Imerys, a cyclical value ready to restart

With the expected rebound in global economic growth in 2021, a sector rotation should take place on the stock market in the coming weeks. Cyclical stocks could then be sought again. In which case, Imerys represents a great opportunity, especially as the title of specialist in mineral specialties for the industry, which has fallen by more than 20% since the start of the year, has not yet started to rebound.

Imerys obviously suffered in the first half of the year – all of its markets and geographic areas were affected by the Covid-19 crisis – but it nevertheless managed to record solid results. On the basis of a turnover of 1.9 billion euros, down 16%, the gross operating surplus was reduced to 290 million (down 26%), i.e. a gross margin operational growth of 15.2% against 17.3% a year earlier. The rapid implementation of cost-saving measures and a favorable price-mix helped mitigate the drop in volumes. Thanks to strict management of expenses and working capital requirements, the group has preserved its cash generation (139 million over the half-year). In total, net profit reached 56.6 million against 95.9 million a year earlier.

An expected return greater than 6%

For the second half of the year, the group is cautious about the scale and pace of the resumption of its activity. The diversity of the markets served (construction, stationery, automobile, plastics, health, steel, etc.) and the geographic diversification of its sales will enable it to benefit from restarts wherever they occur. Conservatively, the market consensus does not envisage a return to “normal” before 2022. It expects a net profit of 159 million this year and 218 million in 2021. This highlights moderate capitalization multiples, 14.2 and 10.3 times respectively. But this gradual resumption of results could be accelerated if progress is made in treatment against the coronavirus or if a vaccine is discovered in the coming months. A highly credible hypothesis.

On the other hand, with the settlement of talc-related disputes in the United States, the title is free from threat. The fear that the group will be obliged to pay high damages to the plaintiffs has now been raised. Imerys estimates the necessary provision to cover the impact of the negotiated compromise at 114 million dollars, knowing that a provision of 250 million euros had already been recorded in the consolidated annual accounts for 2018.

While waiting for the recovery to materialize, the yield offered is in itself a buying argument. The estimated dividend for 2020, 1.85 euros per share, shows a forecast yield of 6.2%. The group’s healthy financial structure, with a net debt to equity ratio of 56% and a cash amount of 1.1 billion at June 30, gives it a long-lasting character.

Our advice: The expected return to favor of cyclical stocks should benefit Imerys. Buy under 29 euros to aim for a first objective of 36 euros. ISIN code: FR0000120859.


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