Stalprodukt – Miner-Turned-Recycler Worth Your Money
By the end of 2020, Stalprodukt is set to close its biggest zinc mine, the Olkusz-Pomorzany facility which to date has supplied more than 70% of concentrate feedstocks, as it switches over to producing recycled zinc in a new plant, opened at the end of 2019, with a target capacity equivalent to 30% of annual production, opting to buy the remaining concentrates from external buyers. According to our calculations, if the new recycling plant can reach a capacity comparable with that of the leading European recycler, Befesa, it can generate additional annual EBITDA for Stalprodukt in the range of PLN 120-175 million. The profitability of zinc recycling is not subject to the same price risks as production from mined ores, where margins fluctuate depending on current trends in global metal markets. As a result, we believe Stalprodukt's valuation will eventually line up with those of its peers (13.5x 2020-22E P/E, 7.4x EV/EBITDA). The Polish company maintains a healthy balance sheet (with an expected net cash position of PLN 50 per share at the end of FY2020), and it has robust cash generation ability, reflected in over-15% FCF/EV ratios forecast in 2020 and 2021. This year, Stalprodukt is benefitting from upward-trending prices in world zinc markets and improved smelter profits. Using DCF analysis and relative valuation, we set our 9-month target price for STP at PLN 336.15 per share, and we initiate coverage of the Company with a buy recommendation.
Stalprodukt S.A. is a manufacturer and exporter of highly processed steel products such as electrical transformer sheets and strips, cold formed profiles and tubes, hot- and cold rolled sheets and strips, road safety barriers and toroidal cores. Co. also possesses its own well-developed distribution network of metallurgical products. It consists of wholesale warehouses and offices in several cities in the territory of Poland. Co.'s warehouses managed by Stalprodukt-Centrostal Krakow sp. z o.o. With regard to IT applications, Co. remains in the broadly understood metallurgical branch.
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