Outotec (Buy, TP: EUR7.00) - Mixed Q4 with no drama
We have made minor estimate changes post the Q4 results, which were mixed, with orders somewhat better than we expected but somewhat weaker than our clean EBIT forecast. Our positive case regarding the merger with Metso Minerals is unchanged and we reiterate our BUY and EUR7 target price. Orders above, earnings below our estimates. Q4 orders beat our estimate but were below consensus. Minerals Processing (MP) orders were above our forecast, while Metals, Energy and Water (MEW) came in below. Service orders were near our forecast, while unannounced orders were much better than our forecast. Clean EBIT was close to consensus, but somewhat below our estimate. The company proposed DPS of EUR0.10, somewhat above consensus of EUR0.06. No 2020 guidance, outlook unchanged. Outotec did not issue 2020 guidance due to the upcoming merger with Metso Minerals, which the companies expect to close on 30 June. Outotec expects overall unchanged market activity. Management commented that the project pipeline has not declined but rather if anything, activity has even picked up somewhat. Outotec reported Q4 and 2019 as continued operations and renamed MEW excluding the announced business exits as Metals Refining. We highlight positively that Outotec’s underlying continued business had EUR1.2bn in sales and EUR122m in clean EBIT in 2019, representing a 10% clean EBIT margin. Minor estimate changes. We have made minor estimate changes. Our positive case is unchanged and we reiterate our BUY and EUR7 target price. The Q4 report appeared rather uneventful and we continue to focus on the positive merger case with Metso Minerals. We remain optimistic on the market outlook and find exposure to copper in both names attractive.Outotec is a global provider of process solutions, technologies and services for the mining and metallurgical industries organized in four divisions. The Minerals Processing division provides concentrator plants, process solutions and services for ore concentration, the minerals and fertilizer industry, energy sector and water treatment. The Base Metals division provides metallurgical processing technology for copper, nickel, zinc, precious metals and ferroalloys. The Metals Processing division develops and supplies technologies and services for the production of iron, alumina, aluminum and synthetic rutile. Larox develops and delivers industrial filters for separating solids from liquids.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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