Monday, January 6, 2014

Valmet demerger from Metso

We have a new position (Valmet Corporation) since Metso Corporation was split in to two publicly listed limited companies. Both are listed in NASDAQ OMX Helsinki.

Valmet Corporation is a leading global developer and supplier of services and technologies for the pulp, paper and energy industries. Mission of the company is " Converting renewable resources into sustainable results". They have over 200 years of industrial history. 1999 Valmet and Rauma corporations were merged to form Metso and now Valmet a separate company again through the demerger.

Demerger was driven by Swedish investor Christer Gardell who has been on board of directors of Metso since 2006. His investment corporation Cevian Capital is biggest shareholder in both Metso and Valmet with close to 14% share of both. Cevian Capital is known for active ownership investment strategy. Finnish state owns approximately 11% of both corporations through holding company Solidium. There are no other significant shareholders since even the major Finnish pension funds don't own more than 1-3% of the companies.

Valmet’s net sales in 2012 were approximately EUR 3 billion. Profitability of Valmet is much poorer than that of Metso. EBITA before non-recurring items was EUR 192 million in 2012. The net sales split in 2012 was roughly as follows:
  • Pulp and Energy 39%
  • Services 34%
  • Paper 27%
Valmet’s services cover everything from maintenance outsourcing to mill and plant improvements and spare parts.  

The net sales split by geographical area:
  • Europe, middle-east and africa 40%
  • Asia/Pacific (incl. China) 24%
  • North America 19%
  • South and Central Amercia 17%
Valmet is established market leader in all markets served.  The company faces limited growth opportunities in all of its markets served. It seeks long term growth potential in market for biomass conversion technologies.

Nordnet wrote about the demerger in their morning briefing on 3rd of January 2014. They have "reduce" recommendation for both Valmet and Metso. At 6,65 euros per share for Valmet they estimated
  • P/S: 0,4
  • P/B: 1,2
  • 2014: P/E 20; EV/EBITDA 6,4
  • 2015: P/E 15 EV/EBITDA 5,4
They think the valuation is challenging short term due to market weakness and fairly high forward P/E valuations. For Metso they estimated:
  • P/E 2014: 14-15
  • EV/EBITDA: below 10
Nordnet stated valuation to be fair, but challenging due to weakness and unclear trajectory of the mining industry, which matters great deal to the new Metso. 

I don't yet have strong opinion on Valmet. I started position in Metso originally mostly because of the businesses that are now part of the "new" Metso. Since these types of transactions usually unlock hidden value, I will give time - maybe 1 year - for Valmet and then see whether it's good idea or not to keep it in our portfolio.

The author holds shares of both Metso and Valmet.

Sources (beyond linked ones):

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