Rhi Magnesita N.v Share Discussion Threads

[daemonfunds] 29/3/2023 22:25

another acquisition, another comparator with target being purchased on 7.65x TTM net income. applying the same to RHI Magnesita's own TTN net income €167 and using current gbpeur 1.1357, we see current actual market cap very marginally under implied mkt cap. so they're still allocating capital in intelligent ways (from the press release: additional products within the Group's heat management solutions offering and from cross-selling, procurement and logistics benefits) and not paying over the odds for the same. growth prospects still look good, and margins still holding up. IMO holders should look to continue to accumulate into this current price weakness to target portfolio weight. those not holding could wait for further weakness to provide even m ore attractive entry points.

[daemonfunds] 13/1/2023 23:30

Acquisition of Jinan New Emei announced today, with RHIM paying 293mio yuan for 65% of pre-tax income of 33 mio yuan (some of the cost of this part of the acquisition is deferred, and the full purchase of the remainder is dependent on Jinan meeting hurdles). The numbers imply a 450mio yuan purchase price for 100% of the company down the line, where total assets are 829mio yuan. Take that with a grain of salt as we are talking about a Chinese company - make it 700mio yuan gross assets. Implies a price to total assets of 0.65x - RHIM's own total assets were last reported at 3.914bio eur, implying a target market cap of 2.544bio eur. Given Jinan's last year's pre-tax income, the purchase price implies a multiple of 13.65x - applying to RHIM's own last reported 2021 FY annual pre-tax income is unrealistic so we'll apply to it a lower 200mio eur, giving 2.73bio eur. We can see where RHIM value themselves. So where are we now - mkt cap today at 1.16bio gbp or 1.31bio eur. Total debt at 1.6bio eur (assuming they need all their cash to fund operations, maintenance capex, etc.). EV is 2.9bio eur. Average EBITDA has been about 350mio eur over last few years (thanks Morningstar), while capex has ramped up destroying FCF. EV/EBITDA just over 8.25x. Total debt looks high at 4x leverage on unaadjusted basis, though seems interest rates are locked in for a few more years. Fragmented industry with acquisition potential as recession and higher interest rates expected over next two years squeeze the competition. Assume they maintain their growth at 5% as they acquire, gain market share through competitive advantages (lower costs, software integration at clients, etc.). If margins stay where they are (15% EBITDA given about 5% annual depreciation), end 2024 numbers (they are just about to report end 2022) could be looking at 3bio eur revenue, with 450mio eur EBITDA, which at same EV/EBITDA as today gives 3.73bio eur EV, less 1.73bio eur debt (assume some movement towards management's target leverage ratio and some take on to fund acquisitions), gives ~2bio eur potential mkt cap - about a 25% CAGR from where we are at the moment. so with no movement in valuation multiples, not counting dividends, assuming management can leverage prime position in a fragmented industry (organic market share gains as recently demonstrated, as well as acquisitions of distressed competitors), the company could be on their way to where their Jinan acquisition multiples imply in early 2025. What's the downside risks? Debt management is misjudged as we enter into a severe recession and they are forced into bankruptcy and a fire sale of assets? If so, as at end 2021 reported numbers - cash = 580, inventories 976*75%, trade and other receivables 568*50%, PPE 1089*75% = 2412mio eur, less 1.6bio eur total debt = 800mio eur versus 1.31bio eur market cap. 500 downside versus 700 upside. the downside is quite extreme while the upside is only a little optimistic (IMO) so let's give the upside a two thirds probability. Full Kelly would tell you to put ~40% of your portfolio in it. Key acronym? IMO...

[daemonfunds] 13/1/2023 22:27

Acquisitions as a guide for RHI Magnesita's best-case valuation multiple