RHI Magnesita NV (LON:RHIM) said its factories have mostly remained running through the coronavirus crisis but production will need to slow after a recent “significant slowdown” in customer activity and fall in order book levels.
The supplier of refractory products said difficult market conditions in the second half of 2019 continued into the first quarter of 2020, but with only a limited impact from the Covid-19 pandemic.
Demand from the steel industry was weak in Europe and South America but largely offset by a robust North American steel sector.
Industrial sales performed well and overall group demand levels were similar to the final quarter of 2019 with underlying profit (EBITA) said to be slightly ahead.
Raw material prices have fallen in 2020, given the reduction in overall demand and uninterrupted supply from China, which has had an impact on product pricing.
April, as the first month of the second quarter, has seen a big slowdown as steel demand falls in response to the economic slowdown from the pandemic, though the industrial division was said to have provided more resilient.
A production slow-down “will become necessary during May”, with three plants in Europe and one in Mexico having so far been closed temporarily, the FTSE 250 group said, with various other measures put in place to save cash.
Liquidity of €1.2bn at the end of March comprised cash and equivalents of €0.5bn and undrawn bank facilities of €0.7bn, as well as plenty of covenant headroom.
The board said the impact of the coronavirus pandemic will be “material in the short term” but longer term they feel the group “is well positioned to take advantage of growth opportunities when markets improve and is focused on ensuring that it can exit this period of disruption with positive strategic momentum”.
RHI Magnesita shares rose 3% by mid-morning on Tuesday to 2,416p, where they are still down almost 37% since the start of the year.
Broker Peel Hunt noted that US weekly steel production was down 39.4% in the week to 2 May, a 20.4% reduction in European steel production through March and a 10.6% reduction in ytd steel production excluding China.
As a consequence, the analysts said they are cutting their earnings per share forecasts by 24.3%, 14% and 11.7% for 2020, 2021 and 2022 to 314 US cents, 421 cents and 472 cents respectively.
With liquidity strong, "RHI Magnesita should come through the current crisis in robust shape", the analysts added, with 2022 assumed to be the first 'normal' year on new numbers, the broker's target price is 5,030p and the analysts see "a great opportunity".
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