Tubos Reunidos - BPI Equity Research

BPI
EQUITY RESEARCH
Tubos Reunidos
Steel
Improving the pipes mix
Neutral
(Price Target raised from €1.90 to €2.65; Rec. upgraded from Reduce to Neutral)
4 2014-17 strategic plan: Tubos Reunidos' (TRG) presented its 2014-17 strategic
plan aiming at expanding sales by 70% in the period which implies a strong
volumes recovery (c. 35%) due to rising exposure to value-added products (78%
of sales vs. 64% currently). The improved sales mix should support both top line
and margins (c. 17% targeted by YE17; c. €100mn EBITDA) while requiring
€108mn capex (ND/EBITDA to reach 3.5.x at YE14 from 4.3x at YE13 and standing
at 1.2x at YE17).
High-Risk
23rd May 2014
Spain
Tubos Reunidos vs. IBEX 35 vs.
MSCI SC
4 A more bullish earnings scenario: TRG's investment plan (€75mn in 2012-13) has
been paying-off operating wise (12.8% EBITDA mg in Q1 vs. 12.1% at YE13 and
10.7% at YE12). We believe the company is on track to continue leveraging on the
improving sales mix and upgraded 2014-17F EBITDA by an average 20% (+35%
EPS) standing aligned with TRG (€98mn EBITDA by YE17). We have also raised
our capex (€110mn in 2014-17 vs €97mn prev; €25mn/year going forward vs
€17mn) but expect ND/EBITDA to stand at 3.2x-1.5x at YE14-17F.
4 More attractive but not enough: earnings are under an improving trend and TRG’s
bullish targets show high commitment ahead. We have upgraded our YE14 Price
Target to € 2.65 (26% LfL; 11% from lower CRP; includes 10% S/C disc.) which
shows some upside to current prices but following a 25% YTD stock rise (1% for
the peers average, 26% for Tubacex, TUB) we adopt a neutral stance. We see some
execution risks on TRG’s aggressive strategic plan also considering that the capex
cycle should last until YE17. The company has a leveraged B/S with demanding
short term refinancing needs (50% of its gross debt maturing in 2014-15) while
the stock’s low liquidity and overhang risk (14.9%) are also constraints. NEUTRAL.
Source: Bloomberg.
Stock data
Price (22nd May):
# shares (mn):
Reuters/Bloomberg:
Major Shareholders:
2.23
Price Target (YE14):
2.65
174.7
Market Cap (€ mn) / F.Float: 391 / 53%
TRG.MC / TRG SM
Avg. Daily Vol. [€ '000]:
634
BBVA (14.9%); Grupo Zorrilla Lequerica Puig (10.2%); N+1 (9.0%);
Ybarra Family (6.7%); Mr. Guillermo Barandiaran (6.4%)
Estimates
PE Adj.
Dividend yield
FCFE Yield
FCFF Yield
PBV
EV/EBITDA
EV/Sales (1)
(1)
2011
16.0
0.0%
-1.0%
2012
37.0
0.5%
-16.6%
2013
58.9
1.0%
0.5%
2014F
29.4
0.8%
2.5%
2015F
15.9
1.5%
1.8%
2016F
11.4
2.8%
4.4%
2017F
9.5
3.9%
8.0%
0.2%
1.7
9.6
1.3
5.4%
1.7
11.7
1.2
6.6%
1.7
13.7
1.6
4.1%
1.6
10.7
1.3
5.4%
1.5
8.3
1.2
7.1%
1.4
6.9
1.1
9.3%
1.3
5.9
1.0
(1) EV is fixed with current market cap and MV of remaining items.
Analysts
Bruno Bessa
[email protected]
Phone 351 22 607 3183
Jose Rito
[email protected]
Phone 351 22 607 3142
Historical Recommendation
22-Jan-13
13-Jan-14
Recommendation
Neutral
Reduce
Source: BPI Equity Research.
Available on our website:
www.bpiequity.bpi.pt, BPI Online
and Bloomberg, at NH BPD.
Equity Research 4 Tubos Reunidos
BPI vs. Consensus
4
May 2014
Stock Momentum
Company:
Tubos Reunidos
Sector:
DJ Euro Stoxx Industrials
Price Performance
Forward P/E and EV/EBITDA
25
Forward P /E
1Y
Valuation monitor
Relative Valuation
2014
2015
20
2016
15
3M
EV/EBITDA
BPI
10.7
8.3
6.9
Consensus
11.0
7.9
6.4
9.5
8.5
7.6
BPI
29.4
15.9
11.4
Consensus
31.6
14.9
9.7
Sector
17.2
15.5
13.8
Sector
10
YTD
5
P/E
Fo rward EV/EBITDA
PBV
-20%
0%
20%
Tubo s Reunido s
40%
60%
DJES Indus Gd
Market Price Rating (E)
0
Feb-02
M ar-06
A pr-10
M ay-14
Market Recommendations
2.5
BPI
1.6
1.5
1.4
Consensus
1.6
1.4
1.4
Sector
3.2
3.0
2.6
BPI
0.8%
1.5%
2.8%
Consensus
1.1%
2.2%
3.1%
Sector
2.8%
3.1%
3.4%
Negative,
25%
P rice Target Consensus
2.0
Dividend yield
P rice
1.5
P o sitive,
75%
1.0
A pr-13
P&L and B/S monitor
BPI estimates/Consensus
Revenues
EBITDA
EBIT
Net Profit
Net Debt
Profitability monitor
EBITDA margin
BPI
Consensus
EBIT margin
BPI
Consensus
Net Profit margin
BPI
Consensus
Key leverage ratios
Net Debt/EV
BPI
Consensus
Net Debt/EBITDA
BPI
Consensus
Jan-14
M ay-14
Fair Value Comparison (E)
2014
9%
5%
4%
8%
-1%
2015
8%
-1%
0%
-4%
4%
2016
8%
0%
-1%
-15%
16%
4
3.70
CAGR 2013-16
A dj. EP S
2.65
Net P ro fit
2.23
EB IT
2
EB ITDA
1.00
Revenues
12.4%
12.9%
14.5%
15.8%
15.8%
17.1%
0
6.4%
6.7%
8.9%
9.6%
10.6%
11.6%
EBITDA Consensus (Emn)
3.0%
3.1%
5.1%
5.7%
6.5%
8.3%
0%
P /E
P BV Co nsensus BP I
Current M arket P rice
50%
BP I
EPS Consensus (E)
110
0.30
100
FY16
FY16
90
0.20
0.3
0.3
0.3
0.3
0.3
0.3
80
2.5
2.0
3.4
2.4
1.7
Source: Factset, Bloomberg and BPI Equity Research.
FY15
FY15
70
0.10
FY14
3.2
100%
Co nsensus
0.40
120
FY14
60
50
M ay-11
2
Sep-13
0.00
M ay-12
M ay-13
M ay-14
M ay-11
M ay-12
M ay-13
M ay-14
Equity Research 4 Tubos Reunidos
4
May 2014
Tubos Reunidos at a Glance
1Q14 Sales Breakdown by Segment (E98mn)
1Q14 Sales Breakdown by Geography (E98mn)
`çåëíêìÅíáçå
OMB
båÉêÖó
PNB
líÜÉêë
NB
jáÇÇäÉ=b~ëí
NOB
mÉíêçÅÜÉãáÅ~ä
NRB
pé~áå
NOB
c~ê=b~ëí
NVB
lCd
PQB
oÉëí=çÑ=
bìêçéÉ
OUB
kK^ãÉêáÅ~
OUB
Source: TRG.
Source: TRG.
TRG's Sales Mix Evolution
TRG's Average Selling Price Evolution (E/ton)
NMMB
UMB
SMB
QMB
OMB
MB
OMNP
OMNTc
kÉï=éêçÇìÅíë
líÜÉê=ëéÉÅá~ä=éêçÇìÅíë
líÜÉê=ÜáÖÜ=î~äìÉ=~ÇÇÉÇ
qê~Çáíáçå~ä=éêçÇìÅíë
OMMM
NVMM
NUMM
NTMM
NSMM
NRMM
NQMM
NPMM
NOMM
OMNP
OMNQc OMNRc OMNSc OMNTc OMNUc OMNVc OMOMc
Source: TRG.
Source: BPI Equity Research.
TRG's Operating Performance (E mn)
TRG's ROIC Evolution
OMM
ORKMB
ORKMB
NRM
OMKMB
OMKMB
NRKMB
NMM
NRKMB
NMKMB
RKMB
Source: TRG and BPI Equity Research.
Source: TRG and BPI Equity Research.
TRG's Refinancing Needs (E mn)
TRG's CF generation (E mn)
OMNQ
Source: TRG.
OMNR
OMNS
OMNT
[OMNU
OMNTc
OMNSc
OMNRc
OMNQc
OMNP
`c
kaLb_fqa^
Source: TRG and BPI Equity Research.
OMNTc
OMNSc
MKMñ
OMNRc
NKMñ
JNRM
OMNQc
M
3
JNMM
OMMR
OM
OKMñ
OMNP
OT
OMNO
OV
OMNN
QM
PKMñ
JRM
OMNM
PV
QKMñ
M
OMMV
RM
RKMñ
RM
OMMU
SM
NMM
OMMT
SO
OMMS
UM
OMNO
OMNN
OMNM
OMMV
OMMU
b_fqa^=ãÖ
OMMT
MKMB
OMMS
OMNTc
OMNSc
OMNRc
OMNP
OMNQc
OMNO
NMKMB
OMMR
b_fqa^
OMNN
OMNM
OMMV
OMMU
MKMB
OMMT
M
OMMS
RKMB
OMMR
RM
Equity Research 4 Tubos Reunidos
P&L
(€ mn)
Revenues
EBITDA
EBITDA adj.
EBITDA adj. mg.
Depreciation&others
EBIT
EBIT adj.
Net financial results
Income tax
Others
Minority Interests
Net Profit reported
Net Profit adj.
2011
458
60
60
13.2%
21
39
39
-8
6
0
0
24
24
2012
465
50
50
10.7%
27
23
23
-10
1
0
0
11
11
2013
350
42
42
12.1%
25
18
18
-11
0
0
0
7
7
2014 F 2015 F
437
483
54
70
54
70
12.4% 14.5%
26
27
28
43
28
43
-12
-12
2
6
0
0
0
1
13
25
13
25
2016 F
526
83
83
15.8%
28
56
56
-12
9
0
1
34
34
2017 F
571
98
98
17.2%
28
70
70
-11
16
0
1
41
41
2011
6
301
14
111
93
105
64
694
238
270
145
185
32
94
694
2012
8
340
14
121
99
53
51
687
244
214
160
229
71
127
687
2013
12
355
6
115
73
44
26
631
246
222
169
163
39
91
631
2014 F 2015 F
14
17
346
347
6
6
124
137
91
100
55
61
28
31
664
698
256
276
218
218
165
165
190
205
39
40
111
119
664
698
2016 F
19
347
6
151
109
66
32
730
299
213
160
218
40
128
730
2017 F
20
347
5
177
119
72
38
779
326
213
160
240
30
157
779
4%
41%
41%
-1%
n.a.
n.a.
n.a.
58%
58%
CAGR
13-17 F
15%
-1%
-1%
11%
13%
13%
10%
5%
7%
-1%
-1%
10%
-6%
14%
5%
Cashflow (E mn)
+ EBITDA
- Chg in Net W.C.
- Income Taxes
= Operating Cash Flow
- Growth Capex
- Replacement Capex
- Net Fin. Inv.
= Cash Flow after Inv.
- Net Fin. Exp.
- Dividends Paid
+/- Equity
Other
=Change in Net Debt
Net Debt (+)/Net Cash (-)
2011
60
35
1
24
17
13
-4
-1
8
0
-1
6
4
113
2012
50
0
24
26
27
14
0
-15
10
2
1
-41
67
180
2013
42
-12
5
49
26
15
-8
17
11
4
0
-3
2
182
2014 F
54
10
2
42
5
15
0
22
12
3
0
0
-7
175
2015 F
70
15
6
49
15
15
0
19
12
6
0
0
-1
174
2016F
83
15
9
59
15
15
0
29
12
11
0
0
-6
168
2017 F
98
9
16
73
15
15
0
43
11
15
0
0
-16
152
2014 F
25%
28%
101%
174.7
0.08
0.08
0.03
45.0%
5.2%
5.5%
30.3%
3.2x
2015 F
10%
29%
85%
174.7
0.14
0.14
0.06
45.0%
7.5%
9.7%
30.1%
2.5x
2016F
9%
19%
39%
174.7
0.20
0.20
0.09
45.0%
9.1%
12.4%
29.0%
2.0x
2017 F
8%
18%
20%
174.7
0.24
0.24
0.11
45.0%
10.0%
13.7%
26.3%
1.5x
Growth per share data and ratios
2011
2012
2013
Sales growth
37%
1%
-25%
EBITDA Adj. growth
54%
-18%
-15%
EPS Adj. growth
316%
-57%
-37%
Avg. # sh (mn)
174.7
174.7
174.7
Basic EPS
0.14
0.06
0.04
EPS Adj. Fully diluted
0.14
0.06
0.04
DPS
0.01
0.02
0.02
Payout
8.6% 38.0% 47.3%
ROCE (after tax)
7.8%
4.8%
4.0%
ROE
11.4%
4.6%
2.8%
Gearing (ND/EV)
19.5% 31.1% 31.4%
Net Debt/EBITDA
1.9x
3.6x
4.3x
Source: Company data and BPI Equity Research (F).
4
May 2014
Valuation Summary (E mn)
CAGR
13-17 F
13%
23%
23%
Balance Sheet
(€ bn)
Net Intangibles
Net Fixed Assets
Net Financials
Inventories
ST Receivables
Other Assets
Cash & Equivalents
Total Assets
Equity & Minorities
MLT Liabilities
o.w. Debt
ST Liabilities
o.w. Debt
o.w. Payables
Equity+Min. + Liabilities
4
Business
EV Attrib. % EV
SST
689
97%
Distribution
6
1%
Auto
15
2%
Others
1
0%
EV
710
- Net Debt YE14 F (1)
209
+ Fin. Investments
6
Equity Value
507
# shares (mn) (2)
172
YE14 Fair Value/sh (€)
2.95
Small Cap Discount
10%
YE14 Price Target (E)
2.65
(1) adj. for Minorities and Other MLT
Creditors; (2) adj. for Treasury Stock.
Source: BPI Equity Research.
SST DCF Assumptions
Re
9.6%
Rf
3.25%
CRP
0.35%
Beta Equity
1.0
Mkt Premium
6.0%
Rd
5.6%
Tax Rate
28.0%
D/EV
25.0%
WACC
8.2%
g
2.5%
Source: BPI Equity Research.
DCF Sensitivity Analysis (E/
sh) (1)
-0.5%
∆ g
-0.5%
2.75
3.00
3.40
∆ WACC
2.40
2.65
2.95
+0.5%
2.15
2.35
2.57
+0.5%
(1) Incl. 10% small cap discount.
Source: BPI Equity Research.
Market Multiples
P/E
14 F
EV/EBITDA
15 F
14 F
15 F
TRG
29.4
15.9
10.7
8.3
Vallourec
12.3
10.4
5.8
5.1
Tenaris
13.9
13.1
7.5
7.0
Average
13.1
11.7
6.7
6.0
Tubacex
17.5
12.0
9.9
8.1
Source: BPI Equity Research (TRG,
Tubacex), Factset.
Equity Research 4 Tubos Reunidos
4
May 2014
Research
Bruno Almeida da Silva, CFA
[email protected]
(351) 22 607 4375
Carlos Peixoto
Alberto del Corro
[email protected]
[email protected]
(351) 22 607 3141
(34) 91 328 9856
Food, Travel & Leisure, Healthcare
Tiago Veiga Anjos, CFA
Guilherme Macedo Sampaio
[email protected]
[email protected]
(351) 22 607 3275
(351) 22 607 3179
Infrastructures
Flora Trindade, CFA
Filipe Leite, CFA
[email protected]
[email protected]
(351) 22 607 4377
(351) 22 607 3136
Retail, Engineering, Industrials &
Capital Goods
José Rito
Bruno Bessa
[email protected]
[email protected]
(351) 22 607 3142
(351) 22 607 3183
TMT's
Pedro Oliveira
[email protected]
(351) 22 607 3194
Utilities, Renewables, Oil
Flora Trindade, CFA
Gonzalo Sánchez-Bordona
[email protected]
[email protected]
(351) 22 607 4377
(34) 91 328 9852
Macro & Strategy
Tiago Veiga Anjos, CFA
[email protected]
(351) 22 607 3275
France
Utilities & Industrials
Louis Boujard, CFA
[email protected]
(33) 1 4450 3343
Metals & Mining, Oil & Gas
Alexandre Leroy
[email protected]
(33) 1 4450 3311
Stock Picking
Pierre Bucaille
[email protected]
(33) 1 4450 3358
Consumer
Hubert d'Aillières
[email protected]
(33) 1 4450 3326
Institutional Sales (Iberia)
Ana Spratley Ferreira, CFA
Francisco Pires
Frederico Torre, CFA
Javier Barrio
Luís Sousa Pinto, CFA
Pedro Prista Guerra, CFA
Raquel Araújo Almeida
Sérgio Godinho
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Institutional Sales (France)
Pedro Prista Guerra, CFA
[email protected]
(33) 1 4450 3325
Sales/Trading
Luís Sousa Pinto, CFA
Carlos Gallego
Francisco Chaves
José Maria Alves
Marta Brito e Cunha
Pedro Moreira
Ramon Blanco
Xavier Estragués
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
(34) 914 321 797
Publishing
Maria do Céu Gonçalves
Carla Gomes Alves
[email protected]
[email protected]
Paula Gonçalves Carvalho
Chief Economist
[email protected] (351) 21 310 1187
Iberia
Banking
(351)
(351)
(34)
(34)
(351)
(351)
(351)
(351)
22
22
91
91
22
22
22
22
607
607
432
432
607
607
607
607
3196
3296
1792
1793
3256
3218
3243
3139
(351) 22 607 3137
(351) 22 607 3160
Economics and Fixed Income Research
5
BPI
This research report is only for private circulation and only partial reproduction is allowed, subject to mentioning the source. This research report is
based on information obtained from sources which we believe to be credible and reliable, but is not guaranteed as to accuracy or completeness. This
research report does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive
it. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended
in this research report and should understand that the statements regarding future prospects may not be realized. Unless otherwise stated, all views
(including estimates, forecasts, assumptions or perspectives) herein contained are solely expression of BPI's Equity Research department and are subject
to change without notice. Recommendations and opinions expressed are our current opinions as of the date referred on this research report and they
may change in the period of time between the dates on which the said opinion or recommendation were formulated and made public. Current
recommendations or opinions are subject to change as they depend on the evolution of the company and subsequent alterations to our estimates, forecasts,
assumptions, perspectives or valuation method used. The valuation models are systematically reviewed and validated, particularly with regard to the
method of valuation and assumptions used. Investors should also note that income from such securities, if any, may fluctuate and that each security's
price or value may rise or fall. Accordingly, investors may receive back less than initially invested. There are no pre-established policies regarding
frequency, update or change in recommendations issued by BPI Equity Research. The same applies to our coverage policy. Past performance is not
a guarantee for future performance. BPI Group accepts no liability of any type for any indirect or direct loss arising from the use of this research report.
For further information concerning BPI Research recommendations and valuations, please visit www.bpi.pt/equity.
This research report did not have any specific recipient. The company subject of the recommendation was unaware of the recommendation or did not
validate the assumptions used, before its public disclosure.
Each Research Analyst responsible for the content of this research report certifies that, with respect to each security or issuer covered in this report:
(1) all of the views expressed accurately reflect his/her personal views about those securities/issuers; and (2) no part of his/her compensation was, is,
or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. There are
no conflicts of interests between BPI or its Analysts and the issuer covered, except when mentioned in the Report. The Research Analysts do not hold
any shares representing the capital of the companies of which they are responsible for compiling the Research Report, except when mentioned in the
Report. BPI Analysts do not participate in meetings to prepare BPI's involvement in placing or assisting in public offers of securities issued by the company
that is the subject of the recommendation, except when disclosed in the research report.
BPI has compiled policies and procedures applicable to the investment recommendations activity. Such document is available for consultation on request.
In November 2007, Banco BPI has celebrated an "Equity Swap" contract with Sonae Investments with strictly financial settlements (Cash Settled Share
Swap Transaction), to cover the inherent risk in the acquisition of 6.64% of Sonae's share capital, at a price of €2.06 per share. In this contract, the
periodic repercussion over Sonae Investments of the amounts corresponding to Sonae share price changes relative to the above-mentioned price was
agreed as well as the amounts equivalent to the proceeds to be received by Banco BPI under the exercise of rights inherent to these shares. The contract
had a maximum maturity of 3 years. In October 2010, the maximum maturity of this "Equity Swap" (covering at such date the inherent risk in respect
of 6.52% of Sonae's share capital) was extended up to 3 years. In November 2013, the maximum maturity of this "Equity Swap"(covering at such date
the inherent risk in respect of 6.13% of Sonae's share capital) was extended up to 12 Months, until November 2014. In February 2008 BPI entered
into a liquidity provider agreement with Euronext Lisbon for the Banco Popular Español shares. Such agreement ended last October 2013.
Banco BPI and/or Banco Português de Investimento participate or have participated, as a syndicate member and/or assisting the issuer, in the share offerings
of Pescanova, La Seda Barcelona and in the bonds offerings of Brisa, EDP, Portugal Telecom, Semapa, Sonae Investimentos, ZON Multimédia and REN.
BPI Group may provide corporate finance and other investment banking services to the companies referred to in this report.
Amongst the companies covered by BPI Equity Research, BPI Group has qualified stakes in Ibersol, Impresa, ZON Optimus, Semapa and Sonae SGPS.
BPI Group, members of the board, or BPI Group employees, may hold a position or any other financial interest in issuer's covered by BPI Equity Research,
subject to change, which shall be disclosed when relevant for assessing the objectivity of the recommendation.
BPI's activity is supervised by both Banco de Portugal (the Portuguese Central Bank) and by the CMVM (Stock Exchange Regulator).
INVESTMENT R ATINGS AND R ISK CLASSIFICATION (TOTAL RETURN IN 12-18 MONTHS ):
Buy/CoRe Buy
Neutral
Reduce
Sell
Low Risk
>15%
>5% and < 15%
>-10% and < 5%
< -10%
Medium Risk
>20%
>10% and <20%
>-10% and < 10%
< -10%
High Risk
>30%
>15% and < 30%
>-10% and < 15%
< -10%
These investment ratings are not strict and should be taken as a general rule.
INVESTMENT R ATINGS STATISTICS
As of 30th April BPI Equity Research's investment ratings were
distributed as follows:
CoRe Buy
8%
Buy
22%
Neutral
36%
Reduce
17%
Sell/Accept Bid
13%
Under Revision/Restricted
3%
Total
100%
BANCO PORTUGUÊS DE INVESTIMENTO, S.A.
Oporto Office
Madrid Office
Paris Office
Cape Town Office
Rua Tenente Valadim, 284
4100-476 Porto
Pº de la Castellana, 40-bis-3ª
28046 Madrid
31, Avenue de L'Opéra
75001 Paris
Phone: (351) 22 607 3100
Telefax: (351) 22 606 4183
Phone: (34) 91 328 9800
Telefax: (34) 91 328 9870
Phone: (33) 1 4450 3325
20th Floor, Metropolitan Life Centre,
7 Walter Sisulu Avenue, Foreshore,
Cape Town, 8001 - South Africa
Phone: (27) 21 410 9000