IBU-tec — Transformative acquisition

IBU-tec (DB: IBU)

Last close As at 28/03/2024

33.60

0.30 (0.90%)

Market capitalisation

160m

More on this equity

Research: Industrials

IBU-tec — Transformative acquisition

IBU-tec has completed the acquisition of speciality chemicals company BNT Chemicals in a transformative deal that substantially expands the type of chemical treatments deployed, the markets served and the customer-base. Management estimates this will more than double annualised revenues and be immediately earnings enhancing with the potential to substantially improve BNT’s profitability in the medium term. The terms of the transaction were not disclosed. The consideration was payable in cash using some of the funds from the IPO and bank loans.

Analyst avatar placeholder

Written by

Industrials

IBU-tec

Transformative acquisition

Speciality chemicals

Scale research report - Update

4 July 2018

Price

€17.4

Market cap

€70m

Share price graph

Share details

Code

IBU

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Last reported net cash at end December 2017

€12.7m

Business description

IBU-tec is an international full service provider in the field of thermal process engineering, predominantly treating inorganic materials. It helps clients create enhanced performance materials, reduce energy consumption and use input materials more efficiently.

Bull

BNT acquisition adds wet chemical processes to existing thermal treatments.

BNT deal expands customer base, reducing exposure to demand for car exhaust catalysts.

New Bitterfeld site supports expansion into new thermal process applications.

Bear

BNT acquisition will depress EBITDA margin.

Additional bank loans to support BNT purchase.

Low free float (31.0%).

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

IBU-tec has completed the acquisition of speciality chemicals company BNT Chemicals in a transformative deal that substantially expands the type of chemical treatments deployed, the markets served and the customer-base. Management estimates this will more than double annualised revenues and be immediately earnings enhancing with the potential to substantially improve BNT’s profitability in the medium term. The terms of the transaction were not disclosed. The consideration was payable in cash using some of the funds from the IPO and bank loans.

Complementary chemical processes

BNT Chemicals uses wet chemical processes to manufacture tin-based compounds that it sells for use as catalysts in the chemical industry and in the manufacture of medicines, for electro-plating in the automotive industry, for coating glass and as raw materials. This augments the group’s existing thermal processing services with wet chemical processing capability and its own products, takes it into new markets, such as the pharmaceutical sector, and expands the customer base.

Potential to enhance profitability

While BNT is consistently profitable, it does not generate the operating margins that IBU-tec has achieved historically. Management has already identified significant scope for improving the efficiency of BNT’s manufacturing operations. In addition, since BNT is located close to IBU-tec’s new thermal processing facility there is plenty of scope to achieve synergistic benefits as activity at the thermal processing site ramps up. In the medium term, management intends to establish toll-manufacturing capability at BNT so it can up-sell wet processing capacity to customers who are already outsourcing thermal processing to the group.

Valuation: Trading at a discount to peers

Prior to the acquisition, management guided FY18 revenues of €18.5-20.0m generating EBITDA of €4.7-5.2m. It now expects annualised pro-forma revenues of €45-50m and EBITDA (prior to one-off transaction costs) of €5.5-7.0m. This guidance gives a pro-forma EV/Sales multiple of 1.1-1.3x and EV/EBITDA multiple of 8.2-10.4x. Both of these ranges are below the means for our sample (1.6x EV/Sales and 11.0x EV/EBITDA). This indicates potential for share price improvement as investors appreciate how this acquisition reduces the exposure to the car exhaust catalyst market, which caused the decline in revenue and profit experienced in FY17.

Historical financials

Year
end

Revenue
(€m)

PBT*
(€m)

EPS**
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

12.5

2.5

0.45

0.0

38.7

N/A

12/15

16.6

4.5

0.79

0.0

22.0

N/A

12/16

17.7

4.3

0.77

0.0

22.6

N/A

12/17

16.8

1.9

0.45

0.13

38.7

0.7

Source: IBU-tec accounts. Note: *Adjusted for IPO costs. **On number of shares at listing date.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Complementary wet chemical processing

BNT Chemicals is a well-established speciality chemicals company, having been founded in 1998. It uses wet chemical processes to manufacture tin-based products, which it sells for use as catalysts in the chemical industry and manufacture of medicines, electro-plating in the automotive industry, coating glass and as raw materials, eg tin tetrachloride. Revenues during the period from 2015 to 2017 were stable at €23-28m per year.

The terms of the transaction have not been disclosed. We note that the consideration was payable in cash, financed through a combination of part of the €16.5m (gross) raised from the IPO in March 2017 (most of the remainder has been invested in the purchase and equipping of the thermal processing facility at Bitterfeld) and bank debt. The former parent company, TIB Chemicals AG, has signed a 10-year strategic partnership agreement with IBU-tec. Under this agreement TIB will continue to purchase catalysts for the chemical industry from BNT. In addition, both TIB and BNT will continue to work collaboratively on R&D projects.

From a strategic viewpoint, the transaction is an excellent fit as it adds complementary processing techniques, takes IBU-tec into new market niches, such as the production of catalysts used in manufacturing medicines, and enlarges the customer base. Importantly, the acquisition is of sufficient scale to substantially reduce IBU-tec’s exposure to demand for car exhaust catalysts. We estimate that this will reduce from 40-50% of FY17 revenues to 20% of the annualised revenues of the enlarged group. It also increases the proportion of export revenues.

Enhancing profitability post-acquisition

While BNT is consistently profitable, it does not generate the operating margins that IBU-tec has achieved historically (26% EBITDA margin FY17, excluding IPO costs). Prior to acquiring IBU-tec in 2000, IBU-Tec’s CEO Ulrich Weitz held management positions with major international engineering companies including OTIS and had responsibility for improving the efficiency of manufacturing operations. Mr Weitz intends to apply these techniques to BNT.

Because BNT is located 1.5km from IBU-tec’s new thermal processing facility on the Bitterfeld chemical site, there is plenty of scope to achieve synergistic benefits as activity at the thermal processing site ramps up. (The site was acquired in April 2018 and is expected to commence production from its first rotary kiln in September 2018.) Obvious candidates are sharing logistics and IT costs, the R&D facility at BNT, and some managerial roles, as well as training production staff so that they can work on either site, thus giving greater operational flexibility.

IBU-tec’s existing customers typically engage it to carry out drying processes and further thermal treatments on materials that have previously undergone wet chemical processing. In the medium term, management intends to establish toll-manufacturing capability at BNT so it can provide a range of wet processing treatments to customers that are already using IBU-tec for thermal processing of materials under a toll-processing arrangement. It also intends to introduce a more systematic approach to addressing market opportunities for existing products.

Valuation

IBU-tec’s share price has been fairly volatile since the IPO placing at €16.5/share. The shares are currently trading close to the IPO price. Over the last month the shares have outperformed the DAX, rising by 5% whereas the index has declined by 4%.

As there are no listed peers involved in the toll manufacturing of inorganic chemicals, we are using a sample of European companies involved in the manufacture of speciality chemicals or using specialist chemical processes to provide a service. Prior to the BNT acquisition, management had forecast FY18 revenues of €18.5-20.0m generating EBITDA of €4.7-5.2m. It now expects annualised pro-forma revenues of €45-50m and EBITDA (prior to one-off costs associated with the transaction) of €5.5-7m.This guidance gives a pro-forma EV/Sales multiple of 1.1-1.3x and EV/EBITDA multiple of 8.2-10.4x. (There is no guidance on earnings, precluding use of P/E multiples, and information on the potential amount of debt/cash paid to acquire BNT.) Both of these ranges are below the means for our peer group sample (1.6x EV/Sales and 11.0x EV/EBITDA). This indicates potential for share price improvement as investors appreciate how this acquisition reduces the exposure to the car exhaust catalyst market which caused the decline in revenue and profit in FY17 and there is evidence that management is able to drive margin improvement in the BNT business post-acquisition.

Exhibit 1: Listed peer multiples

Name

Market Cap m ($)

EV/Sales 1FY (x)

EV/EBITDA 1FY (x)

Akzo Nobel

22,023

2.2

16.8

Bodycote

2,447

2.5

9.3

Croda International

8,336

4.9

16.7

Elementis

1,743

2.3

12.0

Evonik Industries

15,910

1.1

6.8

Fuchs Petrolub

6,629

2.1

12.6

Holland Colours

92

0.8

6.7

Johnson Matthey

9,324

0.5

10.5

Kemira

1,953

0.8

6.7

Koninklijke

17,979

1.7

9.0

Nabaltec

228

1.2

7.2

Nanogate

221

1.3

11.0

Orapi

47

0.4

7.6

Robertet

1,341

2.2

13.0

Symrise

11,207

3.6

17.3

Umicore

14,060

1.0

17.5

Victrex

3,265

7.4

16.8

Wacker Chemie

6,667

1.2

5.6

Mean

1.6

11.0

IBU-tec advanced materials

79

1.1-1.3*

8.2-10.4*

Source: Bloomberg. Note: Prices at 28 June 2018. Grey shading indicates exclusion from mean. *Based on historical EV, ie prior to adjustment for cash/debt paid for BNT.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on IBU-tec

View All

Latest from the Industrials sector

View All Industrials content

Industrials

ACWA Power — Record results for FY23

Industrials

Dowlais Group — Motoring forward

Research: Investment Companies

Seneca Global Income & Growth Trust — Continuing to reduce equity exposure

Seneca Global Income & Growth Trust (SIGT) aims to generate an average total return of at least CPI +6% pa, with low volatility, over the course of a normal business cycle, while growing annual dividends at least in line with UK inflation. It employs a value-based, multi-asset approach, investing in UK and overseas equities, fixed income and specialist assets. SIGT’s investment team employs a long-term strategic asset allocation (SAA), using a shorter-term tactical asset allocation (TAA), to take advantage of relative valuation differences between asset classes. In anticipation of an expected global economic downturn in 2020, SIGT’s managers are continuing to reduce risk by lowering equity exposure broadly at a rate of 1pp every couple of months. The TAA can vary markedly from the SAA when deemed appropriate, illustrated by the current zero exposure to North American equities.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free