KME – Rolling up the carpet.
All,
Please find our unchanged analysis here.
Conclusion:
KME’s method of acquiring a rolled copper products business co-located at its Brescia plant demonstrates on the one hand its constrained cash position and therefore the difficulty of continuing to participate actively in the consolidation of the copper products sector. On the other hand, the co-location of the acquired business at its Brescia plant demonstrates the industry’s comfort with multiple operators on the same site - something we weren’t sure was feasible. This supports the viability of a future sale of the KME Copper business whilst the Specials business remains operating within KME’s facilities.
Deal:
- Earlier in June KME and Eredi Gnuttin Metalli S.p.A (EGM) announced a deal where KME would buy EGM’s rolled copper products business for EUR21.8m. The EGM business is based within KME’s Brescia plant. Notably the consideration is paid in newly issued shares of KME Italy, which will leave EGM with 16% of that business. The EGM business had LTM turnover of EUR61.5m, but we do not know what its EBITDA contribution was. The primary rationale given was related to energy costs as the transformation to renewables continues. Electricity and increasingly Co2 certificate costs are rising, challenging the operating model of the industry.
- The deal is fairly small, but it highlights two things to us:
1) KME has previously bought other copper product businesses for cash. That this is a share deal amounts to a shift, likely reflecting its lack of cash.
2) This deal demonstrates that co-located assets can be traded as long as there is sufficient business separation. This will support the valuation of the KME copper business if it is sold.
Positioning:
- We had halved our exposure to the bonds in April at 79c/E and therefore only retain a small 2% of NAV position in the bonds now.
Happy to discuss,
Aengus
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E: amcmahon@sarria.co.uk
T: +44 203 744 7055