KME - Volumes drive WC
All,
Please refer to our unchanged analysis here.
The financials released this morning reveal a significant decline in activity over Q420 - even if factoring in the deconsolidation of Trefimetaux. This slow-down in activity afforded a lower WC requirement relative to out model - in fact affording a E30m inflow for Q4.
Volumes and liquidity:
The company does not split out volumes specifically, but if we understand the deconsolidation of Trefimeteux correctly, the low turnover implies a significant drop - which in turn should have contributed to the inflow of WC. Note that we model a return to scale in Q1 and Q2 of 2021 (now) which should reverse the inflow and present the company with substantially the same need for additional WC finance as per our model.
Financing:
All facilities seem to have remained unchanged since Q3. We note that the Mansfield Factoring facility of E150m remains in place (we had not modelled a E150m outflow from any termination). This will trigger a slight modification of our model, but no change in liquidity or investment thesis. There have been no further news reported on either a larger LC facility or Italian SEAC support.
Questions:
We would like to better understand the WC impact of the Trefimetaux deconsolidation. The company also now splits out Other Payables of E35m that seem to come out of Trade Payables. This item has shrunk materially over the last year.
We remain long KME for 3% of Nav via the SSNs, having sold half of our position only recently. We are looking forward to the call and welcome any questions before and after.
Happy to discuss,
Aengus
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E: amcmahon@sarria.co.uk
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