Update After FY 2023 Earnings Season
As usual, let’s have a look on the companies that I have presented so far. I know it’s a bit late but I wanted to wait for the results of Chargeurs’ tender offer, which was finally closed on April. I have also new investment theses coming soon.
AMG Critical Materials N.V.
Performance -41.00%
A very clear dichotomy showed in AMG results: on one hand, AMG reached its highest EBITDA ever in 2023; on the other hand, management lowered its 2024 guidance again due to lower prices of Lithium. It looks like the prices of Lithium have bottomed out but 2024 will be a tough year nonetheless.
FY 2023 Results
Revenue $1,626M (-1% vs FY 2022).
Adj EBITDA $350.5M (+2%).
EBIT €296M (-0.5%).
Cash from Operating Activities €223M (+33%).
EPS (fully diluted) €3.12 (-46%).
2024 Guidance
2024 EBITDA guidance lowered to $130M from $200M (excluding any profitability from the new Bitterfield Lithium Hydroxide refinery plant).
2024 CAPEX guidance of $125M.
Conference Call
The Spodumene Mine in Brazil will stop production to facilitate the expansion to 130,000 tons from 90,000 tons - it is expected that the production for 2024 will be around 93,000 tons, reaching the new full 130,000 tons annual capacity in Q4 2024.
The Lithium Hydroxide Refinery in Bitterfeld (Germany) is in advanced phases of commisioning, the product qualification process is planed to start in Q3 2024 - it is expected to produce 7,000 tons of Lithium hydroxide in 2024.
The 6,000 cubic meter Vanadium electrolite plant at AMG Titanium in Nuremberg (Germany) is under construction, it’s expected to be completed in H2 2024 - this electrolite plant will serve the electrical storage market as a vertical integration into LIVA batteries.
The FEL3 basic engineering for the Phase 1 of the Shell & AMG Recycling B.V. Supercenter project in Saudi Arabia has been submited.
Under the new U.S. Inflation Reduction Act, AMG Vanadium expects to receive a $6M per year subsidy - the ruling is still in the comment period and is subject to a final determination.
The EBITDA was higher than expected ($320M guidance) due to several factors - $10M extra dividend from one of its minority investments, $14M from shipments which were expected in January and arrived early and the $6M subsidy from the Inflation Reduction Act.
An ongoing cost reduction and efficiency program will reduce headcount on approximately 200 full-time employees - this reduction will be offset by the hiring associated with the expansion projects.
Average Lithium sales price for 2023 was $3,160 per ton CIF China, the average cost was $475 per ton CIF China.
AMG Silicon operated in 1 of 4 furnaces in Q4 2023 and will operate 2 furnaces from March 2024.
AMG Engineering signed a record high of $350 million in new orders - it represents a 1.27 book-to-bill ratio.
AMG is reviewing its resource development projects and all other expansion activities in light of the present market conditions.
The site of the Brazil Lithium Technical plant will be changed from the Mibra mine to a port area - the new site will have the advantage of being located at a tax-free zone and it will be able to receive supplies of spodumene from other sources in Brazil.
News
AMG establishes a new Nuclear fuel subsidiary for the recycling of nucler waste into nuclear fuel.
Zinnwald Lithium (25% owned by AMG) new Mineral Resource Estimate (MRE) showed a larger resource estimated - the MRE shows a 445% increase in tonnes and a 243% increase in contained Lithium vs the 2018 MRE. This establishes the project as the second largest hard lock Lithium project in the EU. The Bankable Feasibility Study (BFS) expected at the end of the year will give more information about the development of the project.
AMG completes the issuance of a $100M Incremental Term Loan - the new loan is structured as a fungible add-on to the existing $350M senior secured term loan (same princing, terms and maturity).
Key Dates
May 7th - Q1 2024 Results.
May 8th - Annual General Meeting.
July 31st - HY 2024 Results.
November 6th - Q3 2024 Results.
Analysis
2024 looks like a transition year for AMG. The company has suffered the colapse of Lithium prices but it doesn’t change the big picture: the key right now is to focus on the expansion projects and management should be working on completing them on time and without unpleasant surprises. Once Lithium prices recover the company will be much better positioned with an integrated chain from mine to battery. I wouldn’t rule out any divestment announcements in the coming months, especially from the AMG Technologies business segment, which would give the AMG some cash to continue its expansion projects.
Construcciones y Auxiliar de Ferrocarriles S.A.
Performance +17.89%
CAF continues its steady improvement quarter by quarter: revenues are going up at a very nice rate but more importantly margins are starting to improve once the worst of the inflation crisis seems to be over. Both the Rail and Bus (Solaris) division have performed well and it looks like the same trend will continue in 2024.
FY 2023 Results
Revenue €3,825M (+21% vs FY 2022).
Order Intake €4,775M (-23%).
Backlog €14,200M (+7%).
EBIT €179M (+29%).
EBIT Mg 4.7% (+0.3p.p.).
EPS €2.6 (vs €1.52).
Dividend per share €1.11 (vs €0.86)
2024 Guidance
2024 Revenue +10% vs 2023.
Improvement in Net Profit and EBIT vs 2023.
Book-to-bill ratio > 1.
News
Solaris keeps winning contracts in Europe - a huge order for Rome (Italy), Frankfurt and Cologne (Germany), Warsaw (Poland), etc.
Solaris maintained its position as the European e-mobility leader - the company mainted its leadership position in the zero-emssion bus market with a 14.5% market share.
Rumours in Spain about a posible acquisition of Talgo by CAF - the hungarian company Magyar Vagon has presented a takeover bid for the spanish company Talgo (BME: TLGO) which the Spanish government doesn’t support. There are rumours in Spain that CAF could be the white knight of the story: the Spanish government prefers that Talgo stays in spanish hands and its business is complimentary to CAF’s (Talgo is focused mainly in intercity and high-speed rail).
Key Dates
May 9th - Q1 2024 Results.
May 15th - Annual General Meeting.
July 31st - HY 2024 Results.
November 14th - Q3 2024 Results.
Analysis
My CAF investment thesis holds: the company is improving its margins at a slow by steady pace while revenues are booming due to the need of cities to invest in green public transport. Analysts are starting to jump on the bandwagon: most of them have increased the target price for CAF in recent months (average target price now over €41 per share).
Chargeurs SA
Performance -23.73%
The results were completely overlooked after the tender offer launched by CEO Michaël Fribourg last december. The tender offer was closed at the beginning of April and now he controls 67.58% of the share capital, representing 68.46% of the total voting rights. About the results, the weak performance of Chargeurs Advanced Materials weights very heavily in the results of the group.
FY 2023 Results
Revenue €653.2M (-11.0% vs FY 2022, -6.9% LFL).
EBITDA 46.9M (-11.2%).
EBITDA Margin 7.2% (-1.9pts).
Operating Profit 22.0M (-44.3%).
Net Financial Expense 29.7M (vs 18.3M).
Net Debt position €235M (vs €174M)
EPS 0.06€ (-93.5%).
Performance by Business
Chargeurs Advanced Materials - Revenue €272.0M (-18.2%, -17.3% LFL), EBITDA €18.6M (-41.3%), Recurring Operating Profit €10.1M (-55.7%). CAM performance during the year was very weak and as the main business line of Chargeurs it’s the reason of the weak performance of the stock. Nonetheless, there are some silver linings: volumes sold in Q4 2023 were higher than in Q4 2022 although this increase in volumes was not enough to offset the fall in polyethylene prices.
Chargeurs PCC Fashion Technologies - Rev €193.1M (-12.2%, +3.5% LFL), EBITDA €19.8M (-18.2%), ROP €13.8M (-18.8%). Resilient performance of the business, with LFL revenue growth but penalised by the impact of high energy costs (-€1.5M) and the accounting effect of hyperinflation (-€1.5M)
Chargeurs Museum Studio - Rev €108.8M (+41.6%, +33.5% LFL), EBITDA €10.7M (+30.5%), ROP €8.5M (+44.1%). Same as last quarters, CMS is the growth engine of the group: CMS would have surpassed the €120M target revenue for 2023 adding the results of its Hypsos subsidiary (classified as an asset held for sale since December 31 2023). The order backlog was worth over €240M at the end of the year.
Chargeurs Luxury Fibers - Rev €73.3M (-22.6%, -21.0% LFL), EBITDA €2.3M (+9.5%), ROP €2.2M (+10.0%). The big decline in revenue is more than offset by the sales of the higher margin NATIVA wool, which represents over 20% of total sales (+40% vs 2022). The strategy of premiutization of the business is being reflected in the improvement of profitability (ROP Margin 3.0% vs 2.1% in 2022).
Chargeurs Personal Goods - Rev €9.0M (+63.6%, +14.7% LFL), EBITDA -€0.2M (vs €0.6M), ROP -€0.9M (vs €0.3M). Still too small within the group, CPG is going through the usual growing pains: the accelaration of marketing efforts to support the brands weighted on margins. CPG is a long term play for Chargeurs so this kind of performance will be common in the coming quarters. Swaine is not consolidated yet.
2024 Guidance
Chargeurs Museum Studio 2024 Revenue target of €150M.
News
Hypsos is up for sale - the dutch company Hypsos (main business is dedicated to the layout solutions for events and trade shows), part of CMS, is classified as an Asset Held for Sale in order to optimize the portfolio of services.
Rayne Shoes Acquisition - on December 8 2023, Chargeurs acquired luxury shoemaker Rayne Shoes, which had applied for disolution last August. The company has not made the announcement of the acquisition yet (I found this statement buried in a note in the Annual Report) so there’s no info on the current revenue or the strategy for the brand. It’s the kind of acquisition like Swaine that Chargeurs is focusing on to grow in the luxury sector - an historic brand in need of a total revamp.
Launch of NATIVA Cotton - following the success of the NATIVA program for Merino wool, Chargeurs Luxury Fibers has launched NATIVA Cotton with a first partner in Greece to provide the textile industry with cotton fibers sourced from regenerative agriculture with total traceability of the process. CLF has also announced the launch of NATIVA Cashmere later in the year with a partner in Mongolia.
Exhibition Cézanne/Renoir by Skira Editore - on 18 March, 2024, Skira Editore (part of Chargeurs Museum Studio) inaugurated the Cézanne/Renoir exhibition at the Palazzo Reale in Milan. It looks like a hit exhibition so far: it has been been highly praised by the media and there were over 40,000 bookings made prior to its opening
Altesse Studio continues its expansion - the luxury hairbrushes of Altesse Studio are now available in INNO department store in Belgium, in Beauty Edit in London and in Bloomingdales in the US.
Key Dates
April 30th - Q1 2024 Results and Annual General Meeting.
Analysis
After the closing of the tender offer, a new chapter begins for Chargeurs. As I explained in a recent article analysing the takeover bid, the timing of the offer chosen by CEO Michaël Fribourg was excellent because CAM is going through a rough patch and several of the other businesses are in its early steps or going through a transformation (CMS, CLF and CPG). The “new” Chargeurs will be different, more focused on its Luxury segment, with potential divestures to reduce the increasing debt.
Results were in line with expectations; as long as CAM doesn’t recover the stock price will keep under preassure. I still think that the Chargeurs is a great investment opportunity for the future.