheet under the investments in associates and the results of Cenergy are consolidated using the equity method. Cenergy Holdings in 2017 booked consolidated revenues of EUR 758.8m, adj. EBITDA of EUR 57.4m and net losses of EUR 4.8m, holding assets of EUR 889m.
Cenergy Holdings represents Viohalco’s steel pipes (Corinth Pipeworks) and cables (Hellenic Cables) business lines. The holding company was established in 2016 following the merger of the two companies and is listed in Euronext Brussels (CENER:BB) and the Athex (CENER:GA) with a current Mcap of about EUR 230.5m (as of 26/03/2017).
Both companies under Cenergy Holdings portfolio have long presence in their respective markets with the common factor being the changing landscape and growing demand for energy and specifically in the transportation and distribution (mid-stream).
Steel pipes: Corinth Pipeworks (CPW) engages in the production of steel pipes for the transportation of natural gas, oil and water networks, as well as steel hollow sections which are used in construction projects. Amongst others, CPW constructs the largest length underwater steel pipes worldwide, while recently introduced a concrete weight coating facility, which provides a competitive advantage in the offshore pipeline market and its first project has already concluded. Cables: Hellenic Cables constitute one of the largest cable producers in Europe, manufacturing power, telecommunication and submarine cables, as well as enamelled wires and compounds. The company can product and deploy the largest submarine cable length worldwide without joints, reducing drastically the cost, execution time and risk on these applications.
The key competitive advantage of both companies is the state of the art facilities, knowhow and patents they hold on their respective markets that have been accumulated over the years. Profitability depends to a large extend on the project contracts and pricing the subsidiaries can achieve. Both names are approved suppliers of all major E&P and utility companies globally which allows them to participate in a significant pool of project tenders. About 90% of the steel pipes sales are made abroad, while on a group level international sales in 2015-16 accounted for c65%.
Table 15. Cenergy Holdings financial highlights EUR m 2015 2016 2017 y-o-y Revenues 774.8 691.8 758.3 9.6% Steel pipes 296.2 320.2 335.8 4.9% Cables 478.6 389.6 422.4 8.4%
adj. EBITDA 73.2 59.7 57.4 -3.8% Steel pipes 30.8 28.2 25.5 -9.8% Cables 42.2 32.0 33.2 3.8%
adj. EBITDA margin 9.4% 8.6% 7.6% Steel pipes 10.4% 8.8% 7.6% Cables 8.8% 8.2% 7.9%
EBIT 44.8 33.8 22.3 -34.0% EBT 15.5 2.8 -10.6 NM Net Income 7.7 -3.7 -4.8 NM
Equity 209.1 206.5 200.2 Net WC 181.7 205.3 198.0 Gross Debt 378.2 447.2 448.9 Cash 37.7 71.3 63.4 Net Debt 340.6 375.9 385.4 Equity/Total Debt 0.6 0.5 0.4 Net Debt/adj.EBITDA 4.7 6.3 6.7 WC/Sales (%) 23.5% 29.7% 26.1% Source: The Company, AXIA Research
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Steel Pipes (CPW) During the recent period performance of the steel pipe business (CPW) has been affected to a large extend by the decline in oil prices, as investments in the E&P sector have significantly subsided causing delays in projects globally. The company in the recent years completed a round of strategic investments that aim at providing high value added products. Additionally the company within a short period has received qualifications by a number of major Oil and Gas producers for the products coming out of its LSAW pipe mill investment that has been completed a couple of years ago.
Taking into account the above, we believe the prospects for the company going forward are positive, especially as the CPW should start capitalizing on the investments made. Currently the company is focusing on: i) Baltic region. Already signed participation for the biggest part of the Balticconnector offshore pipeline project, with pipes constructed in 2018 and installation work to start in 2019 ii) North Sea. Two off shore projects signed with construction taking place in 2018 and installation in 2019. iii) South East Med offshore projects that are expected to ramp up going forward, especially taking into account the competitive benefit of location.
Chart 34b. Hellenic Cables Revenues and EBIDTA Chart 34a. CPW Revenues and EBITDA (EUR m) (EUR m)
335.8 479.7 296.2 302.2 414.6 439.3 422.4 264.1 389.6 234.7 351.9 345.3 359.4 188.2 155.0 165.4
27.1 27.7 38.0 14.3 18.1 21.2 25.5 13.3 21.2 10.5 29.0 33.2 3.1 4.5 2.3 -10.4
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017 Revenues EBITDA Revenues EBITDA
Source: The Company, AXIA Research
Hellenic Cables Hellenic Cables is active both on the commodity market (sale of cables) but also on the turnkey execution of projects. The business in 2017 has showed some early positive signs, especially in the second part of the year as number of scheduled projects which were in the tendering phase are coming to maturity (2H17 adj.EBITDA EUR 22m while 1H17 adj. EBITDA EUR 11m).
Looking forward, high demand for new offshore projects in Europe, primarily in the North Sea and Southern Europe, is expected to drive growth in the cables segment. This projection is supported by Hellenic Cables’ contract win for the supply of submarine cables for the Modular Offshore Grid (MOG) project in the Belgian part of the North Sea. The assignment of new projects (for which Hellenic Cables has already entered negotiations) and the successful completion of ongoing projects (the Kafireas project for Enel, BR2 & Trianel for Tennet and Oresund project for Energinet) remain key areas of focus for the cables segment.
In the cables products business, there are signs of recovery in the low and medium voltage cables markets in Western Europe which were constrained by competitive challenges in 2017. However, risks to recovery, such as uncertainty in the EU’s political environment and potential major changes in trade policies, as well as the broader impact of Brexit, persist.
ELHAs stake in Cenergy As we discussed before, the stake that ElvalHalcor holds in Cenergy Holdings steams from the previous holding of Halcor in Hellenic Cables. We do not account for any major impact on the financials of ELHA over the next couple of years, while in our valuation we account for the current market cap.
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Nedzink
In January 2018 ElvalHalcor announced the establishment of a JV in titanium zinc production with Nedzink BV (Netherlands). More specifically EHLA will acquire a 50% stake in the private company, by participation with EUR 15m to a share capital increase. The proceeds will be used to fund the EUR 20m investment program of Nedzink while the balance of the investment shall be financed by Nedzink.
Nedzink currently has a production capacity of 24kMT which Nedzink sells through its sales network in the Netherlands, Belgium, Germany, and France, and many other countries as well. ELHA is operating in the production of titanium zinc since 2004, originally at Halcor facilities in Athens, and since 2011 through its subsidiary in Bulgaria, until mid-2015, when Sofia MED temporarily suspended the production.
ELHA through this investment is targeting to further optimize its product offering mix, while capitalizing on the experience and knowhow of Nedzink in the market. We currently do not include any effect in financials from this investment.
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Group financial estimates
Our headline estimates call for strong profitability growth over the medium term for ELHA, driven by both business lines. We are modelling group adj. EBITDA to grow by 14.4% y-o-y in 2018 to EUR 148.8m and reach EUR 214.4m by 2022 growing by 10.7% CAGR for 2017-22. On the bottom line, our estimates call for 2018 reported net income of EUR 45.0m (+36.5% y-o-y) and expanding by more than 20% CAGR over 2017- 22. Moreover despite the investments to expand capacity, strong operational FCF generation is expected to maintain leverage on a declining trend, with the group generating operating FCF in excess of EUR 100m annually for the coming years.
Starting on the revenue side, as we have analysed previously metal prices (LME) drive top line, but have no impact on the group’s PnL. In this context we plug in stable LME prices going forward, with the group revenues moving to EUR 1.96bn in 2018 vs. comparable revenues of EUR 1.86bn in 2017 and reported revenues of EUR 1.15 bn (reported revenues for 2016-17 take into account the phasing of the merger between the two entities). Looking further ahead we see revenues increasing to EUR 2.28bn by 2022 (4.0% CAGR 2017-22) on the back of higher volume sales and higher commercial margins for both divisions.
Moving down to the net added value revenue (NAV), our estimates call for comparable NAV of EUR 550.0m in 2018, up by 4.8% y-o-y with 75.4% of its generated by the aluminium segment, while we expect growth of 4.6% y-o-y in 2017-22.
In respect of opex, we look for a practically stable expense base over the next couple of years on absolute terms, until some efficiencies are realized on the back of the new capacity in aluminium segment (2H2020).
Taking the above into account, our estimates call for 2018 adj. EBITDA of EUR 147.8m, up by 14.4% y-o-y, with the respective margin expanding from 6.9% in 2017 (on a comparable basis) to EUR 7.5% in 2018. For 2019 additional growth of 12.0% y-o-y is expected, driving EBITDA to EUR 165.6m. Over the 2017-22 period we model adj. EBITDA growth of 10.7% annually.
Table 16. ELHA Revenues and adj. EBITDA estimates EUR m FY2016 FY2017 FY2018e FY2019f FY2020f FY2021f FY2022f 2018-17 2017-22 CAGR Aluminium 842.9 940.9 988.7 1,016.2 1,042.4 1,066.1 1,166.2 5.1% 4.4% Copper 691.2 922.4 979.0 1,018.5 1,059.3 1,111.5 1,114.0 6.1% 3.8% Group Revenues1 1,534.1 1,863.3 1,967.6 2,034.7 2,101.8 2,177.6 2,280.2 5.6% 4.1% y-o-y -4.6% 21.5% 5.6% 3.4% 3.3% 3.6% 4.7% Aluminium 87.5 87.1 93.8 103.9 115.1 129.1 139.9 7.7% 9.9% Copper 32.3 42.2 54.1 61.6 68.4 73.9 74.6 28.2% 12.1% Total adj. EBITDA1 119.8 129.2 147.8 165.6 183.5 203.0 214.4 14.4% 10.7% y-o-y 9.7% 8.2% 14.4% 12.0% 10.8% 10.6% 5.7% (1) Comparable figures Source: AXIA Research
Moving down the PnL lines, we cautiously model for flat interest rate expenditure (on a comparable basis) of EUR 36m in 2018. Our assumptions are driven by the higher gross debt levels, as the company is gearing up for the investments to increase capacity to the aluminium plant, but keeping also in mind the refinancing of cEUR 270m of bond loans with commercial banks agreed in late 2017 that imply lower effective rates to the existing stock of debt. Going forward we model in some reduction in effective rates, on better financing rates for the blended portfolio as about half of the aluminium investment is financed by EIB.
In respect of taxes, the company is paying taxes in Greece (parent entity, 29% corporate tax rate) and in Bulgaria (Sofia Med, 10% corporate tax rate). Following the merger of the two entities, ELHA will be able to realize deferred tax assets of EUR 68m in the coming years according to the merger prospectus. According to 2017 financial estimates, EUR 23.6m of tax assets are booked under the receivables. This prompts us to estimate very low effective tax rates for 2018-19.
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Blending it all together we estimate that net profits, after deducting minorities, in 2018 would reach EUR 45.0m, compared to reported net profits of EUR 33.0m in 2017. Recall that the significant gains booked from metal price hike effect on inventory (non-cash element), inflated reported net profits of 2017 to EUR 61m.
All in all our estimates call for bottom line growth of EUR 21% between 2017-222, with net income reaching EUR 56m in 2018 and 83.8m in 2022.
In respect of dividend, we would not expect any payout for the next couple of years as the company is focusing on expanding capacity. Following the completion of the investment and taking into account the FCF generation capacity and debt profile, we believe the management can establish a generous dividend policy, with a payout capacity estimated at c45%.
Table 17. ELHA PnL highlights (comparable figures) EUR m FY2016 FY2017 FY2018e FY2019f FY2020f FY2021f FY2022f 2018-17 2017-22 CAGR Revenues 1,534.1 1,863.3 1,967.6 2,034.7 2,101.8 2,177.6 2,280.2 5.60% 4.12% adj. EBITDA 119.8 129.2 147.8 165.6 183.5 203.0 214.4 14.40% 10.66% margin 7.8% 6.9% 7.5% 8.1% 8.7% 9.3% 9.4% D&A 56.2 58.6 61.6 66.9 71.0 72.8 74.9 5.19% 5.05% EBIT 48.9 69.6 86.2 98.7 112.6 130.1 140.1 23.86% 15.01% margin 3.2% 3.7% 4.4% 4.8% 5.4% 6.0% 6.1% Net interest expense -40.4 -36.9 -36.1 -36.4 -34.9 -30.2 -27.9 -2.08% -5.41% EBT 33.3 50.7 51.1 63.2 78.7 101.0 113.1 0.88% 17.43% Net Income 21.8 33.0 45.0 55.9 58.0 74.7 83.8 36.48% 20.52% Payout ratio 0.0% 0.0% 0.0% 0.0% 0.0% 45.0% 45.0% DPS 0.00 0.00 0.00 0.00 0.00 0.09 0.10 Source: AXIA Research
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Balance sheet and cash flow outlook
Following the merger of the two entities, ELHA sits on an asset base of EUR 1.5bn. We expect the management to take advantage of the balance sheet size and operational performance and further improve its leverage and liquidity.
According to FY2017 statements, ELHA’s asset base amounts to EUR 1.5bn, almost equally split between the aluminium and copper segments. Total shareholder equity amounts to EUR 668m, while total liabilities stand at EUR 857m, out of which total debt is EUR 568m (net debt EUR 527m).
Looking on the asset side, the group’s fixed assets comprise mainly of the production facilities, with a cost value of EUR 1.2bn. Additionally, on the non-current assets, the group reports the book value of its participation in other Viohalco associates at EUR 64.2m, with the biggest part representing the 25% stake in Cenergy.
Working capital In respect of working capital, at the end of 2017 net working capital stood at EUR 453m, or about 24% of total sales. We estimate that about 70% of it is related to the aluminium segment. Given the rally of copper prices and aluminium prices in 2016-17 and the increased sales volumes, we estimate that WC levels have increased by about EUR 65m over the last year. At the same time ELHA reported non-cash gains from metal price lag of EUR 33m in 2017, mainly related to the adjustment in the valuation of inventories. The “cash” element of the increase was funded by both draw of available short term lending facilities and use of cash at hand.
While WC levels are sensitive to LME prices, the company is focusing on streamlining WC going forward. This should be supported by the biggest size of the balance sheet that should allow ELHA to negotiate better terms with suppliers. Also the streamlining of the production facilities and manufacturing process is also expected to allow for some reduction in WC going forward, despite the increased output.
On our estimates, given our modelling assumption for flat LME prices, we estimate some outflows of WC in 2018-19 on better management. Yet in 2020-22, given the additional capacity we model in some modest inflows.
Debt and costs Looking on debt, group’s gross debt amounts to EUR 568m as of FY2017. In 2017, in the context of the loan restructuring of the two consolidating groups, each of the merging companies negotiated the refinancing of their Bond loans. The refinancing improved the overall liquidity of the Group in order to serve the investment programs of the production facilities.
More specifically, Halcor refinanced a bond loan of EUR 162.5m maturing in 2018, extending its maturity in a five years’ time (i.e. 2022) with partial repayment total worth of EUR 35.0m. On the other hand Elval repaid two bond loans for the amounts of EUR 33.7m and EUR 65.3m with the issuance of a new bond loan of EUR 199.0m maturing in 2022.
In December 2017, ELHA announced the agreement for a EUR 70m loan by EIB, with a maturity of up to 8 years to support the company’s planned investment of EUR 150m. We understand that the remaining EUR 80m for the funding of the investment have also been agreed with a foreign commercial bank.
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Chart 35a. ELAH gross debt composition (Dec'17) Chart 35b. ELHA debt maturities (EUR m)
285.1 278.3 3% Bank Loans
38% Bonds
59% 45.4 Financial 3.9 leases Up to 1 year 1 to 2 years 2 to 5 years Over 5 years
Source: The Company, AXIA Research
In terms of financing costs, the company’s bond loans following recent refinancing operations come at 4.8% (0.2% lower vs. 2016). Bank lending, which is mainly short term debt used for WC funding purposes comes at a cost of 5.71%, which compares to 6.17% the previous year.
Overall, although cost of debt has been on a downward trend over the past years, it remains higher vs. competition. Given the recent refinancing operations on the bond loans, we would expect the company to try to squeeze additional saving from its bank debt exposure as well. This effort should be supported by both its balance sheet and the improving conditions on the banking and macro sector in Greece. We modestly assume a decline of 100bps on the effective cost of debt for 2017-22.
Capex The two group entities during the last 10 years have invested in total more than EUR 600m for maintenance but also for expansion and streamlining purposes. Currently the major expansion investment is related to the EUR 150m program of the aluminium segment and is scheduled to be completed by 2020. The group also is expected to continue to spend about EUR 10-15m per year on other production streamlining activities, aiming to cost improvements, bottlenecks tackling and overall and overall capacity expansion. All in all, following two intense capex years (2018-19), we expect investments to normalize for the medium term to about EUR 35- 40m per year.
Chart 36: Capex (EUR m)
127
15 84 87
62 61 15 58 55 56 35 49 47 46 45 40 38 12 13 112 35 40 33 16 9 26 10 14 8 8 7 72 20 50 50 20 20 21 38 39 47 38 47 32 32 31 33 25 12 15 20
Aluminium Copper Total Capex
2006-16 data are pro-forma for continued operations Source: The Company, AXIA Research
FCF and net debt ELHA’s net debt at the end of 2017 stood at EUR 494m, with net debt/adj. EBITDA at 4.1x, improving vs. the 4.4x reading on 2016 and vs. 5.5x in 2013. The improvement over this period is has been driven by a large extend by the operating profitability.
Looking on the past performance, it is evident that the aluminium segment, enjoying positive market dynamics and positioning has kept its leverage in the 2.0-2.5x adj. EBITDA range, which screens favourably vs. direct peers that averaged 4.0x in 2015-17. Note that moving forward sector’s leverage is expected to further decline given supportive market dynamics.
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Chart 37. Global aluminium producers net debt/EBITDA (x)
13.5
8.48.9 7.8 7.2 5.3 5.4 4.3 3.9 4.14.0 3.2 3.7 3.8 2.6 2.6 2.72.32.4 1.9 1.6 0.9 0.81.4 0.0 0.2 0.3
Aleris Novelis Inc. AMAG Austria Gränges AB Alumetal S.A. Arconic Inc. Constellium Elval Average Corporation Metall AG (publ) N.V. 2015 2016 LTM
Source: Capital IQ, AXIA Research
On the other hand copper segment net debt/adj. EBITDA has remained at high level for a long period of time (c10x in 2014-17) as the company has been facing market headwinds in its efforts to reduce leverage. We note that the segment’s net debt has been ranging between EUR 330-360m in the recent periods and as operating profitability ramps up in the coming years we expect leverage to substantially decline going forward.
Chart 38. Net debt and Net Debt/adj. EBITDA estimates (EUR m)
600.0 14.0 490 524 527 484 486 488 492 494 496 498 500 502 498 496 500.0 12.0 400 8.3 13.3 8.1 10.0 400.0 7.1 296 5.7 5.8 8.0 300.0 4.7 5.3 4.8 227 4.6 4.4 4.1 6.0 200.0 3.4 3.0 2.2 4.0 1.5 1.1 100.0 2.0 0.0 0.0
Total Net debt (comparable) Net debt/adj. EBITDA
2006-16 data are pro-forma for continued operations Source: AXIA Research, the Company
On a consolidated level our estimates call for a steady and gradual decline of leverage levels over the coming years, as operating profitability, low tax payables and WC management should more than counterbalance the increased capex over 2018-19.
Table 18. ELHA FCF estimates (EUR m) FY2018e FY2019f FY2020f FY2021f FY2022f adj. EBITDA 147.8 165.6 183.5 203.0 214.4 Taxes -5.1 -6.3 -19.7 -25.2 -28.3 Net WC 8.2 4.9 0.8 -4.7 -11.7 Capex -87.0 -127.0 -35.0 -40.0 -45.0 FCF from operations 63.9 37.1 129.7 133.0 129.5 Interest expenses -36.1 -36.4 -34.9 -30.2 -27.9 Income from investments 1.0 1.0 1.0 1.0 1.0 FCF to equity 28.8 1.7 95.8 103.8 102.6 Dividend paid 0.0 0.0 0.0 0.0 -33.6 Change in Net Debt 28.8 1.7 95.8 103.8 68.9 FCF yield 4.6% 0.3% 15.2% 16.5% 16.3% adj. FCF yield* 16.1% 18.2% 16.8% 18.1% 17.9% *Excluding expansion capex Source: AXIA Research
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Detailed Financials Income Statement FY2017 FY2018E FY2019F FY2020F FY2021F Revenues - Comparable 1,863.3 1,967.6 2,034.7 2,101.8 2,177.6 Revenues - Reported 1,150.4 1,967.6 2,034.7 2,101.8 2,177.6 EBITDA - Comparable 161 148 166 184 203 EBITDA margin 8.6% 7.5% 8.1% 8.7% 9.3% adj. EBITDA - Comparable 129.2 147.8 165.6 183.5 203.0 adj. EBITDA margin -Comparable 6.9% 7.5% 8.1% 8.7% 9.3% Reported EBITDA 113.0 147.8 165.6 183.5 203.0 Reported EBITDA margin 9.8% 7.5% 8.1% 8.7% 9.3% EBIT - Comparable 101.7 86.2 98.7 112.6 130.1 Reported - EBIT 69.6 86.2 98.7 112.6 130.1 EBT - Comparable 63.6 51.1 63.2 78.7 101.0 EBT - Reported 50.7 51.1 63.2 78.7 101.0 Net Income - Comparable 60.7 45.0 55.9 58.0 74.7 Net Income - reported 33.0 45.0 55.9 58.0 74.7 EPS 0.09 0.12 0.15 0.15 0.20 DPS 0.00 0.00 0.00 0.00 0.09 Num of shares 375.2 375.2 375.2 375.2 375.2 Balance Sheet FY2017 FY2018E FY2019F FY2020F FY2021F Fixed assets 842.2 865.6 923.9 886.1 851.5 Inventories 433.5 442.0 457.1 460.7 477.3 Trade receivables 199.0 188.7 172.8 178.5 182.0 Other current assets 9.2 9.2 9.2 9.2 9.2 Cash and equivalent 41.4 140.5 212.2 278.0 351.8 Total Assets 1,525.4 1,646.1 1,775.2 1,812.5 1,871.8 Share Capital 146.3 146.3 146.3 146.3 146.3 Other shareholders equity 509.2 554.2 610.1 668.1 742.8 Company shareholders’ equity 655.5 700.5 756.4 814.4 889.2 Minority rights 12.9 13.9 14.9 15.9 16.9 Total Equity 668.4 714.4 771.3 830.3 906.1 Long term borrowings and liabilities 278.9 348.9 418.9 388.9 358.9 Provisions/Other long term liabilities 113.8 112.0 110.2 108.4 106.6 Short term borrowing liabilities 273.0 273.0 273.0 273.0 273.0 Trade and tax payables 186.8 193.2 197.2 207.3 222.7 Other Short term liabilities 4.5 4.5 4.5 4.5 4.5 Total Liabilities 857.0 931.6 1,003.9 982.2 965.7 Total Equity and Liabilities 1,525.4 1,646.1 1,775.2 1,812.5 1,871.8 Total Gross Debt - Comparable 552.0 622.0 692.0 662.0 632.0 Net Debt - Comparable 526.8 497.7 496.0 400.2 296.4 Net Debt/adj. EBITDA - Comparable (x) 4.1 3.4 3.0 2.2 1.5 Cash Flow FY2017 FY2018E FY2019F FY2020F FY2021F Gross cash flow from operations 114.1 148.1 165.6 183.5 203.0 Net WC change 42.2 8.2 4.9 0.8 -4.7 Interest expenses -22.0 -36.1 -36.4 -34.9 -30.2 Taxes paid -23.7 -5.1 -6.3 -19.7 -25.2 Operating FCF 110.7 115.1 127.7 129.8 142.8 Investing FCF -133.7 -86.0 -126.0 -34.0 -39.0 FCF to Equity -23.1 29.1 1.7 95.8 103.8 Dividends paid -4.8 0.0 0.0 0.0 0.0 Financing FCF 54.1 70.0 70.0 -30.0 -30.0 Change in Cash 26.3 99.1 71.7 65.8 73.8 FCF yield 4.6% 0.3% 15.2% 16.5% adj. FCF yield (ex-expansion capex) 16.1% 18.2% 16.8% 18.1% Source: AXIA Research (2) In the context of IFRS application during the merger process, the participation of aluminium segment is phased in only for the last 5 months of the year. Comparable data refer to a 12-month period.
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Ratios and metrics Per share data FY2017 FY2018E FY2019F FY2020F FY2021F EPS 0.09 0.12 0.15 0.15 0.20 DPS 0.00 0.00 0.00 0.00 0.09 CFPS -0.06 0.08 0.00 0.26 0.28 BVPS 1.78 1.90 2.06 2.21 2.41 Margin analysis - Comparable Figures FY2017 FY2018E FY2019F FY2020F FY2021F Gross profit margin 9.9% 10.4% 11.0% 11.5% 12.1% EBIDTA margin 8.6% 7.5% 8.1% 8.7% 9.3% adj. EBITDA margin 6.9% 7.5% 8.1% 8.7% 9.3% EBIT margin 5.5% 4.4% 4.8% 5.4% 6.0% Net Income margin 3.3% 2.3% 2.7% 2.8% 3.4% Growth Ratios - Comparable figures (% y-o-y change) FY2017 FY2018E FY2019F FY2020F FY2021F Revenues 21.5% 5.6% 3.4% 3.3% 3.6% Gross profit 11.4% 11.0% 9.3% 8.6% 8.6% EBITDA 29.0% -8.1% 12.0% 10.8% 10.6% adj. EBITDA 8.2% 14.4% 12.0% 10.8% 10.6% EBIT 48.5% -15.2% 14.4% 14.1% 15.6% EBT 97.0% -19.6% 23.7% 24.4% 28.4% Net Income 158.7% -25.9% 24.2% 3.7% 28.9% Valuation multiples (x) FY2017 FY2018E FY2019F FY2020F FY2021F EV/EBITDA 9.9 7.6 6.8 5.6 4.6 P/E 12.4 14.0 11.3 10.9 8.4 FCF yield (%) -3.1% 4.6% 0.3% 15.2% 16.5% P/BV 1.1 0.9 0.8 0.8 0.7 Dividend yield (%) NA NA NA NA 5.3% EV/EBIT 12.6 13.1 11.4 9.2 7.1 EV/Sales 0.7 0.6 0.6 0.5 0.4 EV/IC 1.0 0.8 0.8 0.7 0.6 Leverage metrics FY2017 FY2018E FY2019F FY2020F FY2021F Net Deb/adj. EBITDA – Comparable (x) 4.1 3.4 3.0 2.2 1.5 Equity/Total Debt (x) 1.2 1.1 1.1 1.3 1.4 adj.EBITDA/Net Interest expense (x) 3.5 4.2 4.7 5.4 7.0 RoA 4.0% 2.8% 3.2% 3.3% 4.0% RoE 9.1% 6.4% 7.4% 7.1% 8.4% RoIC 5.7% 6.4% 6.7% 7.5% 8.5% Source: AXIA Research
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Appendix
1. Management and BoD ELHA’s management and 14 member BoD mainly comprises of experienced executives with a long time presence in the metals market and Viohalco Holdings. Below the CV’s of the key executives.
Theodossios Papageorgopoulos, Chairman and executive member Mr. Papageorgopoulos is a graduate of Athens University of Economics and Business. He has been working for the Viohalco’s subsidiaries since 1962 and has served as General Manager in Halcor SA from 1973 to 2004. Between 2004 and this date he is the Chairman of the Board of Halcor SA.
Kiriakopoulos Dimitrios, Vice-Chairman, executive member Mr. Kyriakopoulos studied Business Administration at AUEB and holds a Diploma in Business Studies from the City of London College and Marketing from the British Institute of Marketing. The starting point of his professional career was Procter and Gamble, and since 1975 he has started a long-term partnership with Warner Lambert assuming Managerial positions. In 1983, after spending two years at Warner Lambert headquarters in the US as Director of Consumer Products in Europe, he took over the Chairman, Chief Executive Officer and General Manager positions of the company in Greece. Since 1985 he has assumed the positions initially of Regional Director of Middle East / Africa and then as Regional President of Consumer Products of Italy / France / Germany. In the period 2000-2003 he was appointed CEO of Europe / Middle East / Africa of ADAMS (Confectionery Division of Pfizer). In 2004 he was appointed Deputy Managing Director of Duty Free SA. In 2006 he was appointed Vice Chairman of Non-Ferrous Metals at Steelmet SA and since June 2007 he is Vice-Chairman of the Board of Directors of Elval.
Perikles Sapountzis, executive Member and General Manager of Copper tubes division Mr. Sapountzis is a Chemical Engineer, graduated from the University of Munich and has also a PhD (TUM). He has been working for the subsidiaries of Viohalco since 1995 when hired as a sales manager in Hellenic Cables SA. From 1997 to 2000 he was Commercial Director of Tepro Metall AG. In 2000 he became General Manager of ICME ECAB SA and in 2004 took the same position in the parent company Hellenic Cables SA. Between 2008 and currently holds the position of General Director and Board Member of Halcor SA.
Lambros Varouchas, executive member and General Manager of the heading Aluminium rolling division Mr. Varouchas is an Electrical Engineer of NTUA and he has been working in Elval companies since 1969. In Elval SA he has served as Factory Manager and from 1983 to 2004 he was the Technical Director responsible for the implementation and design of the Company’s Investment Program. Since 2005 he has been General Manager at Elval SA. At the same time, he is a member of the BoD and Technical Officer of Bridgnorth Aluminium Ltd.
Spyridon Kokkolis, CFO Mr. Kokkolis is an economist, graduate of the Athens University of Economics and Business (ex ASOEE). He has been one of VIOHALCO executives since 1993.
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2. Viohalco Holdings overview
Viohalco is a Belgium based holding company of leading metal processing companies across Europe. The company through its subsidiaries is active in the manufacturing of aluminium, copper, steel, steel pipes, and cables and other.
Viohalco begun its operations in the 1930’s in Greece focusing on copper and was one of the first companies to be listed in the Athens Stock Exchange in 1940’s. Over the years, Viohalco has developed significant know how and has been engaged in a series of investment and expansion projects as well as M&A to currently hold a significant market share in various EU metal markets. Currently it holds positions in the biggest steel producer in the Balkans, one of the two biggest producers of copper products in the EU and a top 5 of aluminium products player in Europe. In 2013 on a strategic decision to enhance its extrovert profile and improve access and cost of capital, the company transferred its base in Belgium and its primary listing in Euronext Brussels (VIO:BB), with a secondary listing in the Greek stock exchange (VIO:GA).
In 2017 Viohalco posted net profits of EUR 73.68m, signalling the end of a 10-year period of negative bottom line as the operations were affected by both affected by both challenges in the global markets but also the Greek crisis. This turnaround was driven by the management’s strategic focus to an extrovert profile (currently 85% of sales are abroad) and was achieved on the back of continued investments. Viohalco over the last 10 years has invested almost EUR 2.0bn to improve product mix and quality and offer innovative solutions to clients that made Viohalco companies competitive on a global scale.
Table 19a. Viohalco sales breakdown (EUR m) Table 19b. Viohalco adj. EBITDA break down 2015 2016 2017 y-o-y % of total 2015 2016 2017 y-o-y % total Aluminium 1,137.5 1,078.2 1,206.0 11.9% 32.4% Aluminium 98.4 104.3 102.4 -1.8% 36.0% Copper 783.5 751.3 930.8 23.9% 25.0% Copper 30.9 31.9 46.6 45.9% 16.4% Steel 565.9 546.8 765.2 40.0% 20.6% Steel 34.1 48.7 75.2 54.2% 26.4% Steel pipes 287.5 293.4 295.0 0.6% 7.9% Steel pipes 30.1 27.5 20.6 -24.9% 7.3% Cables 447.3 381.5 408.0 6.9% 11.0% Cables 42.0 32.3 33.2 3.1% 11.7% Real Estate 5.7 6.5 9.2 40.0% 0.2% Real Estate 1.7 1.5 5.6 263.7% 2.0% Recycling 39.6 44.7 66.0 47.6% 1.8% Recycling 2.7 4.3 6.7 55.6% 2.4% Other 13.4 16.8 41.1 144.6% 1.1% Other 0.1 -1.0 -6.1 NM NM Group Total 3,280.4 3,119.2 3,721.3 19.3% Group Total 239.9 249.5 284.2 13.9%
Source: The Company, AXIA Research
With global industrials and metals markets expected to further recover over the next years, a positive outlook is expected across Viohalco companies’ operating markets as demand improves, although risks to financial and operational performance remain, including Brexit and protectionism, among others. Viohalco companies are well-positioned to take advantage of the improvements of market conditions, through further operational optimization, technological innovation and capitalization of recent investments.
The major shareholder is Stassinopoulos family that has been with the company since its foundation. Mr. Evangelos Stassinopoulos holds 42.81% of voting rights, with Mr. Nikolaos Stassinopoulos holding 32.37% of voting rights.
Chart 39a. Viohalco Book Value (ex-minorities) EUR m Chart 39b. Viohalco stock price performance (EUR/sh)
1,135 1,104 1,058 1,058 1,107 6.0 300 993 920 928 5.0 250 4.0 200 3.0 150 2.0 100 1.0 50 0.0 0
2010 2011 2012 2013 2014 2015 2016 2017 Viohalco Stoxx Basic Materials-rhs
Source: The Company, AXIA Research AXIA Research Page 46
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Key Definitions AXIA Research 12-month rating* Buy The stock to generate total return** of and above 10% within the next 12-months The stock to generate total return**between -10% and 10% within the next 12- Neutral 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 Restricted restrict certain types of 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 ElvalHalcor Date Rating Share Price (EUR) Target Price (EUR) 27/03/2018 Buy 1.69 2.30
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