BofA | We raise Q4 EBITDA to EUR104mn from EUR93mn on better shipment assumptions. Raise Price Objective to EUR10.2 from EUR10 on 8x EV/FY20E EBITDA (as before). Note that group expects c.EUR30-40mn restructuring provision and negative inventory adjustment costs.
We expect US market (c.45% group shipments) to remain in a relatively strong position and ACX to gain market share in Q4. We expect Europe market conditions to remain tough but not deteriorate. We expect Q120 to be stronger on restocking and expect more meaningful recovery in 2H20 due to trade policies. Bahru remains under pricing pressure from Tsingshan and we estimate below breakeven EBITDA. Strategic alternatives are still being explored with no clear timeline, a key drag on share valuation in our view. We expect South Africa to normalise as energy supply issues have been resolved.
On VDM acquisition, group has obtained anti-trust approval in the US market but is still awaiting European authority clearance. If approved, ACX expects the transaction to be closed in March. See below our valuation scenario including VDM in group which implies c.14% upside from our base case, or c.22% upside potential from spot price.
Our price objective of EUR10.2/share is based on 8x FY20e EV/EBITDA, c. in line with the group’s average through-the-cycle multiple.
Upside risks to our PO are:
1) Stronger than expected global stainless steel demand
2) China policy results in stainless steel mill closures
3) Import barriers are set at such restrictive levels as to shut low cost Indonesian stainless steel tons out of traditional markets for EU stainless steel producers.
Downside risks to our PO are:
1) Weaker than expected global stainless steel demand.
2) Cost advantage of new Indonesian capacity is larger than we expect.