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22 December 2014
ANALYSTS Wim Hoste Financial Analyst - Brussels +32 2 429 37 13
[email protected]
THIS DOCUMENT IS NOT PRODUCED BY KBC SECURITIES USA, INC.
kbcsecurities.com Refer to important disclosures, disclaimers
and analyst certifications at the end of the body of this
research.
TESSENDERLO Shifting into higher gear CHEMICALS CURRENT PRICE
20.25 ACCUMULATE BELGIUM TARGET PRICE 22.50 REINITIATING
Performance over 1M 3M 12M FY/e 31.12 2013 2014E 2015E 2016E
Absolute -6% -9% 11% Sales ( m) 1,790.1 1,419.6 1,441.6 1,507.5
Rel. BEL20 -8% -11% -4% REBITDA ( m) 116.6 136.1 147.5 167.3 12m
Hi/Lo 23.75/18.00 Net earnings ( m) -64.0 45.1 43.9 64.1 Bloomberg
TESB BB Diluted adj. EPS () 0.05 1.80 1.13 1.48 Reuters TESB.BR
Dividend () 0.00 0.00 0.00 0.00 Market Cap 858m P/E 394.50 11.23
17.99 13.72 Next corporate event EV/REBITDA 10.63 9.16 8.18 6.96
Results FY14: 11 March 2015 Free cash flow yield -1.7% 5.1% 3.5%
4.9% www.tessenderlo.com Dividend yield 0.0% 0.0% 0.0% 0.0% Source:
KBC Securities
Following the recently-completed capital increase, we reinitiate
coverage today with an Accumulate rating and 22.5 target price. The
capital increase significantly strengthened Tessenderlos balance
sheet and allows the company to become more ambitious with regards
to growing its business. We believe management is betting on the
right horse by focussing most capex/M&A initiatives on its Agro
business, while we also like the much tighter focus on cost
efficiency across the group which we believe has not yet delivered
its full potential.
CAPITAL INCREASE ALLOWS FOR MORE AMBITIOUS GROWTH IN AGRO
Renewed growth ambitions focus on Agro after the completed
capital increase. The relatively high leverage prior to the capital
increase somewhat hampered Tessenderlo in developing new growth
initiatives. With the capital increase now completed, Tessenderlo
has much more headroom, and the company shed some new light in its
prospectus on the pipeline of new growth projects, revealing plans
to acquire a crop protection products portfolio and to build an ATS
fertilizer plant in Europe. We remind that the company had already
announced in recent quarters the planned construction of an
additional US ATS plant and a calcium chloride plant in Belgium,
which should also allow SOP production to increase again. We
suspect Agro is the rightful focus of most of the growth projects
and we appreciate that the risk profile of some of the initiatives
is lowered by LT raw materials sourcing and/or marketing
agreements.
Strong operational efficiency drive. Tessenderlo has in recent
quarters significantly improved the groups cost profile. Although
management has not given an overall figure of realized or targeted
savings on the group level, corporate costs alone were said in the
1H conference call to have been reduced by an impressive 11-12m (or
35-40%), and plenty of other initiatives are underway in the
various divisions.
Valuation. Given the different growth and earnings dynamics of
the various divisions, we mainly value Tessenderlo by a
Sum-of-the-Parts model. Fair value derived is 22.5 per share. Note
that at this stage we have not included any value for the tax loss
carry forwards ( 398.8m end 2013), which seems conservative.
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2
COMPANY DESCRIPTION AND BUSINESS UPDATE Founded in 1919,
Tessenderlo Group is a diversified chemicals company. The group has
undergone a thorough transformation in recent years, involving a
series of divestments of activities which the former management
team believed to be either too cyclical or commoditized or in which
they judged Tessenderlos competitive position to be relatively
weak. Divestments include PVC/chloralkali, the UK esters &
aromas business, the window profile activities, the Chinese Organic
chloride derivatives business and Pharma Ingredients. Today the
portolfio is segmented in three key divisions: Agro,
Bio-valorization and Industrial Solutions. SALES BY DIVISION*
REBITDA BY DIVISION*
Source: Tessenderlo *9M14 Source: Tessenderlo *9M14 Agro Agro is
active in the production and marketing of crop
nutrients/fertilizers & crop protection products such as
herbicides and fungicides. Tessenderlos crop nutrients are mainly
sulphur-chemistry based. Sulphur is the fourth plant nutrient
besides nitrogen, potash and phosphate and is mostly blended with
nitrogen fertilizers. Tessenderlos key products are ammonium
thiosulfate (ATS, sold under brand name Thio-Sul), potassium
thiosulfate (sold under brand name KTS) and sulphate of potash
(SOP). The Thio-Sul and KTS business of Tessenderlos Kerley
subsidiary is mainly active in North America, where it is the
leading player of sulphur-based thiosulfate fertilizers, well ahead
of competitors like Martin Midstream Partners and Poole Chemical.
Tessenderlo Kerley currently operates six owned production sites, a
50/50 joint venture with Philips in two production sites and also
has some tolling agreements. Furthermore, Tessenderlo Kerley has an
extensive logistics network including storage facilities, railcars
and trucks. What makes Tessenderlo Kerleys business model difficult
to copy is the high degree of upstream integration. Tessenderlo has
a number of very long-term contracts with refineries to extract
sulphur from the naptha streams. Tessenderlo gets paid for the
sulphur extraction service it provides and/or gets the extracted
sulphur at a very competitive price. Tessenderlo Kerley has been
the main growth driver in the past, and Tessenderlo has just
constructed new KTS storage capacity at Hanford, US. The company
commented in the conference call organized at the occasion of the
capital increase that it is currently running at full capacity for
both ATS (ammonia thiosulfate) and KTS (potassium thiosulfate). We
remind that Tessenderlo had, prior to the capital increase, already
announced two capacity expansions: a new KTS production facility in
Hanford, US (scheduled to be operational in the course of 2015) and
a new ATS production facility in East-Dubuque, US (scheduled to be
operational in 2H16).
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TESSENDERLO KERLEY FOOTPRINT We welcome these investments, which
will increase capacity in closer proximity to the end market. The
new East Dubuque facility, for example, will be located in
Illinois, which is in the heart of the US corn industry (Midwest
and Great Lakes Area supply over >80% of US corn). The new plant
will allow savings on logistics costs (rail costs have risen
sharply in recent years) while ammonia supply is secured through a
contract with Rentech as the ATS site will be on-site with Rentech.
This plant positions Tessenderlo well for future market growth.
Source: Tessenderlo Note that today only approximately half of
US corn is produced with ATS blended into the UAN fertilizer,
leaving further penetration potential. There is one new ATS plant
being built by a competitor, but we still believe Tessenderlo is
very well positioned in this market, being not only the largest
player but also having good vertical integration. Apart from these
announced investments, we remind that Tessenderlo also revealed in
the prospectus issued at the occasion of the capital increase that
it is contemplating the construction of an ATS plant in Europe. At
the conference call that accompanied the capital increase,
management said that they are trying to partner either with an oil
refinery (in order to secure sulphur supply) or an ammonia producer
(in order to secure ammonia). Tessenderlo also sees growth
prospects in Europe, where growing awareness about acid rain has
led to e.g. lower sulphur emissions by cars/factories and hence
also to sulphur depletion of soil. We remind that sulphur is one of
the four essential plant nutrients. Besides the ATS/KTS business,
Tessenderlo is also a large producer of Sulfate of Potash (SOP),
behind market leader K&S. SOP is mainly suitable in dry areas
(hence the advantage of the soluble version on which Tessenderlo is
placing much emphasis) and for high added-value crops such as
flowers, vegetables and fruit. SOP helps to make the plant more
resistant to drought, frost and diseases while it also improves the
yield. Since the closure of a smaller production facility in Loos,
France, Tessenderlos SOP production is focused on its Ham site.
This plant has a capacity of 580kt, we believe, but current
production is estimated to be well below that number. The reason
for that is that the closure of the Ham animal feed phosphates
plant at end-2013 (due to the expiry of an environmental permit)
means Tessenderlo now has an issue with hydrochloric acid, a
by-product of sulphates production. Until end-2013, that
hydrochloric acid was used in the phosphates production process,
and previously partly also for the internal production of VCM. In
order to solve part of this issue (how much is undisclosed),
Tessenderlo will construct a calcium chloride plant in Ham,
Belgium, which should be operational in the third quarter of 2015.
Tessenderlo has teamed up with TETRA Chemicals Europe, which will
market the calcium chloride, which is used in the Oil & gas
industry as well as in ice and dust control on roads and in
refrigeration plants. Unlike most of the large fertilizer
producers, Tessenderlo is not integrated upstream in SOP, which we
view as a disadvantage. Profitability of the SOP business is
currently believed to be excellent however, as the break-up of the
Russian-Belarusian BPC cartel has led to much lower raw materials
prices, whereas production issues at Tessenderlo and some peers
including Great Salt Lake Minerals & K&S have led to a
tight market and higher selling prices for SOP. Visibility on how
long these benign market conditions may last is limited, but the
recent flooding of the large Solikamsk-2 mine from Uralkali will in
our opinion lead to further raw materials price increases for
Tessenderlos SOP business in 2015.
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4
Furthermore, Tessenderlo Kerley has over time diversified into
non-fertilizer agriculture products through its NovaSource crop
protection business. In this field, NovaSource has mainly grown
through selective acquisitions, such as: Surround from BASF.
Acquired in 2007, sales of less than $ 10m at the time of
acquisition. Sinbar and Zobar herbicides from DuPont. Acquisition
price not disclosed. Annual sales of products acquired
was less than $ 10m at the time of acquisition (2007). Linuron
(Lorox, Linex) from DuPont. Acquisition price not disclosed,
acquired business represented less
than $ 20m at the time of acquisition (2009). Purshade from
Purfresh. Carbaryl from Bayer Cropscience. Acquired in 2012 and
adding an estimated $ 19m revenue annually at the
time of acquisition. The acquisition strategy has been to
acquire crop protection products serving niche markets from large
multinationals that no longer consider these products as core given
their small size and established position (i.e. limited growth). By
acquiring these products at reasonable prices, optimizing its small
sales rep network and continuing to invest in the regulatory
reviews, Tessenderlo Kerley has established a relatively small but
nevertheless quite profitable crop protection business. Today the
company is active in soil fumigants, niche pesticides and some
other plant health products. Note that most of the crop protection
business is produced under tolling contracts whereby Tessenderlo
does not manufacture the product but only holds the licenses and
registration data. As mentioned in the prospectus, Tessenderlo
intends to acquire (in 4Q14 or 1Q15) a portfolio of crop protection
products, including herbicide products. In the conference call held
at the time of the capital increase, the CFO declined to comment on
potential synergies or pricing (besides the general answer to a
question that the Board would not accept acquisitions at EV/EBITDA
multiples of 10x). Synergies would include the elimination of dual
costs (such as marketing and registration) as well as leveraging on
distribution. All in all Novasource is considered by management to
be a fairly stable business, growing over time by extensions of the
portfolio (by acquisitions) or by expanding registration of
existing products in new geographies.
All in all, the excellent SOP market conditions so far this year
and the growth of the Kerley business (partly on the back of easy
comparables) have led to good earnings growth in 9M14. Out of
caution we have assumed that profitability margins will contract
somewhat in 2015, on the back of rising raw materials pricing for
SOP and what we expect to be a gradual ramp-up in supply in the SOP
market after this years technical issues. AGRO
m
FY12
1H13
3Q13
4Q13
2H13
FY13
1H14
3Q14
3Q change
4Q14E
2H14E
FY14E
FY15E
FY16E
Revenue 508.4 307.8 102.7 85.8 188.5 496.4 296.7 121.0 18% 89.6
210.6 507.3 537.7 575.3 REBITDA 60.9 41.2 10.8 8.2 19 60.1 61.1
23.1 114% 11.6 34.7 95.8 90.3 93.8 margin 12.0% 13.4% 10.5% 9.6%
10.1% 12.1% 20.6% 19.1% 13.0% 16.5% 18.9% 16.8% 16.3%
Source: Tessenderlo, KBC Securities forecasts Bio-valorisation
Bio-valorisation combines the animal by-products processing
business of Akiolis and the gelatine production. Through its
Akiolis subsidiary, Tessenderlo is the second largest renderer in
France, behind Saria and ahead of Verdannet Monnard. The group
collects and treats natural derivatives such as animal by-products
(bones, intestines, blood) and other organic by-products such as
used cooking oils and bakery products. These are either incinerated
for their energetic content or converted into proteins and fats for
use in downstream applications such as gelatine, pet food, soaps,
detergents, methyl esters for biofuels, fertilizers. Currently, the
French rendering market is very competitive and Tessenderlo does
not expect a visible improvement in results in the near term.
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The second part of this division relates to the production of
gelatine. Gelatin is a purified protein that is produced by the
hydrolysis of collagen, which is a major component of the bones and
skin of cattle and pigs. As such, gelatin is also one of the
downstream markets of Akiolis. Gelatin is used in a number of
applications, including Edible (dairy, meat processing,
confectionary, soft drinks, beer, etc), pharmaceutical (soft and
hard capsules, haemostatic sponges), photographic (X-ray film,
colour films, photo paper) and Hydrolysed (taste enhancer, salt
reducer, flocculating agent) applications. In gelatine, the company
has production facilities in Europe, Asia, North and Latin America.
Tessenderlo is the worlds third largest gelatine producer, but far
behind market leaders Darling and Gelita, which we believe each
have a global market share in the 20-25% range (vs approximately
half that for Tessenderlo). Smaller players, which are mostly
regional, include ao Nitta Gelatin and Weishardt. Gelatine demand
has recently been under pressure in China after a couple of food
scandals. In Latin America there has been a shortage of raw
materials due to lower slaughtering numbers. Raw material prices in
the region have increased and could not be passed through. As
mentioned in the prospectus, one of Tessenderlos two Chinese
gelatine plants might be expropriated by the government.
Negotiations about compensation with the government have begun, but
it is too early to have visibility on the outcome. The revenue and
REBITDA contribution of that Chinese plant is said to be not
material.
Tessenderlo does not intend to make acquisitions or large
expansions in the Bio-valorisation division. Instead, the focus is
on improving profitability through operational and commercial
improvement programs, cost reductions and some investments in
process innovation and product valorisation.
When discussing the current business trends in gelatine and
Akiolis, it is important to note that Tessenderlo does not offer a
breakdown of results for these two parts of the Bio-valorisation
division. However, the table below clearly shows both the lower
gelatine results and the intense competition in the French animal
by-products treatment industry. We assume that cost initiatives
will lead to some slight margin improvement in 2015, even though
they are expected to stay well below 2012 levels.
BIO-VALORISATION
FY12
1H13
3Q13
4Q13
2H13
FY13
1H14
3Q14
3Q change
4Q14E
2H14E
FY14E
FY15E
FY16E
Revenue 524 268.6 123 123 246 514.6 241.3 117.3 -4.6% 121.3
238.6 479.9 484.7 492.0 REBITDA 60.7 22.5 3.6 -3 0.6 23 7.6 0.5
-86.1% -0.3 0.2 7.8 19.4 29.5 margin 11.6% 8.4% 2.9% -2.4% 0.2%
4.5% 3.1% 0.4% -0.2% 0.1% 1.6% 4.0% 6.0%
Source: Tessenderlo, KBC Securities forecasts Industrial
solutions Industrial Solutions comprises a range of activities,
including the production and sale of plastic pipe systems, water
treatment chemicals and mining applications. The largest business
in this division is the plastic pipes business. We estimate
Tessenderlo is Europes sixth largest producer, with an estimated
market share of 7%, well behind Mexichem (15%) and Aliaxis (13%),
but closer to Wienerberger, Uponor and Georg Fischer Piping. A key
differentiating factor in the pipes operations is that Tessenderlo
has a higher degree of downstream integration than most of its
competitors, with 69 own distribution centres across Europe.
Furthermore, the company also provides broad technical
support/advice to its customers. Note that some rivals like
Mexichem and Wienerberger also have distribution activities. In its
Water treatment business, Tessenderlo supplies coagulants (which
make impurities bundle together, thus making them sink) and other
chemicals to treat waste water or clean drinking water. The main
product is ferric chloride. Tessenderlo is a leading player in
France and Belgium and also has a significant market position in
the
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6
UK and the Netherlands. In mining, Tessenderlo recently
commissioned a new thiosulfates production facility at Barrick
Golds Goldstrike facility in Nevada (US). During the November
conference call, we learnt that it is a bit too early to judge the
growth potential of this business as it is unsure whether Barrick
might want to replicate the technology at some of its other mines.
Also it is not sure that all mines are suitable for retrofitting
with the CATS leaching technology. As the table below shows, profit
margins have grown well in recent quarters, helped to a significant
extent by cost management, we believe. We expect some further
margin growth on the back of cost efficiencies, the ramp up of the
gold leaching plant, and a gradual improvement of the European
building market. INDUSTRIAL SOLUTIONS
FY12
1H13
3Q13
4Q13
2H13
FY13
1H14
3Q14
3Q change
4Q14E
2H14E
FY14E
FY15E
FY16E
Revenue 405.6 201.5 101.3 94.4 195.7 397.3 206.5 98.5 -2.8% 94.3
192.8 399.3 419.2 440.2 REBITDA 24.4 9.2 4.5 4.5 9.0 18.2 17.1 7.0
55.6% 6.9 13.9 31.0 37.7 44.0 margin 6.0% 4.6% 4.4% 4.8% 4.6% 4.6%
8.3% 7.1% 7.3% 7.2% 7.8% 9.0% 10.0%
Source: Tessenderlo, KBC Securities forecasts OUTLOOK OVERVIEW
P&L OVERVIEW
1H13 3Q13 4Q13 2H13 FY13 1H14A 3Q14 change 4q14e 2H14E FY14E
FY15E FY16E
Sales 1029.0 415.0 346.1 761.1 1790.1 775.7 338.7 -18% 305.2
643.9 1419.6 1441.6 1507.5 Agro 307.8 102.7 85.8 188.5 496.4 296.7
121.0 18% 89.6 210.6 507.3 537.7 575.3 Bio Valorization 268.6 123.0
123.0 246.0 514.6 241.3 117.3 -5% 121.3 238.6 479.9 484.7 492.0
Industrial Solutions 201.5 101.3 94.4 195.7 397.3 206.5 98.5 -3%
94.3 192.8 399.3 419.2 440.2 Other 251.0 88.0 42.9 130.9 381.9 31.2
1.8 -98% 0.2 2.0 33.2 0.0 0.0 REBITDA 81.7 25.7 9.2 34.9 116.6 87.1
30.7 19% 18.4 49.1 136.1 147.5 167.3 Agro 41.2 10.8 8.2 19.0 60.1
61.1 23.1 114% 11.6 34.7 95.8 90.3 93.8 Bio Valorization 22.5 3.6
-3.0 0.6 23.0 7.6 0.5 -86% -0.3 0.2 7.8 19.4 29.5 Industrial
Solutions 9.2 4.5 4.5 9.0 18.2 17.1 7.0 56% 6.9 13.9 31.0 37.7 44.0
Other 8.9 6.7 -0.4 6.3 15.2 1.2 0.2 -97% 0.0 0.2 1.4 0.0 0.0
REBITDA margin 7.9% 6.2% 2.7% 4.6% 6.5% 11.2% 9.1% 6.0% 7.6% 9.6%
10.2% 11.1% Agro 13.4% 10.5% 9.6% 10.1% 12.1% 20.6% 19.1% 13.0%
16.5% 18.9% 16.8% 16.3% Bio Valorization 8.4% 2.9% -2.4% 0.2% 4.5%
3.1% 0.4% -0.2% 0.1% 1.6% 4.0% 6.0% Industrial Solutions 4.6% 4.4%
4.8% 4.6% 4.6% 8.3% 7.1% 7.3% 7.2% 7.8% 9.0% 10.0% Other 3.5% 7.6%
-0.9% 4.8% 4.0% 3.8% 11.1% - - 4.2% - - REBIT 43.9 8.2 -6.3 1.9
45.8 54.7 12.8 56% 1.7 14.6 69.3 77.8 95.6 REBIT margin 4.3% 2.0%
-1.8% 0.2% 2.6% 7.1% 3.8% 0.5% 2.3% 4.9% 5.4% 6.3% non recurring
items -49.0 -11.0 -4.4 -15.4 -64.4 -2.2 -8.5 -23% -3.5 -12.0 -14.2
-5.0 0.0 EBIT -5.1 -2.8 -10.7 -13.5 -18.7 52.6 4.2 NM -1.8 2.6 55.1
72.8 95.6 Net finance costs -14.6 -6.0 -6.6 -12.6 -27.3 -10.8 8.7
NM -7.4 1.3 -9.5 -7.0 -5.0 Associates 2.7 0.9 0.6 1.5 4.2 1.6 1.3
44% 1.1 2.4 4.0 5.0 5.1 Profit before taxation -17.0 -8.0 -16.6
-24.6 -41.8 43.3 14.3 NM -8.0 6.3 49.6 70.8 95.7 Taxation -18.1
-4.2 -1.0 -5.2 -23.4 -15.7 11.6 NM -0.4 11.2 -4.5 -26.9 -31.6 Net
result -35.1 -12.2 -17.7 -29.9 -65.1 27.7 25.8 NM -8.3 17.5 45.1
43.9 64.1 Net result, group share -35 -11.9 -17 -28.9 -64 27.8 26.2
NM -8.7 17.5 45.1 43.9 64.1
Source: Tessenderlo, KBC Securities forecasts
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7
We remind that Tessenderlo guided at the time of the 3Q trading
update for a slightly higher 4Q REBITDA (y/y). Management
reconfirmed this guidance in the end-of-November conference call.
We forecast a 4Q14 REBITDA of 18.4m, up from 9m in 4Q13. BALANCE
SHEET UPDATE AFTER CAPITAL INCREASE AND USE OF FUNDS Tessenderlos
net debt at end-3Q14 landed at 210.3m. Notional net debt, which
includes factoring, landed at 297.2m at the end of 3Q14. This debt
level compares to a group REBITDA over the past twelve months (4Q13
+ 9M14) of 126.9m. Hence the net debt/REBITDA ratio at
end-September was 1.66x. The notional net debt/REBITDA (including
factoring to net debt) was 2.34x. In terms of maturity, 85.2m net
financial debt qualified as current at the end of September, while
non-current financial debt was 176.1m. Cash & equivalents were
51.0m. The key financing lines are the 150m bond maturing in
October 2015 and the 400m syndicated loan facility that matures in
April 2016. The company stated at the time of the 3Q14 results
release (before the launch of the capital increase) that it
expected net financial debt to be slightly below the level at
end-2013 ( 258.9m). We remind that gross proceeds of the capital
increase are 174.8m (10.59m shares x 16.5 price per share). Net
proceeds should be about 172.7m. The pro forma net debt after the
capital increase would be an estimated 37.6m (based on end-3Q net
debt + net proceeds of the capital increase). Pro forma notional
net debt would be 124.5m. With FY14 REBITDA estimated at 136.1m
that corresponds to a Net debt/REBITDA ratio of 0.3 or a notional
net debt/REBITDA of 0.9x. Whereas Tessenderlo had relatively high
leverage, based on the notional net debt/EBITDA multiple prior to
the capital increase of 2.34x, the balance sheet after the capital
increase looks pretty strong. We believe Tessenderlo now has the
firepower to embark on a series of new growth initiatives. In this
respect the prospectus related to the Capital Increase highlighted
two new intended growth projects:
1. Firstly, Tessenderlo intends to acquire a crop production
portfolio, which would further complement and enlarge the existing
crop protection business Novasource. The prospectus did not offer
any insight in to the size of the acquisition and only stated that
the timing is expected to be either 4Q14 or 1Q15.
2. Secondly, Tessenderlo is contemplating the construction of a
new Thio-Sul production facility in Europe, possibly along with
logistics and distribution facilities. We understood from the
conference call that such an investment would preferably occur in a
cooperation agreement with raw materials producer which would
secure competitive supply for one of Thio-Suls key raw
materials.
These projects come on top of three other recent growth
investments that were already publicly announced but which are not
yet contributing to top & bottom lines:
3. Tessenderlo intends to construct a new Thio-Sul (ATS)
production unit in East-Dubuque (US). The advantage of this plant
is that it is located in the middle of the US Corn Belt, which will
significantly reduce transportation costs. The Midwest and the
Great Lakes Area supply over 80% of total US corn production. Note
that Tessenderlo has teamed up with Rentech Nitrogen Partners,
which will supply ammonia.
4. Tessenderlo is currently constructing a KTS production
facility in Hanford (US) which is expected to be
commissioned in the course of 2015.
5. Tessenderlo intends to build a calcium chloride plant in
Belgium. The new plant, scheduled to become operational in 3Q15,
provides Tessenderlo for another outlet of the Hydrochloric Acid
that comes out as a by-product out of the SOP (Sulphate of
Potash)-plant.
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8
All in all, Tessenderlo has hinted that out of the net proceeds
of the capital increase of about 172.7m, about three quarters (or
about 130m) will be spent on the above-mentioned growth projects as
well as operational investments, investments linked to compliance
with new regulation and certain historical non-recurring cash-outs.
About one quarter (or 43m) was said to be targeted for
strengthening the balance sheet. The table below gives an overview
of our estimates on the various uses of the capital increase funds.
Note that the above-mentioned investments and cash-outs will occur
gradually in the coming years, which explains why the balance sheet
should remain very strong in the coming years. USE OF FUNDS FROM
THE CAPITAL INCREASE
Project Completed by estimated Capex ( m)*
Growth investments 75 KTS production facility in Hanford (US) in
the course of 2015 15 ATS production facility in East-Dubuque (US)
2H16 20 Calcium Chloride plant in Ham (Belgium) 3Q15 8 Intended
acquisition of crop protection portfolio 4Q14/1Q15 12 contemplated
ATS production facility in Europe NA 20 Operational investments
& investments linked to compliance with new regulation
52
Electrolysis conversion to membrane in Loos (France) 2017 48
other programs NA 4 Historical non-recurring cash outs NA 3
Strengthening of Balance sheet 43
Source: KBC Securities estimates SHAREHOLDER STRUCTURE At the
time of the announcement of the launch of the Capital Increase (26
November), Verbrugge NV and Symphony Mills NV, which are affiliated
entities, held respectively 27.517% and 1.016% of Tessenderlo,
which means a combined stake of 28.76%. Verbrugge NV and Symphony
Mills had made a commitment to Tessenderlo that they would, subject
to certain conditions, exercise all of their respective
Preferential rights to subscribe to new shares. As per a
transparency declaration posted on the website of the FSMA,
Verbrugge NV bought 71,877 additional shares (0.23%) on 27
November. Along with additional rights purchased during the Rights
Subscription Period and some scrips purchased in the Scrip Private
Placement, Verbrugge NV and Symphony Mills NV announced that
following the capital increase they now hold respectively 30.2% and
1.5% of the Issuers capital. Note that pursuant to Article 52, 1, 5
of the Takeover Royal Decree, a passing of the 30% shareholding
threshold by acquiring or exercising Preferential Rights in the
Rights Subscription Period and/or acquiring Scrips in the Scrips
Private Placement, does not give rise to a mandatory public
takeover bid. As per the Takeover Royal Decree, any subsequent
acquisition will not trigger a mandatory public takeover
either.
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FLASH NOTE
22 December 2014
THIS DOCUMENT IS NOT PRODUCED BY KBC SECURITIES USA, INC.
9
VALUATION DCF Model Our DCF model integrates a WACC of 7.4% and
a LT FCF growth of 1.5%. The fair value derived is 22.7
DCF-MODEL
OCF CAPEX WCR FOCF Disc. FOCF
2015E 122 -85 1 38 35 2016E 136 -85 -5 46 40 2017E 147 -80 -5 62
50 2018E 151 -78 -5 68 51 2019E 158 -80 -5 73 51 2020E 165 -81 -5
79 51 2021E 169 -83 -4 82 50 2022E 173 -84 -3 85 48 Residual value
(LT growth = 1.5%) 949 Total value 1325 Net debt -133 Minorities -3
Pension & other provisions -212 Financial assets 7 Deferred tax
-24 Value of equity 959 Value per share 22.7
Source: KBC Securities forecasts SUM-OF-THE-PARTS MODEL
SUM-OF-THE-PARTS MODEL
Division EBITDA15E multiple EV Comment
Agro 90.3 9.5 858 Crown jewel of the group and key growth driver
Biovalorization 19.4 10.0 194 Multiple fairly high but takes into
account current low
profitability Industrial Solutions 37.7 7.0 264 In line with
M&A multiples in industry in past years Total 147.5 8.9 1,316
Net debt -133 Notional net debt estimate end 2014 Minorities -3
estimate end 2014 Pension & other provisions -212 estimate end
2014 Financial assets 7 estimate end 2014 Deferred tax -24 estimate
end 2014 Equity value 950 Equity value per share 22.5
Source: KBC Securities
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FLASH NOTE
22 December 2014
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10
FINANCIAL DATA Income statement ( m) 2012 2013 2014E 2015E 2016E
Sales 2,129.6 1,790.1 1,419.6 1,441.6 1,507.5 Gross profit 420.0
359.3 283.9 288.3 301.5 EBIT -162.5 -18.7 55.1 72.8 95.6 Pre-tax
earnings -186.8 -45.9 45.6 65.8 90.6 Net earnings -197.9 -64.0 45.1
43.9 64.1 EBITDA 161.1 116.6 121.9 142.5 167.3 REBITDA 161.1 116.6
136.1 147.5 167.3 REBITA 75.9 45.8 69.3 77.8 95.6 Balance sheet (
m) 2012 2013 2014E 2015E 2016E Intangible assets 97.2 87.0 87.0
87.0 87.0 Tangible assets 471.8 436.7 454.9 470.3 483.6 Financial
assets 26.2 28.3 25.3 25.3 25.3 Net other assets & liabilities
39.0 -11.9 -14.4 -13.9 -12.4 Net working capital 242.2 174.9 159.9
158.1 165.3 Net debt 314.0 258.8 42.7 12.8 -29.2 Provisions 178.4
216.3 212.3 212.3 212.3 Minorities 4.5 3.3 3.3 3.3 3.3 Equity 379.5
236.6 454.4 498.3 562.4 Capital employed 936.0 805.8 820.5 824.5
846.6 TOTAL ASSETS 1,288.2 1,089.9 1,241.2 1,138.3 1,182.0 Cash
flow statement ( m) 2012 2013 2014E 2015E 2016E Cash flow from
operations 29.8 88.1 128.4 114.9 127.1 Net capital expenditure
-117.9 -99.2 -85.0 -85.0 -85.0 Free cash-flow -88.1 -11.1 43.4 29.9
42.1 Acquisitions / disposals -13.4 0.0 0.0 0.0 0.0 Dividend
payments -19.8 -22.2 0.0 0.0 0.0 Shares issues 0.8 1.2 172.7 0.0
0.0 New borrowings / reimbursements 91.0 -37.6 -5.0 -150.0 -30.0
Other 29.3 83.9 0.0 0.0 0.0 CHANGE IN CASH & EQUIVALENTS -0.2
14.2 211.1 -120.1 12.1 Performance criteria 2012 2013 2014E 2015E
2016E Sales growth 0.2% -15.9% -20.7% 1.6% 4.6% Gross margin 19.7%
20.1% 20.0% 20.0% 20.0% REBITDA margin 7.6% 6.5% 9.6% 10.2% 11.1%
REBITA margin 3.6% 2.6% 4.9% 5.4% 6.3% EBIT margin -7.6% -1.0% 3.9%
5.1% 6.3% Net debt / Equity + Minorities 81.8% 107.9% 9.3% 2.6%
-5.2% Net debt / EBITDA 1.95 2.22 0.35 0.09 -0.17 EBITDA / net
interest 6.63 4.29 12.83 20.35 33.46 Pay-out ratio -20.8% 0.0% 0.0%
0.0% 0.0% = Return on Equity (avg) -40.4% -20.8% 13.0% 9.2% 12.1%
Return on Capital Employed -11.8% -1.5% 4.7% 6.2% 8.0% Per share
data () 2012 2013 2014E 2015E 2016E weighted average # shares,
diluted 30,925,934 32,437,535 32,871,257 43,463,522 43,463,522
Basic EPS -6.42 -2.01 1.42 1.04 1.51 Diluted EPS -6.40 -1.97 1.37
1.01 1.48 Diluted, adjusted EPS 0.95 0.05 1.80 1.13 1.48 Net book
value / share 12.88 7.45 10.72 11.76 13.27 Free cash flow / share
-2.86 -0.35 1.37 0.70 0.99 Dividend () 1.33 0.00 0.00 0.00 0.00
Valuation data 2012 2013 2014E 2015E 2016E Reference share price ()
22.59 20.68 20.25 20.25 20.25 Reference market capitalisation 665.8
656.9 857.8 857.8 857.8 Enterprise value ( m) 1,224.2 1,239.8
1,246.0 1,206.2 1,164.1 P/E 23.7 394.5 11.2 18.0 13.7 EV/sales 0.6
0.7 0.9 0.8 0.8 EV/EBITDA 7.6 10.6 10.2 8.5 7.0 EV/Capital employed
1.3 1.5 1.5 1.5 1.4 P/ NBV 1.8 2.8 1.9 1.7 1.5 Free cash flow yield
-13.2% -1.7% 5.1% 3.5% 4.9% Dividend yield 5.9% 0.0% 0.0% 0.0% 0.0%
Source: KBC Securities *Historic valuation data are based on
historic prices
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FLASH NOTE
22 December 2014
THIS DOCUMENT IS NOT PRODUCED BY KBC SECURITIES USA, INC.
11
DISCLOSURE & DISCLAIMER SECTION The company disclosures can
also be consulted on our website
http://www.kbcsecurities.be/disclosures. KBC Securities uses an
absolute rating system including terms such as Buy, Accumulate,
Hold, Reduce and Sell (see definitions below). Definition
BUY Expected total return (including dividends) of 10% or more
over a 6-month period
ACCUMULATE Expected total return (including dividends) between
0% and 15% over a 6-month period
HOLD Expected total return (including dividends) between -5% and
5% over a 6-month period
REDUCE Expected total return (including dividends) between 15%
and 0% over a 6-month period
SELL Expected total return (including dividends) of -10% or
worse over a 6-month period Due to external factors and in
exceptional cases, KBC Securities allows the use of ratings such as
Accept the Offer, Black Out, No Recommendation or Suspended. Our
analysts assign one of those ratings based on their investment
outlook and valuation for the concerned stock. The valuation can be
based on different methodologies such as DCF (discounted cash
flow), absolute multiples, peer group multiples, sum-of-parts or
NAV (Net Asset Value). The valuation is reflected in a 6-month
target price. Occasionally, the expected total return may fall
outside of these ranges because of price movement and/or
volatility. Such deviations will be permitted but will be closely
monitored. Investors should carefully read the definitions of all
ratings used in each research report. In addition, since the report
contains more complete information concerning the analysts view,
investors should carefully read the entire report and not infer its
contents from the rating alone. KBC Securities may disclose the
drafts of its reports to the issuers before their dissemination for
the purpose of verifying the accuracy of factual statements, except
when the draft includes a rating or a target price. In case the
draft has been amended following this disclosure, such amendments
will be indicated in the concerned report.
Stock rating % of covered universe % of covered universe with
investment banking relationship during last year
BUY 22.90% 0.00%
ACCUMULATE 35.60% 0.00%
HOLD 38.10% 0.00%
REDUCE 1.70% 0.00%
SELL 1.70% 0.00% Tessenderlo is a mainly European midcap
chemicals group with three divisions: Chemicals, Specialties and
Converting. The price target for Tessenderlo is based on following
parameters: Discounted Cash Flow (DCF), Absolute Multiples, Peer
Group Multiples The risks which may impede the achievement of our
price target are: Raw materials and energy price volatility,
currency effects, industry capacity additions disrupting market
equilibriums, stricter environmental legislations, cartel
investigations Any reference made to a DCF valuation for
Tessenderlo is based on the following parameters: a forecast period
from 2014 until 2022, a perpetual growth rate of 1.5% and a
calculated WACC of 7.4%. Below is an overview of the stock ratings
and target price history in the last 12 months for the stock
described in this report.
Date Rating Target price
2014-12-22
2014-09-18
2014-08-27
2014-04-30
Accumulate
Suspended
Hold
Hold
22.50
-
24.00
21.00 KBC Securities will provide periodic updates on
companies/industries based on company-specific developments or
announcements, market conditions or any other publicly available
information.
-
FLASH NOTE
22 December 2014
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12
CONTACT DETAILS
ANALYST TEAM Analyst Contact Coverage
Wouter Vanderhaeghen (Head of Research) +32 2 429 37 30 Shipping
& Industrials Jan De Kerpel +32 2 429 84 67 Biotech &
Pharma Ruben Devos +32 2 429 58 43 Telco & Media Matthias De
Wit +32 2 429 37 17 Financials Yves Franco +32 2 429 45 04 Holdings
& Staffing Dieter Furniere +32 2 429 18 96 Engineering,
Transport & Utilities Wim Hoste +32 2 429 37 13 Chemicals &
Breweries Guy Sips +32 2 429 30 02 Small & Midcaps Benelux Koen
Overlaet-Michiels +32 2 429 37 21 Real Estate Alan Vandenberghe +32
2 429 18 06 Credit Research Dirk Verbiesen +32 2 429 39 41 Oil
Services & Construction Pascale Weber +32 2 429 37 32 Retail
& Food Producers EQUITY SALES TEAM Sales Contact
Sebastien Fuki (Head of Sales) +32 2 417 53 43 Stefaan De
Lathouwer +32 2 417 44 68 Xavier Gossaert +32 2 417 53 68 Margo
Joris +32 2 417 25 66 Kris Kippers +32 2 417 28 08 Augustin Lanne
+32 2 417 51 45 Tim Leemans +32 2 417 32 28 Marco Miserez +32 2 417
36 81 Sales (US) Hubert Dubrule (Head of US Sales) +1 212 845 22 74
Sebastiaan Pol +1 212 845 20 52 Sofie Van Gijsel +1 212 541 06 48
Sales Trading Isabel Sebreghts +32 2 417 63 63 Tim Leemans +32 2
417 32 28 Marco Miserez +32 2 417 36 81 Loc De Smet +32 2 417 36 99
BOND SALES TEAM Sales Contact
Alexander Lehmann (Head of Sales) +32 2 417 46 25 Maurizio
Bartolo +32 2 417 48 02 Bert Beckx +32 2 417 31 57 Toon Boyen +32 2
417 25 65 Valentin Checa +32 2 417 25 40 Alban Kerdranvat +32 2 417
25 45 Bart Mathijssen +32 2 417 57 12 Koen Princen +32 2 417 44
65
-
FLASH NOTE
22 December 2014
Copyright 2014 KBC Securities
The company disclosures can be consulted on our website
http://www.kbcsecurities.com/disclosures.
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Budapest Hungary +361 483 4005 Regulated by PSZAF
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individual analyses that (i) the views expressed in this
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Page 1Table Title: Sales InformationTable Title: Stock/Market
InformationOverview
Page 2COMPANY DESCRIPTION AND BUSINESS UPDATEGraphics Title:
SALES BY DIVISION*Graphics Title: REBITDA BY DIVISION*
Page 3Graphics Title: TESSENDERLO KERLEY FOOTPRINTCOMPANY
DESCRIPTION AND BUSINESS UPDATE (CONT)
Page 4COMPANY DESCRIPTION AND BUSINESS UPDATE (CONT)Table Title:
AGRO Revenue/Earnings Information
Page 5COMPANY DESCRIPTION AND BUSINESS UPDATE (CONT)Table Title:
BIO-VALORISATION
Page 6COMPANY DESCRIPTION AND BUSINESS UPDATE (CONT)Table Title:
INDUSTRIAL SOLUTIONSOUTLOOK OVERVIEWTable Title: P&L
OVERVIEW
Page 7OUTLOOK OVERVIEW (CONT)BALANCE SHEET UPDATE AFTER CAPITAL
INCREASE AND USE OF FUNDS
Page 8BALANCE SHEET UPDATE AFTER CAPITAL INCREASE AND USE OF
FUNDS (CONT)Table Title: USE OF FUNDS FROM THE CAPITAL
INCREASESHAREHOLDER STRUCTURE
Page 9VALUATIONTable Title: DCF-MODELTable Title:
SUM-OF-THE-PARTS MODEL
Page 10Table Title: FINANCIAL DATA
Page 11DisclosureTable Title: Report KeyTable Title:
Price/Rating Analysis
Page 12Table Title: Broker/Analyst Information
Page 13Disclosure (CONT)