Markets | Equity Research

INVESTMENT RESEARCH

AMG Advanced Metallurgical Group

Change in estimates

L1 - Basic Materials / The Netherlands

Target Price EUR 19.00

Expected performance (12 mth) 35.8%
BUY EUR 13.99 (Closing price 11-Aug-16)

Putting its cash to work

Following AMGs 2Q16 results release, we increase our target price to
EUR 19/share from EUR 14, implying upside potential of 36%. The
company reported strong 2Q16 results, beating our EBITDA estimate by
16%. On the back of the results, we increase our FY16/17 EBITDA
estimates by 10%/3%. Our higher target price is driven by the inclusion of
the lithium project and positive changes to our estimates.

12 August 2016
Analyst: Philip Ngotho, CFA
Tel: +31 20 344 2943
Email: philip.ngotho@nl.abnamro.com
Analyst: Mutlu Gundogan
Tel: +31 20 628 1386
Email: mutlu.gundogan@nl.abnamro.com

We expect near-term support from higher metal prices

Opinion on qualitative criteria

Accounting
Quality of track record
Solvency
Currency risk
Risk of asset write-off

01/01/2015
Neutral
Neutral
High
High

Share price performance/EPS revision (EUR)

Price

ABN AMRO EPS est. 2016

15

2.2

14

2.0

13

1.8

12

1.6

11

1.4

10

1.2

1.0

0.8

0.6

6
Aug

Oct

Dec

Feb

Apr

Jun

0.4

Source: FactSet, ABN Amro Equity Research

Market capitalisation (USD m)

442.6
No. of shares (m)
28.3
Free float
85.0%
1/3/12 mth perf. (%)
10.6/31.8/73.4
High/low 52 weeks (EUR)
14.07/6.33
Next results due
Price/book value (x)
2.8
Volatility () (5yrs/DJ Euro Stoxx)
1.4
Reuters symbol
AMG.AS
Bloomberg symbol
AMG NA
Website

www.amg-nv.com

We expect that AMG will continue to benefit from higher metal prices. We
remain particularly bullish on ferrovanadium prices, which we expect to increase
on the back of the recent bankruptcy of Gulf Chemical, while the possible
announcement of preliminary anti-dumping rulings (due 6 September) could lift
vanadium prices even further.
while in the mid-term, the lithium project to be the earnings growth driver

We believe that the recently announced lithium spodumene project will prove to
be extremely value-accretive. Using the current spot price of USD 450/t, we
estimate that the project will yield a ROCE of around 44%, while it adds
EUR 2.9/share to our DCF valuation. Note that if we were to apply Roskills
price forecast in our valuation (mid-term price of USD 600/t) our DCF valuation
would increase by another EUR 2.0/share.
Valuation

We find the stock attractively valued, as on our 2017e numbers, AMG trades at a
5.1x EV/EBITDA, which is a 27% discount to its peers (7.0x).
Year to December

2014

2015

2016e

2017e

2018e

1,093.9
85.7
21.9
21.9

977.1
75.6
11.1
11.1

975.7
99.7
47.3
47.3

995.3
107.2
47.8
47.8

1,060.2
124.5
61.3
61.3

EBITDA margin (%)

ROCE (incl. goodwill) (%)
Net gearing (%)

7.8
10.6
96.5

7.7
10.6
5.3

10.2
16.9
3.5

10.8
16.1
4.3

11.7
18.9
(10.7)

EPS before extr. & amort. (USD)

EPS (USD)
DPS (USD)

0.80
0.80
0.00

0.39
0.39
0.20

1.67
1.67
0.29

1.69
1.69
0.33

2.17
2.17
0.44

% change sales
% change EPS (excl. extr. & amort.)

(5.6)
ns

(10.7)
(50.8)

(0.1)
327.3

2.0
0.9

6.5
28.4

EV/Sales
EV/EBITDA
P/E (excl. extr. & amort.)
P/E
PE/growth (excl. extr.)
Free cash flow yield (%)

0.38
4.9
11.8
11.8
0.1
28.7

0.39
5.0
22.1
22.1
0.0
21.4

0.55
5.4
9.3
9.3
0.2
4.8

0.55
5.1
9.3
9.3
0.1
1.5

0.48
4.1
7.2
7.2
0.5
10.7

Sales (USD m)
EBITDA (USD m)
Net profit excl. extr. & amort. (USD m)
Net profit (USD m)

Source: Company, ABN AMRO Equity Research

IMPORTANT: PLEASE READ DISCLOSURES AND DISCLAIMERS, INCLUDING THE ANALYST
CERTIFICATION, BEGINNING ON PAGE 13

2 | AMG Advanced Metallurgical Group | 12 August 2016

1.

ABN AMRO Bank

Review of 2Q16 results

2Q16 EBITDA came in 16% above our expectations

Last week (4 August), AMG reported another set of strong results. 2Q16
revenues came in at USD 248m, 3% ahead of our estimate of USD 241m.
EBITDA were USD 26m, including a USD 3.6m gain due to reversal of
inventory write-downs and USD 3.2m additional expenses as a result of AMGs
Performance Share Unit (PSU) plans. Clean EBITDA amounted to USD 25.6m,
16% ahead of our forecast of USD 22.1m.
Cash flow generation was good despite the net debt number (USD 6.2m)
missing our estimate of a USD 2m net cash position. The miss was mainly due
to the company making voluntary payments to its US pension plan for a total of
USD 20.6m. Excluding this payment, the company would have reported a net
cash position of USD 14m. Although the strong cash flow generation was not
reflected in the debt position, we note that, from a valuation perspective, the
impact still remains positive, as we have lowered the unfunded status in our
valuation by some USD 20m (some EUR 0.6/share).
AMG announced an interim dividend of EUR 0.13/share, which was above our
forecast of EUR 0.10. Furthermore, AMG increased its guidance, expecting
EBITDA to improve versus FY15 (USD 76m), while previous guidance was for
a similar yoy result.
Details:

2Q16 revenues came in at USD 248m, 3% ahead of our estimate of USD

241m.
Net income was USD 13.4m versus our estimate of USD 6.2m.
AMG Critical Materials revenues came in at USD 182m, slightly ahead of our
USD 180m estimate. The division recorded EBITDA of USD 20.m, although
this includes USD 3.6m of inventory write-down reversals. Excluding the
one-off, EBITDA would have amounted to USD 16.9m, 6% below our
estimate of USD 17.9m. We note that the division has not yet seen the full
benefit of higher metals prices, due to a one-month lag in contract prices.
Furthermore, we understand from the company that the higher costs of
AMGs Performance Unit plan (USD 3.2m) were 70% allocated to AMGs
Critical Materials division.
AMG Engineerings 2Q16 revenues came in at USD 66.7m, which was 9%
above our estimate of USD 61m. EBITDA amounted to USD 5.6m, while we
had forecast USD 4.2m.
The division signed USD 92.8m in new orders during 2Q16, representing a
1.39x book/bill ratio. Order backlog was USD 158.8m at the end of 2Q16,
which is an increase of 17% from 1Q16. Order intake in the quarter benefited
from a number of orders that had been postponed from 1Q16.
Highlights of conference call:

For the lithium phase I project, AMG has had discussions on offtake
agreements with clients. The company is still deciding on the product mix for
its plant and therefore cannot yet finalise an agreement. AMG continues to
target a portfolio of long-term contracts.
CEO Dr Schimmelbusch gave some guidance on the lithium phase II project.
According to him, the cash cost will likely be between USD 4,000/t and
USD 5,000/t. Site location of the lithium chemical plant will likely be in the
US or Germany, and capital costs will be on the order of USD 200m.
AMG does not have any strong ambitions on the M&A side, as its internal
organic growth projects are deemed to be much more value accretive.
AMG has not yet formulated an official dividend policy. For now, it targets a
dividend yield of 2.5% and the CEO notes that he does not want to commit to
too high a dividend, given the capex requirements for the lithium projects.

12 August 2016 | AMG Advanced Metallurgical Group | 3

ABN AMRO Bank

2.

Lithium project extremely value-accretive

On 20 July, AMG announced its plan to build a USD 50m metals processing
plant for the production of lithium spodumene (concentrate) as a by-product
from its Mibra tantalum mine operations in Brazil.
We believe that this project will prove to be extremely value-accretive given the
project features and the demand prospects for lithium. AMG estimates that it
will be able to produce lithium spodumene at a cost of USD 206/t (including
depreciation and port transportation costs). Based on the USD 450/t spot price
quoted by Roskill (market intelligence agency), we estimate that AMG can
generate an annual EBIT of some USD 22m and EBITDA of USD 27m once the
plant is fully ramped-up. This would correspond to a ROCE of around 44%.
Figure 1: Price forecasts for lithium spodumene by Roskill

Source: AMG Lithium Presentation July 2016

We do note that the lithium market is not very liquid and price forming remains
relatively opaque. As an example, Metal Bulletin currently reports a spot price of
USD 765/t (CIF) for lithium spodumene (7.5% grade) sold into Europe.
Assuming transportation costs of some USD 100/t, we estimate that the FOB
price would be some USD 665/t. Using this as a price assumption in our
calculations yields an EBIT of USD 41m, which corresponds to a ROCE of
83%.
In our current valuation, we have assumed a long-term spodumene price of USD
450/t, which, in our view, is conservative, especially given the strong lithium
demand prospects. Note that for every USD 100/t increase in the lithium
spodumene price our DCF valuation would increase by EUR 1.80/share.
As a potential second phase, AMG is exploring, through a pre-feasibility study,
the possibility of construction of a downstream conversion plant of lithium
concentrate into lithium carbonate. The pre-feasibility study is expected to be
completed in 4Q16, with a final investment decision to be taken in 2Q17. A
possible plant would have an annual production capacity of between 14kt and
20kt of lithium carbonate equivalent (LCE). CEO Dr Schimmelbusch indicated
during the 2Q16 analyst call that capital expenditure for such a plant would
likely be on the order of USD 200m.
2.1. Project specifics
The (phase 1) lithium processing plant will be built at the Mibra mine site,
which is an already operational tantalum mine in the Brazilian state of Minas
Gerais. The raw material feedstock will come from the lithium deposits in
already existing tailings, as well as incremental lithium-bearing tailings
generated via the ongoing tantalum production.

4 | AMG Advanced Metallurgical Group | 12 August 2016

ABN AMRO Bank

The plants initial production capacity will be some 90kt of lithium spodumene,
with the option to expand it to 140kt. Production is expected to commence in
1Q18 and the capital expenditure is estimated at USD 50m. We note that AMGs
production guidance assumes a 67% recovery rate of the lithium contained in the
ore (see also the mineral resources overview in Figure 4). In comparison to peers
such as Orocobre and Pilbara Minerals, which assume 75% recovery rates, we
find this a relatively conservative assumption. As such, we believe there could
be upside to the production figure. In our estimates, however, we follow the
companys guidance.
Figure 2: AMG lithium project timeline

2010-12

Spodumene
concentration
processing route
development
Mineralogical
characterization
on tailings from
Ta2O5 plant
Laboratorial
scale flotation
tests
Pilot plant
operation
Industrial
production
scoping study

2013-14

Sample
production of
lithium
concentrate for
glass / ceramic
industry
Updated 43-101
compliant
resource
statement life
of mine
extended

2015

Lithium
concentrate
(spodumene)
plant studies
completed 4Q15
by Outotec
Conceptual
study
Pre-feasibility
study

2016

Spodumene
plant basic
engineering
completed July
2016 by Outotec
AMG
Supervisory
Board approval
July 19th, 2016
Spodumen
plant
construction to
commence
3Q16
Resource
expansion
drilling
campaign to
start 3Q16

2017

Updated 43-101
compliant
resource
statement to be
completed
Spodumene
plant
construction to
be completed
4Q17

2018-20

Spodumene
plant to be at
full capacity in
3Q18

Source: AMG Lithium Presentation July 2016

AMG believes that the new plant will be one of the lowest-cost producers of
lithium ore spodumene, with an estimated operating cost of USD 127/t. AMG is
able to achieve such a low cost base as it will be using the existing mining
infrastructure of the Mibra mine. Furthermore, ore extraction and crushing costs
are already absorbed by the current tantalum operation, as the lithium is being
extracted from the tailings and the residues from the tantalum mining operations.
Figure 3: Estimated operating costs AMGs spodumene plant

Source: AMG Lithium Presentation July 2016

We like the project based on its very high value-accretion potential.

Furthermore, the company has operated the Mibra mine for 38 years, so
management should have a strong understanding of the mine geology. In
addition, AMG has been operating a spodumene pilot plant since 2010, which,
in our view, reduces the ramp-up risks of the full-scale plant.

12 August 2016 | AMG Advanced Metallurgical Group | 5

ABN AMRO Bank

Mineral resources

The most recent mineral resources statement for the Mibra mine dates from
2013, and states that AMG's Mibra mine has total resources of 19.4mt, of
which14.7mt is classified as measured and indicated resources containing
tantalum, niobium, tin and lithium. AMG estimates that the current life of the
mineral resource is approximately 18 years, based on current production levels.
AMG is conducting further exploration work at the mine and expects to update
its resource statement in 1H17, with the objective to upgrade existing mineral
resources from inferred to indicated and/or indicated to measured. With this, the
life of mine is also expected to be extended.
Figure 4: Mineral resources
Source (in kt)

Ore/Tailing (measured
+ indicated + inferred)

Ore source - 2013 statement

Less consumption
Net ore balance
Tailings - ponds 1&2
Net ore & tailing ponds
Tailings stockpiles
Total resources

% Li2O grade

Li20 contained
in ore

LCE contained
in ore

Li20 contained
in spodumene

Spodumene

19,360

146.4

361.0

90.7

1463.6

3,215

15.5

38.3

9.6

155.2

130.8

322.7

81.1

1,308.5

20.7

51.1

13.9

223.7

151.5

373.8

95.0

1,532.2

16,145

0.81%

2,070

1.00%

18,216
750

1.15%

18,966

8.6

5.8

5.8

93.206

160.1

379.6

100.8

1,625.4

Source: AMG Lithium Presentation July 2016

2.2. Lithium specifics and market fundamentals

Lithium (Li) is a soft, silver-white metal and, like other metals belonging to the
alkali metal group, it is highly reactive. It is also the lightest of all metals and the
least dense solid element.
Lithium can be processed to form a variety of different chemicals depending on
its end use. According to Roskill, lithium carbonate represents approximately
48% of the total global consumption of lithium chemicals (25% technical-grade
lithium carbonate and 23% battery-grade lithium carbonate). The next-mostcommon chemical is lithium hydroxide, which represents 16% of total global
consumption. Other forms of lithium consumed include lithium bromide, lithium
chloride and lithium minerals. The general end-use of lithium is shown in the
figure below.
Figure 5: End-use of lithium
Primary aluminium
production
Polymer
1%
production
4%
Continuous
casting mold
flux powder
5%

Batteries
35%

Ceramics and
glass
32%

Air treatment
5%
Lubricating
greases
9%

Source: USGS

Other uses
9%

6 | AMG Advanced Metallurgical Group | 12 August 2016

ABN AMRO Bank

Lithium is increasingly being referred to as the new oil, due to its common usage
in rechargeable batteries. Lithium-ion is lighter, more efficient, and more
durable than many other competing technologies. This makes it a desirable
choice for energy storage, particularly in vehicles and consumer electronics,
where weight and heavy usage are significant factors. Evidently, lithium
consumption for batteries has increased significantly in recent years.
Figure 6: Energy densities for various battery chemistries

Figure 7: Annual demand per battery type

Source: Inventus Power (article: Roadmap for Lithium-Ion Battery

Technology)

Source: Avicinne Energy

2.2.1. Lithium demand

Lithium demand has grown strongly over the last few years and market
intelligence agency Roskill expects this strong growth to continue in the coming
10 years, particularly in the market of rechargeable batteries.
Figure 8: Historical and project demand for lithium by first use (in tonnes of LCE)

Source: Pilberal Minerals August 2016 investor presentation

While portable consumer goods alone continue to provide strong growth in

demand for lithium batteries, the start of mass production of hybrid, plug-in
hybrid and electric vehicles represents the most significant upside potential for
lithium batteries. These batteries require kilos of lithium, rather than the grams
used today in portable electronic applications. The usage of lithium varies from
0.5-2.0kg for hybrid vehicles to 10-20kg for fully electric vehicles (EV).

12 August 2016 | AMG Advanced Metallurgical Group | 7

ABN AMRO Bank

Given the increasing political and consumer focus on environmental

consciousness, auto manufacturers are striving to lower both carbon emissions
and fuel consumption in transport applications through expansion of their EV
offering.
Data from the International Energy Agency (IEA) show that the stock of EVs
increased in 2015 by 89% yoy, and all signs currently indicate that this strong
growth will continue in the coming decade.
Figure 9: Development of global EV stock

Source: Global EV Outlook 2016

We believe that the targets set by the Paris Declaration provide a good indication
of the future growth potential of EVs. As part of the Paris Declaration on
Climate, governments agreed to set a combined target to have at least 100m EVs
on the road by 2030. The 2C Scenario (2DS) the International Energy Agency
(IEA) has as a target is for 140m EVs by 2030 and nearly 900m by 2050.
Figure 10: Scenarios of projected global EV stock

Source: Global EV Outlook 2016

Meeting the 2030 target of the IEA 2DS implies that the global stock of electric
cars should maintain annual growth rates above 23% until 2025 and in the range
of 6-9% until 2030. We believe that these growth rates provide strong
fundamentals for future lithium demand.
2.2.2. Lithium supply

Lithium is produced from either brine-based deposits or from hard-rock mineral

deposits. Lithium products derived from brine operations can be used directly in
end-markets, but hard-rock lithium concentrates need to be further refined before
they can be used.
Brine deposits represent about 66% of global lithium resources and are found
mainly in the salt flats of Chile, Argentina, Bolivia, China and Tibet. Lithium is
not a scarce element, as the current global reserves could supply the world for
442 years with lithium (based on 2015 production figures). However, lithium
(like rare earths) tends to be deposited in very low concentrations and the
biggest challenge is finding high enough concentrations to make mining it cost
efficient.

8 | AMG Advanced Metallurgical Group | 12 August 2016

ABN AMRO Bank

Figure 11: 2015 lithium production levels and reserves (in 000t)
Country

Production

Reserves

Australia

13,400

1,500,000

Chile

11,700

7,500,000

Argentina

3,800

2,000,000

China

2,200

3,200,000

Zimbabwe

900

23,000

Portugal

300

60,000

Brazil

160

48,000

United States
Total

undisclosed

38,000

32,460

14,369,000

Source: USGS, ABN AMRO Equity Research

The current lithium supply market is dominated by four major producers,

including Albermarle, SQM, FCM and Sichuan Tainqi. These producers
accounted for over 80% of global supply in 2015. New mine projects are
planned by various other producers. In its base-case scenario, Roskill expects the
market to be slightly oversupplied, but, as seen in Figure 1, Roskills base-case
scenario still assumes a rise in spodumene prices, which is logical, as the new
mines are likely to be higher on the cost curve (lowest-cost mines are usually the
first mines to be developed). In our calculation, we have used a long-term
spodumene price of USD 450/t, which is below Roskills base case and, in our
view, conservative.
Figure 12: Forecast supply and demand of LCE

Source: ABN AMRO Equity Research

12 August 2016 | AMG Advanced Metallurgical Group | 9

ABN AMRO Bank

3.

Divisional forecasts and changes to

estimates

Our divisional forecasts can be found in the table below.

Figure 13: Divisional forecasts (USDm)
2015

1Q16a

2Q16a

3Q16e

4Q16e

2016e

2017e

2018e

Critical Materials

757

177

182

180

180

718

733

747

Engineering

220

61

67

65

65

258

263

268

Total

977

237

248

245

245

976

995

1,015

60.8

16.5

20.5

20.6

20.6

78.2

83.3

100.1

8%

9%

11%

11%

11%

11%

11%

13%

14.8

4.6

5.6

5.7

5.7

21.5

24.0

24.4

7%

8%

8%

9%

9%

8%

9%

9%

75.6

21.2

26.0

26.3

26.3

99.7

107.2

124.5

8%

9%

10%

11%

11%

10%

11%

12%

Net income

9.9

12.3

12.8

10.9

10.9

47.0

47.4

60.9

EPS (USD)

0.35

0.43

0.45

0.39

0.39

1.66

1.67

2.15

Revenues

EBITDA
Processing
Margin
Engineering
Margin
Total
Margin

Source: AMG, ABN AMRO Equity Research

The changes to our estimates are shown in the table below. Our higher estimates
are mainly driven by increased earnings estimates for AMGs Engineering
division.
Figure 14: Changes to our estimates (USDm)
FY16e
Old
Sales

960

Change
EBITDA

90.9

Change
Source: ABN AMRO Equity Research

976

980

99.7

33.0

47.0

103.7

1.66
42.2%

995
107.2
3.4%

36.2

42.2%
1.2

New

1.6%

9.8%

Change
EPS (USD)

Old

1.6%

Change
Net income

FY17e
New

47.4
30.8%

1.3

1.67
30.8%

10 | AMG Advanced Metallurgical Group | 12 August 2016

4.

ABN AMRO Bank

Valuation

Methodologies lead to EUR 19 fair value

We use a blend of EV/EBITDA and DCF to arrive at our target price of

EUR 19.0/share (from EUR 14 previously), implying upside potential of 36%.
Our higher target price is driven by the inclusion of the lithium project and
positive changes to our estimates.
The table below shows the outcome of our 2017e EV/EBITDA valuation
Figure 15: EV/EBITDA valuation (USDm)
2017e
EBITDA

107

EBITDA multiple

6.6x

Enterprise value

707

Plus: Other Assets (Investments in JVs)

Less: Unfunded status (after-tax and after USD 20m top-up payment)

77

Less: Minorities

24

Less: Environmental provisions

20

Less: Net debt as at 31

(3)

Less: Factoring of receivables

12

Equity Value

589

No. Shares (millions)

28.3

Per Share Equity Value (in USD)

20.8

USD/EUR exchange rate

1.11

Per Share Equity Value (in EUR)

18.8

Source: ABN AMRO Equity Research

The table below summarises our DCF valuation. We have increased our WACC
to 8.7% from 8.3% to reflect the inherent execution risk of the lithium project.
Figure 16: DCF valuation
Amounts in USDm (unless otherwise stated)

2016e

2017e

2018e

2019e

2020e

2021e

2022e

Revenues

976

995

1,060

1,103

1,128

1,128

1,128

Underlying EBITDA

100

107

125

131

134

133

133

Changes in net working capital

(4)

(5)

(12)

(6)

(4)

Taxes paid

(9)

(12)

(15)

(17)

(18)

(18)

(18)

(40)

(73)

(42)

(42)

(42)

(42)

(42)

46

18

56

66

71

74

74

847

Capex
FCF
Discount factor

Terminal

0.92

0.85

0.78

0.72

0.66

0.61

0.56

0.56

Discounted FCF

42

15

43

47

47

45

41

473

Enterprise value

753

Plus: Other Assets

Less: Unfunded status (after-tax)

97

Less: Minorities

24

Less: Environmental provisions

20

Less: Net debt (as at 31 Dec 2015)

(1)

Less: Factoring of receivables

Equity value
Number of shares
Per Share Equity Value (in USD)

12
602
28
21.28

USD/EUR exchange rate

1.11

Per Share Equity Value (in EUR)

19.2

Source: ABN AMRO Equity Research

12 August 2016 | AMG Advanced Metallurgical Group | 11

ABN AMRO Bank

P & L Statement (USD m) Year to December

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Net sales

916.3

990.5

1,351.3

1,215.6

1,158.4

1,093.9

977.1

975.7

995.3

1,060.2

Other income

6.0

1.1

8.8

1.2

2.1

2.1

0.9

2.4

(7.8)

(42.8)

Personnel costs

(170.9)

(175.5)

(214.5)

(217.4)

(217.0)

(222.5)

(227.6)

(227.6)

(229.8)

(232.1)

Other operating costs

(746.6)

(747.8)

(1,046.2)

(915.2)

(870.9)

(787.7)

(674.8)

(650.8)

(650.4)

(660.7)

4.8

68.3

99.4

84.3

72.6

85.7

75.6

99.7

107.2

124.5

Depreciation

(23.8)

(25.0)

(29.6)

(43.5)

(33.3)

(33.2)

(38.3)

(38.8)

(37.0)

(40.0)

EBITA

(19.0)

43.3

69.8

40.8

39.3

52.5

37.3

60.9

70.2

84.5

0.0

0.0

(0.2)

(6.0)

(65.5)

(11.9)

(1.2)

2.1

(4.0)

(4.0)

EBITDA

Reported provisions
Amortisation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EBIT

(19.0)

43.3

69.5

34.8

(26.2)

40.6

36.2

63.0

66.2

80.5

Net financials

(16.5)

(10.5)

(22.3)

(25.8)

(21.1)

(19.5)

(8.2)

(8.9)

(7.0)

(4.5)

Profit Before Taxes (PBT)

(35.5)

32.8

47.3

9.0

(47.3)

21.1

27.9

54.1

59.2

76.1

Taxes

(16.7)

(11.2)

(18.7)

(10.8)

4.4

1.0

(18.7)

(8.6)

(11.8)

(15.2)

Income from associates

(32.0)

(19.4)

(20.3)

2.4

(2.1)

(0.4)

0.6

1.4

0.0

0.0

22.6

0.3

(3.1)

2.3

3.5

0.3

1.2

0.4

0.4

0.5

Net profit before extraordinaries

(61.6)

2.4

5.2

2.8

(41.5)

21.9

11.1

47.3

47.8

61.3

Extraordinary items

(14.0)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net reported profit

(75.6)

2.4

5.2

2.8

(41.5)

21.9

11.1

47.3

47.8

61.3

% change in Sales

(39.6)

8.1

36.4

(10.0)

(4.7)

(5.6)

(10.7)

(0.1)

2.0

6.5

% change in EBITDA

(95.8)

1,332.3

45.6

(15.2)

(13.8)

18.1

(11.8)

31.9

7.5

16.1

% change in EBITA

ns

ns

61.3

(41.6)

(3.7)

33.7

(28.9)

63.2

15.3

20.4

% change in PBT

ns

ns

44.3

(81.0)

ns

ns

32.5

93.6

9.5

28.4

% change in Net profit before extraordinaries

ns

ns

114.0

(44.9)

ns

ns

(49.4)

327.3

0.9

28.4

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e
124.5

Minorities

Cash Flow Statement (USD m)

EBITDA
Change in provisions excluding tax provisions
Change in net working capital

4.8

68.3

99.4

84.3

72.6

85.7

75.6

99.7

107.2

64.1

20.0

14.5

2.6

(12.9)

(6.2)

(4.3)

(17.4)

(4.0)

(4.0)

(48.4)

(40.6)

(22.6)

9.9

40.2

39.0

21.6

(4.3)

(4.9)

(11.5)

Gross operating cash flow

20.4

47.7

91.3

96.8

99.9

118.5

92.8

78.1

98.4

109.0

Taxes paid

(9.7)

(35.4)

(34.2)

(12.6)

(12.1)

(6.3)

(5.7)

(9.1)

(11.8)

(15.2)

Capex

(25.5)

(33.0)

(51.9)

(48.1)

(32.0)

(24.0)

(23.3)

(40.7)

(73.0)

(42.0)

Free cash flow

(14.8)

(20.8)

5.2

36.1

55.7

88.3

63.9

28.2

13.5

51.8

Net interest received

(12.8)

(13.8)

(12.1)

(18.6)

(18.0)

(13.8)

(11.4)

(6.9)

(7.0)

(4.5)

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Acquisitions

(28.9)

(20.2)

(29.5)

(0.2)

(4.0)

0.0

(1.2)

(6.0)

0.0

0.0

Divestments

0.1

(9.8)

0.6

0.3

3.2

0.8

(0.9)

1.0

0.0

0.0

Share issues/buybacks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Dividend (adj. stock dividend)

0.0

0.0

0.0

0.0

0.0

0.0

5.7

8.2

9.4

12.6

Extraordinary items (after tax)

(32.7)

(5.5)

(1.9)

2.7

6.8

(9.1)

(2.1)

0.0

0.0

0.0

62.6

42.4

27.9

21.7

(62.3)

(57.9)

(30.3)

(17.3)

(9.4)

(43.1)

(26.5)

(27.7)

(9.7)

42.1

(18.6)

8.3

23.7

7.4

6.5

16.8

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Change in interest-bearing debt

Change in cash & cash equivalents

Balance Sheet (USD m)

Net intangible fixed assets
Net tangible fixed assets
Financials fixed assets (FFA)

28.3

27.0

38.1

38.7

37.2

31.7

28.9

33.7

33.7

33.7

211.0

228.6

263.6

288.3

259.7

237.4

215.8

218.8

254.8

256.8

78.2

80.7

63.4

77.7

65.5

68.9

70.2

71.0

71.0

71.0

Inventories

193.4

207.2

228.9

211.5

179.3

145.4

126.4

126.8

129.4

137.8

Trade debtors

147.8

175.4

188.1

177.2

150.8

135.3

124.3

123.9

126.4

134.6

Other debtors

30.4

41.1

35.2

30.4

34.4

49.6

28.3

34.1

34.1

34.1

Cash & securities

122.0

95.0

83.5

124.9

105.2

110.0

128.8

126.8

123.9

128.1

Total Assets

811.0

855.1

900.8

948.8

832.2

778.4

722.7

735.1

773.2

796.1

Shareholder's equity

212.6

222.1

205.5

168.4

132.4

98.2

128.6

159.4

197.4

245.6

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Minorities

15.8

11.9

15.2

6.8

2.2

2.8

25.0

24.8

24.8

24.8

Provisions

134.6

135.8

152.4

210.2

191.9

219.7

198.9

186.3

186.3

186.3

Long-term interest bearing debt

176.3

193.3

219.7

272.2

232.2

176.9

121.0

119.4

119.4

88.9

Short-term interest bearing debt

35.5

49.3

58.2

50.3

39.8

27.9

14.5

13.0

13.0

13.0

Trade creditors

69.8

102.3

128.5

125.3

127.4

134.4

108.0

107.3

109.5

116.6

Other non-interest bearing liabilities

166.4

140.5

121.4

115.4

106.3

118.6

126.7

124.9

122.9

120.9

Total Liabilities & Capital

811.0

855.1

900.8

948.8

832.2

778.4

722.7

735.1

773.2

796.1

Enterprise Value (EV)

461.6

510.0

525.4

511.8

535.8

417.6

380.0

540.0

542.9

508.1

89.8

147.6

194.4

197.7

166.8

94.7

6.8

5.6

8.5

(26.2)

572.8

611.0

642.0

693.7

578.2

511.0

468.7

495.5

533.4

551.2

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Capital Employed (avg.)

572.8

611.0

642.0

693.7

578.2

511.0

468.7

495.5

533.4

551.2

Net working capital

135.4

181.0

202.3

178.4

130.9

77.3

44.3

52.6

57.5

69.0

212.6

222.1

205.5

168.4

132.4

98.2

128.6

159.4

197.4

245.6

Other equity

Net debt/(Net cash)

Capital Employed incl. goodwill (avg.)
Cumulative goodwill (as of 1991)

Discounted value of leases

Adjusted equity

12 | AMG Advanced Metallurgical Group | 12 August 2016

ABN AMRO Bank

Per Share Data (USD)

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Avg. no. of shares (m)

26.9

26.9

27.5

27.5

27.6

27.6

28.3

28.3

28.3

28.3

Eoy. no. of shares (m)

26.9

26.9

27.5

27.5

27.6

27.6

28.3

28.3

28.3

28.3

Avg. no. of shares fully diluted (m)

26.9

26.9

27.5

27.5

27.6

27.6

28.3

28.3

28.3

28.3

17.15

18.95

19.10

18.60

19.44

15.16

13.43

19.08

19.18

17.95

Enterprise Value (EV)

Net debt less FFA plus minorities

1.02

2.93

5.31

4.61

3.76

1.04

(1.36)

(1.44)

(1.33)

(2.56)

34.04

36.80

49.13

44.17

42.04

39.70

34.53

34.48

35.17

37.46

0.18

2.54

3.61

3.06

2.63

3.11

2.67

3.52

3.79

4.40

EBITA

(0.71)

1.61

2.54

1.48

1.43

1.90

1.32

2.15

2.48

2.99

EBIT

(0.71)

1.61

2.53

1.26

(0.95)

1.47

1.28

2.23

2.34

2.85

Net profit before extr. & amort. (USD)

(2.29)

0.09

0.19

0.10

(1.51)

0.80

0.39

1.67

1.69

2.17

Net profit before extraordinaries (USD)

(2.29)

0.09

0.19

0.10

(1.51)

0.80

0.39

1.67

1.69

2.17

Cash Flow (USD)

(1.41)

1.02

1.26

1.68

(0.30)

2.00

1.74

3.04

3.00

3.58

Gross Dividend (USD)

0.00

0.00

0.00

0.00

0.00

0.00

0.20

0.29

0.33

0.44

Book value (USD)

7.90

8.25

7.47

6.12

4.80

3.56

4.54

5.63

6.97

8.68

Adjusted equity

7.90

8.25

7.47

6.12

4.80

3.56

4.54

5.63

6.97

8.68

Free Cash Flow

(0.55)

(0.77)

0.19

1.31

2.02

3.20

2.26

1.00

0.48

1.83

ns

ns

109.44

(44.92)

ns

ns

(50.76)

327.28

0.89

28.42

Sales
EBITDA

% change in EPS before extr. & amort.

Valuation

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

P/E (excl. extr. & amort.)

nmf

nmf

83.4

88.5

nmf

11.8

22.1

9.3

9.3

7.2

P/CF (x)

nmf

9.9

12.4

5.4

nmf

4.7

5.0

5.1

5.2

4.4

P/Book (x)

1.6

1.5

1.3

1.4

2.2

2.3

2.2

2.8

2.2

1.8

Dividend yield (%)

0.0

0.0

0.0

0.0

0.0

0.0

2.3

1.9

2.1

2.8

(8.2)

(12.8)

(1.6)

7.0

15.0

28.7

21.4

4.8

1.5

10.7

Free cash flow yield (%)

EV/Sales (x)

0.5

0.5

0.4

0.4

0.5

0.4

0.4

0.6

0.5

0.5

EV/EBITDA (x)

96.9

7.5

5.3

6.1

7.4

4.9

5.0

5.4

5.1

4.1

EV/EBITA (x)

nmf

11.8

7.5

12.6

13.6

8.0

10.2

8.9

7.7

6.0

EV/EBIT (x)

nmf

11.8

7.6

14.7

nmf

10.3

10.5

8.6

8.2

6.3

EV/Capital Employed (x)

0.8

0.8

0.8

0.7

0.9

0.8

0.8

1.1

1.0

0.9

EV/CE (incl. goodwill) (x)

0.8

0.8

0.8

0.7

0.9

0.8

0.8

1.1

1.0

0.9

Share price : High (EUR)

9.84

9.37

16.76

9.90

8.29

7.91

9.50

14.07

Share price : Low (EUR)

7.78

6.24

6.98

5.89

6.04

5.78

6.20

7.40

Share price : Average (EUR)

8.44

7.57

11.19

7.10

6.87

7.08

7.80

13.99

13.99

13.99

Share price : Year end (EUR)

11.35

10.84

8.83

7.65

9.54

7.31

8.76

13.99

13.99

13.99

Capital Efficiency/Solvability

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Sales/CE (incl.goodwill)

1.6

1.6

2.1

1.8

2.0

2.1

2.1

2.0

1.9

1.9

Sales/Fixed assets (x)

4.3

4.3

5.1

4.2

4.5

4.6

4.5

4.5

3.9

4.1

Sales/Net working capital (x)

6.8

5.5

6.7

6.8

8.9

14.2

22.1

18.6

17.3

15.4

Inventories/Sales (days)

77.0

76.4

61.8

63.5

56.5

48.5

47.2

47.5

47.5

47.5

Trade debtors/Sales (days)

58.9

64.6

50.8

53.2

47.5

45.1

46.4

46.4

46.4

46.4

Trade creditors/Sales (days)

27.8

37.7

34.7

37.6

40.1

44.8

40.3

40.2

40.2

40.2
105.0

CAPEX/Depreciation (%)

107.5

131.8

175.3

110.6

96.1

72.1

60.8

104.9

197.3

Equity/Total assets (%)

26.2

26.0

22.8

17.8

15.9

12.6

17.8

21.7

25.5

30.9

Net debt/Equity (%)

42.2

66.5

94.6

117.3

126.0

96.5

5.3

3.5

4.3

(10.7)

Interest cover (x)

(0.8)

2.6

2.7

1.4

(1.2)

2.1

3.3

7.5

8.9

16.2

0.0

0.0

0.0

0.0

0.0

0.0

51.1

17.4

19.7

20.5

ROCE (average) (%)

(4.2)

8.3

12.4

6.1

(5.5)

10.6

10.6

16.9

16.1

18.9

ROCE (incl. goodwill) (average) (%)

(4.2)

8.3

12.4

6.1

(5.5)

10.6

10.6

16.9

16.1

18.9

Operating Efficiency & Profitability ratios

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Sales per FTE employee ('000s)

505.7

485.8

617.3

371.2

374.5

353.7

315.9

315.5

321.8

342.8

94.3

86.1

98.0

66.4

70.2

71.9

73.6

73.6

74.3

75.1

(10.5)

21.2

31.8

10.6

(8.5)

13.1

11.7

20.4

21.4

26.0

45.6

40.3

36.6

39.2

43.0

44.0

43.7

46.2

47.2

49.4

0.5

6.9

7.4

6.9

6.3

7.8

7.7

10.2

10.8

11.7

Operating margin (%)

(2.1)

4.4

5.1

2.9

(2.3)

3.7

3.7

6.5

6.7

7.6

Net margin (%)

(5.7)

2.2

2.1

(0.2)

(3.7)

2.0

1.0

4.7

4.8

5.7

(47.0)

34.2

39.6

120.4

9.3

(4.6)

66.8

15.8

20.0

20.0

Dividend payout (%)

Wage costs per FTE employee ('000s)

EBIT per FTE employee ('000s)
Gross margin (%)
EBITDA margin (%)

Tax rate (%)

Source: Company data, ABN AMRO Equity Research

12 August 2016 | AMG Advanced Metallurgical Group | 13

ABN AMRO Bank

Important disclosures
Issuer
AMG Advanced Metallurgical Group

Ticker
AMG.AS

Price (EUR)
13.99

ABN AMRO Bank N.V. adopted a Research Policy for the purpose of ensuring that research produced by its analysts is impartial, independent, fair, clear and not
misleading. In particular the Policy identifies policies intended to promote the integrity of research including those designed to ensure the identification and
avoidance, management or disclosure of conflicts of interest in connection with the production of research, including information barriers.
The disclosures below include those required to be made by ABN AMRO Securities (USA) LLC by Finra rule 2241(h)(2).
Consequently ABN AMRO Bank N.V. discloses the following:
ABN AMRO Bank NV or its affiliates expects to receive or intends to seek compensation for investment banking services from the Company in the next 3 months.
ABN AMRO Securities (USA) LLC does not make a market in securities of the companies that are the subject of this report
ABN AMRO Bank NV or its affiliates is a market maker or liquidity provider in the financial instruments issued by the Company.
ABN AMRO Bank NV provided and received compensation for non-investment banking services which may include sales and trading to the subject company within
the past 12 months.

Analyst certification

The persons named as the authors of this research report certify that:
1. all of the views expressed in the research report accurately reflect the personal views of the authors about the subject financial instruments and issuers; and
2. no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report.
Philip Ngotho, CFA - Equity Research Analyst
Mutlu Gundogan - Equity Research Analyst
Analysts' compensation is determined based upon activities and services intended to benefit the clients of ABN AMRO Bank N.V. and its affiliates.
Like all ABN AMRO Bank N.V. and affiliate employees, analysts receive compensation that is impacted by overall ABN AMRO Bank N.V. profitability,
which includes revenues from other business units.

ABN AMRO Bank N.V. and affiliates equity research ratings distribution (primary covered stocks)
ABN AMRO
Rating

Definition

% companies
under coverage
with this rating

% companies for which

ABN AMRO has provided
Investment Banking
services

BUY

The stock belongs to the most attractive ones within the ABN AMRO Bank N.V.
local universe.
Expected total return (incl. dividends) for the coming 12 months: >15%

50%

56%

HOLD

The stock does not belong to the current favourites. The investment case is
not appealing for the time being. However, it's worth to keep the stock.
Expected total return (incl. dividends) for the coming 12 months: > -5%, < +15%

35%

44%

SELL

The stock belongs to the less attractive ones within the ABN AMRO Bank N.V. local
universe.The outlook is uncertain.
Expected total return (incl. dividends) for the coming 12 months: < -5%

15%

0%

12 August 2016

ABN AMRO Bank N.V. Primary Equity Research Coverage: 108

Prior to 1-10-2014 ABN AMRO applied 4 ratings (Buy/Hold/Reduce/Sell)

14 | AMG Advanced Metallurgical Group | 12 August 2016

ABN AMRO Bank

Historical equity recommendations and target price for AMG Advanced Metallurgical Group (EUR)
15
14

27/02
07.73

13

09/05
11/03
08.85
10.17

12
11
10
9

8
7
6
5
4
Jun 13

Sep 13

Dec 13

BUY

Mar 14

HOLD

Jun 14

Sep 14

REDUCE

Dec 14

Mar 15

Jun 15

Sep 15

SELL

Dec 15

Mar 16

Jun 16

UNDER REVIEW

History of Recommendations

History of Target Prices

Date

Recommendation

Target Price

Date

Recommendation

Target Price

8/11/2016
6/30/2016
5/9/2016
3/11/2016
2/27/2015

BUY
BUY
BUY
HOLD
SELL

EUR 19.00
EUR 14.00
EUR 13.00
EUR 9.00
EUR 6.50

5/9/2016
3/11/2016
2/27/2015

BUY
HOLD
SELL

EUR 13.00
EUR 9.00
EUR 6.50

Source: ABN AMRO Bank Equity Research, FactSet

Sep 16

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