Urban Mining Gold Rush
​Umicore is play on the emerging 'cradle to cradle' mentality. The company has made a successful switch from metal processor to an 'urban mining' company that gains precious metals and other rare materials from waste. Umicore also invests into promising technologies like materials for electric vehicle batteries and recycling techniques. This company note gives a detailed description of the company (chapter I) and the sector (II). The business model (III) discusses the Growth, Profitability and Capital needs separately. After a strong 2015, the growth is forecast at GDP+2% annually, mainly driven by the Energy and Catalysis division. Although the sector is highly cyclical, Umicore has enjoyed a stable profit margin. The profitability can improve slightly as operating leverage in the new activities improves the margin. The capital needs will decrease after a heavy investment program to improve the efficiency of the Hoboken recycling facility. The DCF valuation (IV) yields a fair value of 45 Euro on a 18 months horizon. The EVA analysis shows a ROIC that is slightly above the WACC. The company share buy-back price level of around 35 Euro puts a solid support in the market. GBL has been steadily increasing its stake at higher levels than the current price.
Risks : The decline of precious metals as part of the global metals correction has hurt the recycling activity. Competition for waste and industrial scrap could increase as competitors are attracted by the high ROIC of recycling.
ValueScan operates as a team of independent analysts with strong industry track records. Valuation is based on a standardised method for all companies, independent of their size or sector . Each report delivers a long term analysis of the business plan and cash flows per segment. The model identifies 3 main drivers that are examined separately : Growth, Profitability and Capital needs. Most equity research overemphasises Growth and ignores Capital needs. An EVA analysis is presented to back test the results. Valuation theory is simplified to a level that strikes the right balance between complexity and flexibility. Valuescan operates fully independent from financial institutions, companies or other conflicts of interest. ValueScan analysts avoid mass investor happenings and herd behaviour. The ValueScan method assumes that eventually a company will reflect its true fair value when hype or over pessimism normalises.
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