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1、,Credit,GlobalMarketsResearch,EmergingMarkets,2.5,2.1,957,968,900,172,263 272 275 283,1,451,768,157,126,89,Cash ST debt 2013 2014 2015 2016+,Global Emerging Markets BrazilMetal13 November 2012,MagnesitaWeak 3Q12;Raise to Buy onvaluation and outlookMagnesita reported disappointing 3Q12 results with l
2、ower EBITDA margins andincreased leverage.Despite the weak figures,we raise Magnesitas bonds to Buyfrom Hold based on valuation and on our expectations of improved results in 2013.Lower volumes have offset higher prices sequentially,driving revenues 4.6%downMagnesitas revenues reached BRL608.1m(USD2
3、99.9m)in 3Q12,up 8.3%yoyand down 4.6%qoq.The annual growth mainly reflects the impact of the BRLdepreciation,while the quarterly decline is primarily due to seasonality and tolower volumes notably in Europe,mirroring the deepening of the European debtcrisis.In particular,this drop in volumes has off
4、set higher refractory prices ofBRL2,119.6/t(+6.0%qoq)and a higher average minerals price of BRL179.1/t(+12.3%qoq).Refractory revenues totaled BRL535.2m(USD262.4m)andcontinued to represent most of Magnesitas revenues,with a total share of88.0%,followed by revenues from services(7.0%)and minerals(5.0%
5、).Of note,revenues from North America have surpassed the contribution from Europe,representing 21.6%of Magnesitas total revenues in 3Q12 vs.18.1%in 2Q12.Europe made up 20.0%in 3Q12 vs.22.6%in 2Q12.Sharp EBITDA drop on lower volumes and higher SG&A and raw materialcostsEBITDA dropped 29.0%yoy and 19.
6、9%qoq to BRL84.3m(USD41.5m),withmargins declining to 13.9%from 16.5%in 2Q12 and 15.3%(adjusted forprovisions reversal)in 3Q11.The annual decrease primarily reflects higher rawmaterial prices,but costs related to the start-up of Brumado also impactedmargins negatively.On a quarterly basis,the fall wa
7、s attributable to(1)higherSG&A expenses(+8.5%qoq)on the back of consultancy works and higherexternal sales,and(2)lower fixed-costs dilution given the reduced volumes thatled cogs/t to increase 8.3%to BRL1,561/t.Positively,gross margins ofMagnesitas services unit improved to 13.9%in 3Q12 from 8.6%in
8、2Q12,largelyreflecting a better mix of value added services.,Recommendation ChangeResearch TeamNatalia CorfieldResearch Analyst(+1)212 Denis ParisienResearch Analyst(+1)212 250-Net debt(BRLm)<M net leverage(x)2.82.2 2.31,060 1,0743Q11 4Q11 1Q12 2Q12 3Q12Volume trend(000t)226 229 2131692523Q11 4Q11
9、 1Q12 2Q12 3Q12Refractory solutions MineralsAmortization schedule(BRLm),Increasing leverage trend could well be reverted owing to Brumado andstable FXTotal debt fell 1.6%qoq to BRL1.8bn(USD909.0m),while the companys net debtincreased 1.4%qoq to BRL 1.1bn.Despite relatively stable debt levelssequenti
10、ally,Magnesitas net leverage rose to 2.8x from 2.5x in 2Q12 mainlydriven by weaker LTM EBITDA.The companys liquidity position also declined inthe quarter primarily reflecting an increase in short-term debt(STD)with cash/STD 23at 6.1x vs.8.9x in 2Q12.Nonetheless,in our opinion,it remains comfortable
11、atcurrent levels.In addition,Magnesita continues to present a favorable debtmaturity profile,with 78.3%of the companys debt maturing after 2016.Companyofficials have also mentioned that net leverage could well drop below 2.5x in theshort term.While we believe this might not be achievable in 4Q12 giv
12、en thecompanys weakened operational results in 2012,Magnesitas leverage could For additional risks please refer to p.2improve in the next few quarters once Brumado starts to operate and as the Risks include:higher-than-expected capex duenegative effect from the BRL devaluation dissipates.Just to rem
13、ind investors,to mineral projects and a slowdown in theBrumado is expected to add BRL30-40m to 2013 EBITDA.Brazilian/Chinese economies.Deutsche Bank Securities Inc.All prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourced from localexchange
14、s via Reuters,Bloomberg and other vendors.Data is sourced from Deutsche Bank and subject companies.DeutscheBank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firmmay have a conflict of interest that could affect the objectivity o
15、f this report.Investors should consider this report as only a singlefactor in making their investment decision.DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,13 November 2012,Metal MagnesitaNew mineral projects should have low impact on next years capexMagnesita
16、s capex came in higher than we expected at BRL61.7m(USD30.4m),reflectingthe conclusion of the Brumado project.This growth,combined with an increase in inventorylevels,contributed to another quarter of negative free cash flow generation(USD13.6m).For4Q12,we expect Magnesita to be cash flow positive b
17、ased on managements guidance for atotal capex in 2012 of around BRL200m(YTD capex is at BRL180m).For 2013,officialguidance is pending as next years budget is still under discussion,but managementindicated that it could be similar to 2012 levels.Most importantly,given the announcement ofseveral miner
18、al projects,we understand the projects should have a low impact on next yearscapex as they are in an exploratory phase.In addition,management indicated that once in amore advanced stage,Magnesita intends to finance the projects through partnerships.We raise Magnesitass notes to Buy from Hold based o
19、n valuation and on ourexpectations of improved results in 2013Magnesitas notes have weakened following the announcement of the 3Q12 results with the20s and the perps wider by approximately 25bps and 10bps,respectively.While the outlookfor the steel industry remains challenging,we tend to see the pri
20、ce movement as anoverreaction based on the following:(1)Magnesita continues to show better liquidity thanmost peers and similar or better EBITDA margin and net leverage,(2)the start-up ofBrumado should bring cost savings that will help the company to improve margins andleverage in 2013,(3)while the
21、companys mineral projects bring some uncertainty,we viewMagnesitas initiative to diversify its business away from the steel sector as a positive,andthe impact on the companys capex should be low in 2013,and(4)once the mineral projectsadvance,we expect Magnesita to join forces with a partner.As such,
22、we raise Magnesitasnotes to Buy from Hold as we believe current spread levels more than compensate investorsfor the risks involved.Most importantly,we believe the companys future prospects arepositive.The 20s are currently trading 180bps wider than CSNs 20s,while Magnesitasperps are 170bps wider tha
23、n CSNs perps.We believe this spread differential couldcompress to 120bps.Figure 1:Financial comparison of Brazilian steel companies,Revenue growth(yoy),EBITDA growth(yoy),EBITDA mar.,LTM gross lev.,LTM net lev.,Cash/STD,CSNGerdauMagnesitaUsiminas,0.6%9.5%8.3%13.1%,-36.8%-15.0%-29.0%-56.4%,25.2%10.5%
24、13.8%4.4%,6.3x3.5x4.7x11.3x,3.3x2.8x2.8x5.2x,7.3x1.0 x6.1x2.3x,Source:Deutsche Bank,company dataRisks to our recommendation include(but are not limited to):higher-than-expected capex dueto mineral projects,a slowdown in the Brazilian/Chinese economies,a further deepening ofthe Eurozone crisis,FX vol
25、atility,and M&A activity.Figure 2:Outstanding issues,Mid,Mid,Spd,Total,IssueMAGGBZ 7.875%Mar20MAGGBZ 8.625%Perp,Amount o/sUSD400mUSD250m,Mdy/S&P/FiB1/BB/N.A.N.A./BB/BB,price109.50103.75,yield6.258.38,OAS523617,Z-spread511626,to sov438538,return135109,Dur5.5911.05,Source:Deutsche Bank,indicative data
26、,Page 2,Deutsche Bank Securities Inc.,13 November 2012,Metal Magnesita,Valuation trendsFigure 3:One year evolution of bond prices(USD)120,118116114112110108106104102100,105103101999795,CSN 6.5 20,Gerdau 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGGBZ 8.625 Perp,Source:Deutsche BankFigure 4:Three months e
27、volution of bond prices(USD),119117115113111109107,106105104103102101100,CSN 6.5 20,Gerdau 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGGBZ 8.625 Perp,Source:Deutsche BankFigure 5:One year evolution of bond yields(%),87.576.565.554.54,98.587.576.5,CSN 6.5 20,Gerdau 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGG
28、BZ 8.625 Perp,Source:Deutsche Bank,Deutsche Bank Securities Inc.,Page 3,13 November 2012,Metal Magnesita,Figure 6:Three months evolution of bond yields(%),6.565.554.54,8.58.38.17.97.77.57.37.16.96.76.5,CSN 6.5 20,Gerdau 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGGBZ 8.625 Perp,Source:Deutsche BankFigure
29、 7:One year evolution of Libor spreads(bps),650600550500450400350300250,700650600550500450400,CSN 6.5 20,Gerdau 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGGBZ 8.625 Perp,Source:Deutsche BankFigure 8:Three months evolution of Libor spreads(bps),550500450,650600550,400500350,300250,450400,CSN 6.5 20,Gerda
30、u 7.0 20,MAGGBZ 7.875 20,CSN 7.0 Perp,MAGGBZ 8.625 Perp,Source:Deutsche Bank,Page 4,Deutsche Bank Securities Inc.,13 November 2012,Metal Magnesita,Figure 9:Yield(%)versus duration(years)of 2020 notesMid yield8.0JBSSBZ 8.25 207.5TAM 9.5 207.06.5MAGGBZ 7.875 206.0FIBRBZ 7.5 205.55.0,CSN 6.5 20,SBSPBZ
31、6.25 20,4.54.0,Gerdau 7.0 20,5.0,5.2,5.4,5.6,5.8,6.0,6.2,6.4,DurationSource:Deutsche BankFigure 10:Yield(%)versus duration(years)of perpetual notesMid yield,8.58.38.17.97.7,MAGGBZ 8.625 Perp,BR Malls 8.5 Perp,Cosan 8.25 Perp7.57.37.16.9CSN 7.0 Perp6.76.5,11.0,11.5,12.0,12.5,13.0,13.5,DurationSource:
32、Deutsche Bank,Deutsche Bank Securities Inc.,Page 5,13 November 2012,Metal Magnesita,Operating highlightsFigure 11:Magnesitas operating highlights,Revenues by product(BRLm)Refractory solutionsMineralsServicesTotalEstimated revenues by location(BRLm)South AmericaNorth AmericaEuropeAsiaTotalVolumes by
33、product(000 t)Refractory solutionsMineralsTotalPrices by product(BRL/t)Refractory solutionsMineralsCPP contracts by location(BRLm)South AmericaNorth AmericaEuropeAsiaTotalGross profit(BRLm)Refractory solutionsMineralsServicesTotalCOGS(BRLm)Refractory solutionsMineralsServicesTotalLTM Cash conversion
34、(days)Cash conversion cycleSuppliersInventories,3Q10494.135.940.6570.53Q10287.698.7122.147.4570.53Q10255.9180.7436.73Q101,930.6198.53Q1031.013.06.02.052.03Q10175.713.85.6195.13Q10-318.4-22.0-35.0-375.53Q10193.040.0154.0,4Q10476.968.842.5588.24Q10296.4101.8125.948.8588.24Q10264.0160.7424.74Q101,806.7
35、427.84Q1033.013.06.04.056.04Q10148.030.78.1186.84Q10-328.9-38.1-34.4-401.34Q10161.048.0129.0,1Q11495.834.545.0575.31Q11289.999.5123.147.7575.31Q11277.8130.1407.91Q111,784.6264.91Q1133.014.08.04.059.01Q11166.013.76.0185.71Q11-329.8-20.8-39.0-389.61Q11153.056.0129.0,2Q11525.321.036.7583.02Q11302.097.4
36、118.449.6583.02Q11289.9150.5440.42Q111,812.0139.42Q1133.014.08.04.059.02Q11168.410.74.1183.32Q11-356.9-10.2-32.6-399.82Q11146.065.0129.0,3Q11496.728.236.6561.53Q11290.893.8114.047.7561.53Q11262.9172.2435.13Q111,889.4163.53Q1133.014.08.04.059.03Q11160.114.23.8178.13Q11-336.6-13.9-32.8-383.43Q11146.07
37、6.0144.0,4Q11516.448.634.2599.14Q11284.6115.6141.455.7598.54Q11271.8226.0497.84Q111,899.9214.94Q1136.014.08.04.062.04Q11157.921.83.3183.04Q11-358.5-26.7-30.9-416.14Q11138.079.0138.0,1Q12550.425.131.3606.91Q12299.8126.8126.853.4606.91Q12274.9229.3504.21Q122,002.6109.61Q1236.014.09.04.063.01Q12169.610
38、.41.7181.71Q12-380.9-14.7-29.6-425.21Q12143.067.0131.0,2Q12566.934.036.8637.62Q12320.1115.4144.157.4637.02Q12283.5212.9496.42Q121,999.7159.52Q1236.014.09.04.063.02Q12183.614.83.2201.62Q12-383.2-19.1-33.6-436.02Q12143.069.0131.0,3Q12535.230.342.7608.13Q12298.6131.4121.656.6608.13Q12252.5169.3421.83Q1
39、22,119.6179.13Q1236.014.09.04.063.03Q12165.913.65.9185.53Q12-369.2-16.7-36.7-422.63Q12145.068.0136.0,qoq-5.6%-10.7%15.9%-4.6%qoq-6.7%13.8%-15.6%-1.4%-4.5%qoq-10.9%-20.5%-15.0%qoq6.0%12.3%qoq0.0%0.0%0.0%0.0%0.0%qoq-9.6%-8.1%87.7%-8.0%qoq-3.7%-12.8%9.2%-3.1%qoq1.4%-1.4%3.8%,yoy7.7%7.7%16.6%8.3%yoy2.7%
40、40.1%6.7%18.5%8.3%yoy-4.0%-1.7%-3.1%yoy12.2%9.5%yoy9.1%0.0%12.5%0.0%6.8%yoy3.7%-4.2%56.3%4.2%yoy9.7%19.9%12.0%10.2%yoy-0.7%-10.5%-5.6%,LTM2,168.8138.0144.92,451.8LTM1,203.1489.2534.0223.12,450.5LTM1,082.6837.51,920.1LTM8,021.9663.2LTM36.014.09.04.063.0LTM677.060.714.2751.9LTM(1,491.8)(77.3)(130.8)(1
41、,699.9)LTM569.0283.0536.0,Source:Deutsche Bank,company data,Page 6,Deutsche Bank Securities Inc.,13 November 2012,Metal Magnesita,Figure 12:Magnesitas operating highlights(cont.),Revenues by product(%)Refractory solutionsMineralsServicesTotalEstimated revenues by location(%)South AmericaNorth Americ
42、aEuropeAsiaTotalVolumes by product(%)Refractory solutionsMineralsTotalCPP contracts by location(%)South AmericaNorth AmericaEuropeAsiaTotalGross profit(%)Refractory solutionsMineralsServicesTotalCOGS(%)Refractory solutionsMineralsServicesTotalGross Margin(%)Refractory solutionsMineralsServicesTotal,
43、3Q1086.6%6.3%7.1%100.0%3Q1050.4%17.3%21.4%8.3%100%3Q1058.6%41.4%100.0%3Q1059.6%25.0%11.5%3.8%100%3Q1090.1%7.1%2.9%100.0%3Q1084.8%5.9%9.3%100.0%3Q1035.6%38.5%13.8%34.2%,4Q1081.1%11.7%7.2%100.0%4Q1050.4%17.3%21.4%8.3%100%4Q1062.2%37.8%100.0%4Q1058.9%23.2%10.7%7.1%100%4Q1079.2%16.4%4.4%100.0%4Q1081.9%9
44、.5%8.6%100.0%4Q1031.0%44.6%19.1%31.8%,1Q1186.2%6.0%7.8%100.0%1Q1150.4%17.3%21.4%8.3%100%1Q1168.1%31.9%100.0%1Q1155.9%23.7%13.6%6.8%100%1Q1189.4%7.4%3.3%100.0%1Q1184.6%5.3%10.0%100.0%1Q1133.5%39.7%13.4%32.3%,2Q1190.1%3.6%6.3%100.0%2Q1151.8%16.7%20.3%8.5%100%2Q1165.8%34.2%100.0%2Q1155.9%23.7%13.6%6.8%
45、100%2Q1191.9%5.9%2.3%100.0%2Q1189.3%2.6%8.2%100.0%2Q1132.1%51.2%11.3%31.4%,3Q1188.5%5.0%6.5%100.0%3Q1151.8%16.7%20.3%8.5%100%3Q1160.4%39.6%100.0%3Q1155.9%23.7%13.6%6.8%100%3Q1189.9%8.0%2.1%100.0%3Q1187.8%3.6%8.6%100.0%3Q1132.2%50.6%10.4%31.7%,4Q1186.2%8.1%5.7%100.0%4Q1147.5%19.3%23.6%9.3%100%4Q1154.
46、6%45.4%100.0%4Q1158.1%22.6%12.9%6.5%100%4Q1186.3%11.9%1.8%100.0%4Q1186.2%6.4%7.4%100.0%4Q1130.6%44.9%9.7%30.5%,1Q1290.7%4.1%5.2%100.0%1Q1249.4%20.9%20.9%8.8%100%1Q1254.5%45.5%100.0%1Q1257.1%22.2%14.3%6.3%100%1Q1293.3%5.7%0.9%100.0%1Q1289.6%3.5%7.0%100.0%1Q1230.8%41.4%5.5%29.9%,2Q1288.9%5.3%5.8%100.0
47、%2Q1250.3%18.1%22.6%9.0%100%2Q1257.1%42.9%100.0%2Q1257.1%22.2%14.3%6.3%100%2Q1291.1%7.4%1.6%100.0%2Q1287.9%4.4%7.7%100.0%2Q1232.4%43.7%8.6%31.6%,3Q1288.0%5.0%7.0%100.0%3Q1249.1%21.6%20.0%9.3%100%3Q1259.9%40.1%100.0%3Q1257.1%22.2%14.3%6.3%100%3Q1289.4%7.3%3.2%100.0%3Q1287.4%3.9%8.7%100.0%3Q1231.0%45.
48、0%13.9%30.5%,qoq-90.24-34.15124.390.00qoq-115.03348.19-262.2629.100.00qoq275.21-275.210.00qoq0.000.000.000.000.00qoq-162.39-1.00163.390.00qoq-53.47-43.9297.400.00qoq-4.3%2.9%61.9%-3.5%,yoy-46.8-3.049.80.0yoy-270.0490.0-30.080.00.0yoy-55.655.60.0yoy121.1-150.772.6-43.00.0yoy-42.4-64.5106.90.0yoy-45.1
49、31.713.50.0yoy-3.8%-11.1%34.0%-3.8%,LTM3.50.20.24.0LTM2.00.80.90.44.0LTM2.31.74.0LTM0.60.20.10.11.0LTM3.60.30.14.0LTM3.50.20.34.0LTM31.2%44.0%9.8%30.7%,Source:Deutsche Bank,company data,Deutsche Bank Securities Inc.,Page 7,0,13 November 2012,Metal Magnesita,Summary FinancialsFigure 13:Summary financ
50、ials(BRLm),Income Statement(BRLm)Total RevenuesCOGSGross ProfitGross MarginGross interest expenseSG&ACash Flow(BRLm)EBITEBITDAEBITDA MarginChange in WCChange in Net WABroad OCF(w chg in NWA)Net Interest paidNet capexAcquisitionsCash dividends paidBroad Free Cash Flow(FCF w chg in NWANet change in de
