16th Nov 2023 12:08
(Alliance News) - Vesuvius PLC has the chance to give "further comfort" to investors at its capital markets day on Thursday, and investment bank Jefferies believes the early signs suggest it will.
Vesuvius shares were hit on Tuesday after it reported weaker market conditions for its Foundry division, though Jefferies believes the molten metal flow engineering firm's growth targets should impress.
Ahead of a capital markets day in London, Vesuvius said it is eyeing a revenue outperformance of at least 2% compared to the market. This will be "driven by market share gains and superior pricing", Vesuvius said.
It is aiming for a return on sales margin of at least 12.5% in 2026, helped by GBP30 million worth of cost cuts. It achieved a return on sales margin of 11.1% in 2022.
In addition, Vesuvius aims to generate at least GBP400 million worth of free cash flow between 2024 and 2026. This will go towards "dividends, acquisitions and share buybacks". In 2022, it achieved GBP123 million worth of free cash flow, but suffered a GBP300,000 outflow in 2021.
Vesuvius added: "The [capital markets day] will provide insights into the positive long-term growth trends in the steel and foundry markets, in particular the positive inflexion of the steel markets ex China to structural growth in the coming years, and how Vesuvius' strategy of technological differentiation enables outperformance of these markets."
Jefferies took heart from the announcement.
"This is a confident statement from Vesuvius, which we welcome, and believe it should be well-received by the street. Today's CMD is important for the group, and the targets set out today are attractive and should drive a re-rating of the shares over time, as management executes," Jefferies analysts said.
"There will likely be some costs attached to the restructuring programme, but these are unlikely to be material, in our view, and should be covered by the FCF target."
The investment bank added: "The shares trade on very modest multiples, and we believe that there is still plenty to like about the group's equity story and outlook. Today's update helps to confirm this, in our view, and we look for the CMD to flesh out these points (and others) to give further comfort in the equity story and re-rating potential."
Jefferies rates the stock at 'buy' with a 620.00 pence price target. Vesuvius shares were 1.3% lower at 404.20p each in London on Thursday at midday. It has lost 4.1% since Monday, hurt by an earlier trading statement.
On Tuesday, the company said it continued to perform "robustly" but noted a "gradual deterioration" in a key market.
The London-based firm said in its Foundry unit, it has seen a "general slowdown" outside of India in the four months to October 31. The firm's financial year runs to December 31.
"We have seen a gradual deterioration in most Foundry end markets outside of India, particularly in Northern Europe. Steel production levels outside of India have weakened relative to H1 in EMEA, South-East Asia and South America," Vesuvius said.
The unit provides foundry consumables services, aiming to reduce casting defects. It offers binders, lining systems and coatings.
By Eric Cunha, Alliance News news editor
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