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Initiation of Coverage
Mytilineos Holdings S.A. Holding / Greece
Reuters / Bloomberg: MYTr.AT /MYTIL GA
October 21, 2014
The Aluminium Glow…
Rating Buy vs. previous rating -
We initiate coverage on Mytilineos with a Buy rating and a target price of
EUR10.20/share. Mytilineos currently trades at a FY:14e EV/EBITDA and P/E of 4.0x and
10.4x respectively, while for FY:15 EV/EBITDA and P/E are estimated at 3.8x and 7.1x,
respectively.
Mytilineos is a standout investment proposition for the Greek stock market given the
strong dynamics of its aluminium business (c50% of the group FY:15F EBITDA derives
from the aluminum business), geographical diversification (c65% of 2014E EBITDA form
abroad) and healthy balance sheet (2015e Net-debt-to EBITDA at 0.9x).
Management’s success in driving the cost base for Aluminum of Greece (AoG) sharply
lower (20% reduction between 2010-14), in conjunction with the solid outlook for the
aluminum market (forecasted demand CAGR for aluminum for the period 2014-30 of
4.2%), allows for strong profitability gains, starting this year. Metka (the EPC-construction
subsidiary) should continue to produce robust operating profitability in the short-term
(next 12-18 months) on the back of the execution of a EUR1.3bn backlog. Visibility for the
medium term is low, although we recognize the prospects of the sector in the international
markets Metka is targeting, as well as in Greece. The contribution of the energy division to
the group should remain positive supported by the Capacity Assurance Certificates-CACs,
while the medium-to-longer term outlook for CCGT operators in Greece is positive due to
the favorable demand-supply dynamics.
Catalysts
Key catalysts include: (i) levels of LME and/or premiums combined with production costs
for AoG; (ii) the execution of Metka’s backlog and new order inflow; (iii) reforms in the
Greek electricity market; (iv) M&A opportunities in the Greek market (i.e. Larco, small-
PPC).
Strong balance sheet and improving dynamics drive EPS momentum…
The group’s strong performance over the past few years (that mainly reflect Metka’s
success and AoG cost cutting efforts) is depicted by the sharp reduction of the group’s net
debt. The net debt from EUR725m in 2012 is expected to settle at EUR337m in FY:14e and
at EUR246m in FY:15e. Net-debt-to EBITDA from 4.4x in 2012 is forecasted at 1.3x in
FY:14e and 0.9x in FY:15e.
Mytilineos is expected to post net income of EUR63.8m in FY:14e (+174% y-o-y) and
EUR93.9m in FY:15e (+47.2% y-o-y), driven mainly by: (i) profitability improvements in the
AoG operations; (ii) the performance of Metka; and (iii) lower financial expenses. The EPS
CAGR for FY:13-18e is seen at 35.2%.
Given the strong cash flow, the group is expected to resume its dividend policy starting
from the current fiscal year (last dividend was for fiscal year 2008)
Our SOTP valuation yields a TP for Mytilineos of EUR10.20/share, implying a 79.6% upside.
Target Price (EUR) 10.20 Current Share Price* (EUR) 5.67
*20/Oct/ 2014
Stock Data
Stock Data
Stock Data
Market Cap (EUR m) 46
5.0
Free Float 50
%
Enterprise Value (EUR m)
486.1
No. of Shares (m) 51
.950
Stock Data
Market Cap (EUR m) 465.0
Free Float 50%
Enterprise Value (EUR m) 486.1
No. of Shares (m) 51.950
Market Cap (EUR m) 662.9
Free Float 63%
Enterprise Value (EUR m) 999.5
No. of Shares (m) 116.9
Performance
1m 3m 12m
Absolute (%) -12.8 -8.5 1.1 ASE General (Abs)
-17.7 -21.7 -18.2
Daily avg. no. of traded shares– 12M (th.) 323
Price high – 12 months (EUR) 7.32
Price low – 12 months (EUR) 4.92
Mytilineos is a leading industrial group in Greece with 3 distinct activities: (i) Metals & Mining (including Aluminum of Greece - one of the largest aluminum producers in Europe); (ii) EPC (Metka, a regional player); and (iii) energy (largest IPP in Greece). The group also has exposure in the defense related applications.
Shareholders Structure: Mytilineos Family 32.0%, Foreign Institutionals 16.4%, Greek Institutional 12.1%, Retail 34.5%, Fairfax Financial Holdings 5.0%
EUR m 2013 2014e 2015f 2016f 2013 2014e 2015f 2016f
Sales 1,403.0 1,239.2 1,140.1 1,102.6 EV/Sales 0.7 0.8 0.9 0.9
EBITDA 232.6 250.1 262.7 244.2 EV/EBITDA wecvwcwcgfvwrvgwrvwEBITDABEEBITDA
4.3 4.0 3.8 4.1
margin 16.6% 20.2% 23.0% 22.1% P/E 29.5 10.4 7.1 7.6
EBIT 166.6 186.1 195.6 174.8 Diluted EPS 0.20 0.54 0.80 0.75
EBT 80.4 130.3 159.2 145.0 Div. yield (%)
0.0% 1.9% 2.8% 2.6%
Net Income 22.5 63.8 93.9 87.6 DPS (EUR) 0 0.11 0.16 0.15
Constantinos Zouzoulas: [email protected]; Tel: +30 210 7414460 Argyrios Gkonis : [email protected]; Tel : +30 210 7414462
Please refer to the last page of this report for important disclaimers and analyst certification
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MYTILINEOS HOLDINGS S.A. ATHEX Composite (Rebased)
Mytilineos Holdings
AVG Research Page 2
Table of Contents
Investment case …………………………………………………………………………….…….…..3
Risks ……………………………………………………………………………………………….………..7
Valuation ………………………………………………………………………………………………….8
Summary financials …………………………………………………………………………………10
Group overview……………………………………………………………………………………….11
Metallurgy-AoG………………………………………………………………………………………15
Construction-Metka………………………………………………………………………………..24
Energy-Next day profitability driver…?.......................................................25
Examining new opportunities………………………………………………………………….38
Group estimates and forecasts………………………………………………………………..39
Appendix
Aluminium market overview and outlook…………………………………….………43
Greek electricity market challenges for CCGT units..…………………………...46
Detailed financials…………………………………………………………………………………..50
Disclosures………………………………………………………………………………………………51
Mytilineos Holdings
AVG Research Page 3
Investment Case
We initiate coverage on Mytilineos with a Buy rating and a target price of EUR10.20/share, implying a 79.6%
upside potential from current levels. Mytilineos trades at a FY:15-16 EV/EBITDA of 3.8x and 4.1x respectively ,
while on P/E for FY:15-16 trades at 7.1x and 7.6x.
We view Mytilineos as one of the most solid cases in the Athens Stock Exchange due to its prospects, strong
cash flow generation and management’s quality. Specifically, we recognize as a major catalyst the successful
efforts of the group to rationalize and optimize the cost base of Aluminum of Greece (AoG), which in
conjunction with the fairly high (all-in) aluminum prices is expected to boost 2015F (adjusted) EBITDA more than
6x higher versus 2013. At the same time the construction division (Metka) is expected to generate significant
cash flows from the execution of its current EUR1.3bn backlog that will enrich further its net cash position
(EUR283m at H1:14), while offering upside potential vis-à-vis new projects both from abroad and in Greece (in
Greece we see significant opportunities especially in concession type assets). Finally, Mytilineos as the largest
IPP (Independent Power Producer) in the country is expected to be a key beneficiary in the restructuring of the
domestic electricity market, while in the short-to-medium term the capacity certificates scheme provides
support to the division’s profitability.
The ongoing deleveraging efforts of the group (FY:15 net debt-to-EBITDA at 0.9x) should allow it to take
advantage of new opportunities as and when presented, especially in respect of the Greek market
(privatizations, concessions, developments in the energy market).
Key investment themes include the following: i) the performance of the Aluminium market; ii) Metka’s ability to
replenish its backlog adding new profitable projects; iii) regulatory decisions related to the capacity/flexibility
remuneration of natural gas fired units; and iv) opportunities from privatizations/concessions.
An ambitious cost cutting effort yields better than expected results
Over the last few years AoG has managed to lower its cash costs by cUSD500/tn (or USD130m p.a. on a
recurring basis) from cUSD2,500/tn in 2010. AoG is now standing amongst the lower cost producers in the
EU.
The impressive cost reduction was achieved through the successful restructuring of AoG’s cost base,
better control of production but most importantly specific actions that helped reduce significantly the
energy related expenses.
Risk is on the upside, as we could expect further reductions in the electricity tariffs driven by the
restructuring of the domestic electricity market and lower natural gas prices.
We assume total aluminium cash costs for AoG to slide from USD2,016/tn in 2014 to cEUR1,900/tn in
2015.
Very favorable demand-supply dynamics for the aluminium market
EIU and major market producers are estimating a 5.6%-7% growth in demand for 2014 as the International
AIuminium Institute is forecasting global primary aluminium consumption to grow by 4.0% CAGR for 2014-
30 driven mainly by China.
Significant capacity curtailments over the last 5 years on the back of higher energy costs resulted in a
market deficit for 2014 in the Aluminium market and is expected to remain so in the medium-term as
producers with idle capacity have not yet reacted.
The overall market for 2014 will run on a supply deficit according to converging industry estimates on the
back of increased consumption, while going forward the market, ex-China, is expected to remain in deficit.
LME prices have rallied since the lows of USD1,708/tn in Q1:14 to USD1,985/tn in Q3:14 and are expected
above USD2,000/tn for Q4:14.
Going forward EIU forecasts prices of USD2,154/tn for 2015 and 2,250/tn for 2016.
We adopt a cautious stance for 2015-16 assuming market prices of USD2,028/tn and USD2,069/tn, while
we account for the market to move closer to the 10-year average of EUR2,100 for the long term.
Mytilineos Holdings
AVG Research Page 4
Aluminium premiums remain at all time highs
The lack of physical availability of the metal has resulted in very high premium prices driven by the
contago in the aluminium market that keeps locked large amounts of metal.
Low interest rates and warehousing costs are seen keeping the aluminium market in contago for the short
to-medium term at least, thus providing a strong conviction for high premium levels.
Mytilineos reported premiums of USD450/tn in 2013 (or 27% of LME reported price) and we estimate to
settle in the region of USD570/tn for FY:14 (30% of LME price), while 2015 levels are seen even higher at
USD609/tn (30% of LME price).
A normalization of demand-supply and regulatory actions in the market are expected to lower stock levels
in the medium-to-longer term as we account for the normalization of the AoG premiums of cUSD400/tn
(or c20% of LME price vs. an average of 22% of the last 5-years).
Metka’s strong cash flow to continue
Despite the weak pace of backlog replenishment, Metka (a strong regional EPC player focusing in the
construction of gas-fired power plant) still has a cushion of EUR1.3bn of projects under construction that
are expected to be executed in the next 2-3 years with very strong EBITDA margins (15%-17%). Note that
c81% of this backlog is related to international projects
The profitability of these projects will add to the strong EUR283m cash pile of the company (end H1:14).
The medium-to-longer term potential for Metka remains positive both because of increased opportunities
in Greece (infrastructure projects, privatizations, etc) and because of the underlying dynamics of the
markets in focus for EPC projects (mainly MENA region)
We expect a very strong performance for Metka in 2014 and 2015 as it concludes a large part of its
backlog, booking EBITDA for FY:14E and FY:15F of EUR110.8m and EUR71.2m respectively. In the
subsequent years we expect EBITDA to normalize at the EUR60-65m level.
Mytilineos is the largest IPP in Greece with 1.2GW in commercial operation
Mytilineos, the largest IPP in the country (operating three CCGT units with total capacity of 1.2GW or 10%
of the total conventional installed capacity in Greece) is expected to benefit from the ongoing capacity
payments scheme that is estimated to contribute cEUR80m p.a. in the medium-term to the division’s
EBITDA, despite the very low load factors reported up till now in 2014 (c10%).
In the longer term, increasing demand, unit retirements and system stability needs are expected to push
higher the utilization rates of the units of all IPPs, including those of Mytilineos.
Also in the longer term potentially lower natural gas prices should allow healthy and profitable load
factors for the units and strong prospects from the division.
The group in an effort to benefit from the opening of the electricity market is engaging in the retail supply
sector, which based on our estimates could result in net profits for 2016-17 in the region of EUR5-10m p.a.
Note that we do not include this activity in our current estimates.
70MW of wind parks in 2015-17
Mytilineos is planning to expand more aggressively in RES, by adding 70MW of wind parks in 2015-17 to
its 53.5MW RES installed portfolio taking advantage of favorable wind environment with
regulations/opportunities with PPAs that include guaranteed production uptake with predetermined FiTs
for 20-years.
The group is expected to invest cEUR90m in 2015-16 taking advantage of the subsidization scheme for RES
investments in the country.
In our model we assume that Mytilineos will hold a RES portfolio of 123.5MW by 2016 that will generate
cEUR20m of EBITDA p.a.
Massive reduction in the group’s net debt
Group net debt stood at EUR346m in H1:14 from EUR725m at the end of 2012. Strong cash flows from
Metka to lead Net Debt/EBITDA from 4.4x in 2012 to 1.3x in end-2014
Driven by a strong AoG performance, Net Debt/EBITDA at end-2015 is expected to settle below the 1.0x
benchmark, while our estimates include a dividend distribution commencing in 2014. Looking forward we
expect the group to turn to cash positive by 2018.
Mytilineos Holdings
AVG Research Page 5
Examining new opportunities
We view Mytilineos’ efforts to drastically reduce debt as a strategic move that will allow the group to
take advantage of new opportunities, as presented, especially in the Greek market.
The group has already stated that it could be conditionally interested in the privatization of Larco (one
of the five largest ferronickel producers in the world). We believe that a potential acquisition of Larco
by Mytilineos could lead to another very successful turnaround story, similar to that of AoG.
Mytilineos could also express interest in the opportunities presented in the thermal energy sector,
especially following the regulatory efforts to liberalize the market.
Other opportunities could exist in the form of privatizations, concessions as well as acquisitions, as the
Greek market reforms are implemented.
Mytilineos management has laid down the framework for providing a clear vision, based on business
sense and its ability to restructure and grow diverse business units.
EPS is expected to grow by 35.2% CAGR during 2013-18 driven by the profitability gains from AoG
Group revenues for 2014 are seen at EUR1,239m, down by 11.7% y-o-y on the back of lower sales from the
energy division (lower energy sales do not affect profitability though), while 2014E EBITDA is seen at
EUR250.1m up by 7.5% (y-o-y) on the back of the performance of AoG.
For 2015 we expect a further drop in revenues of 8.0% y-o-y due to the expected decline in Metka’s
performance, while 2015F consolidated EBITDA is seen declining by 7.0% y-o-y affected by the slowdown in
Metka’s business.
Our estimates call for 2014 EPS of EUR0.55 vs. EUR0.20 in 2013 on the back of Metka’s solid performance and
AoG turnaround. For 2015 EPS is estimated at EUR0.80 (+47% y-o-y). Going forward and assuming normalized
conditions across all divisions we would expect net profits in the region of EUR100m p.a., yielding an EPS CAGR
of 35.2% for 2013-18F.
Our sum of the parts valuation yields a target price of EUR10.20/share
Out TP is 79.6% higher than current market levels. Our valuation is driven by AoG performance and we feel that
the market is not fully incorporating the dynamics of this division in its assessment of the group.
Note that NAV adjusted for HQ overheads of EUR136.8m and corporate net debt of EUR166.6m, stands at
EUR1,190.6m:
Aluminium of Greece total estimated equity valuation stands at EUR613.2m through our DCF exercise.
The group’s 50% stake in Metka contributes EUR342.0m to the valuation.
The energy division in total accounts for EUR466.9m of NAV, including the two CCGT units as well as
123MW of RES portfolio.
Finally, we account for EUR6.0m p.a. Metka management fees which contribute EUR71.9m to our
valuation.
Mytilineos trades at 4.0x and 3.8x on 2014-15E EV/EBITDA and 10.4x and 7.1x on respective P/E. There is no
direct comparison to peers, but that said we do note the following:
On a divisional basis, AoG on our numbers trades at 2015-16 EV/EBITDA of 6.0x and 6.6x with its
industry peers trading at 6.7x and 6.4x respectively on EV/EBITDA.
Metka currently trades at 1.6x and 2.5x for 2014-15 EV/EBITDA and 5.5x and 8.3 P/E respectively with
our selected group of peers trading at 7.3x and 5.4x 2014-15E EV/EBITDA and 12.9x and 11.5x 2014-
15E P/E.
CCGT units on our valuation, trade at EUR0.4m/MW on a NAV/MW basis, which is in-line with recent
domestic transaction multiples.
Mytilineos Holdings
AVG Research Page 6
What could drive our valuation higher? Higher levels of LME and/or premiums;
Lower production costs for AoG on the back of lower electricity prices and favorable commodity
levels;
Higher than expected new order inflow for international EPC and domestic infrastructure projects;
Stronger that forecasted EBITDA margins for Metka both on the international front and for the
domestic projects;
Favorable outcome for the CACs remuneration scheme following the ongoing consultation; Lower natural gas prices would positively affect electricity production as well at the operations of the
Aluminium unit;
Mytilineos Holdings
AVG Research Page 7
Risks
LME prices and premia: AoG is expected to contribute c40% of consolidated EBITDA by 2017-18. In this context
fluctuations in the LME would materially affect the performance of the group. In the past the management has
successfully hedged a large part of its production, thus remaining protected during the price downtrend in
2008-2010 holding one of the largest hedging books industry-wide. The company has not hinted on any similar
actions as current LME market dynamics are dictating a favorable outlook for the price levels.
Electricity regulatory environment: As the Greek electricity market is in a restructuring phase, operation of the
natural gas fired units is burdened by the current market framework and natural gas prices. It is important to
highlight that the energy division’s performance is supported by the Capacity Assurance Certificates scheme
that contributes cEUR120m (all three power plants) of EBITDA to the group. The current certificate framework
ends at year end-2014 but we see a limited risk of not being renewed at similar levels as the market is
recognizing the importance of CCGT units for the country’s energy mix.
Execution risks: Given Metka’s exposure on international projects in regions/countries of intense geopolitical
concern like Syria and Iraq, a number of issues could impact the timely execution of fixed-price contracts. Such a
case is the execution of Syria II project which is taking place at a much slower pace than expected. Metka has a
strong track record of carefully assessing project potentials and as such has not faced any major project
backdrops.
Backlog replenishment: Increased competition in the markets that Metka is already active in the MENA region
could set some hurdles to its effort to book new profitable contracts. Political, regulatory and financing issues
are major factors regarding the availability of new projects for the company. This risk should be mitigated by
tapping new markets for EPC projects and increasing opportunities in the domestic infrastructure market as
well.
Aluminium production costs: Over the last few years AoG has adopted a major cost optimization program
managing to lower aluminium cash costs from 2,500 USD/tn in 2010 to below 2,000 USD/ton currently. Key
driver to this has been the successful negotiation with PPC over an arbitration decision on the electricity tariffs.
Any decisions/actions that could increase the energy costs would have a significant impact in AoG’s profitability
as electricity expense accounts for c41% of total aluminium cash costs.
Currency fluctuations: With a significant part of its revenues in USD from aluminium sales, the execution of
construction contracts as well as its exposure to natural gas, the group is affected by exchange rate risk.
Mytilineos Holdings
AVG Research Page 8
Valuation
We initiate coverage on Mytilineos with a Buy rating and a target price of EUR10.20/share, implying an upside
potential of 79.6% from current levels.
Mytilineos is currently trading at a deep discount to our target price as we think that in our view the market is
underestimating failing to evaluate: (i) the underlying operating dynamics of the AoG business as a result of the
successful cost restructuring efforts and the supportive existing and future aluminium market environment; (ii)
the strong cash flow generation from the execution of the current backlog of Metka and; (iii) the secure EBITDA
flow (due to CACs) and long-term prospects of the energy division.
We recognize the concerns of investors towards the Greek market, but nevertheless we have to stress that
c65% of Mytilineos Group EBITDA for 2014 is derived from international markets.
We adopt a sum-of-the-parts methodology in order to better demonstrate the incremental value of each
division of the group.
Exhibit 1: Mytilineos Group-SOTP valuation
Amounts in EUR m Valuation Method EV (@ 100%) Equity Value Mytilineos Stake Equity Value for Mytilineos
Metallurgy & Mining
Aluminium of Greece DCF 760.6 613.2 100% 613.2
Construction
Metka DCF 396.6 684.0 50% 342.0
Energy
RES portfolio DCF 204.4 145.7 100% 145.7
Korinthos Power DCF 359.5 179.5 65% 116.7
Ag. Nikolas Viotias DCF 314.5 204.5 100% 204.5
Capitalized fees and HQ costs
Metka management fee DCF 71.9
(-) HQ Overheads DCF 136.8
Corporate Net Debt (end-2014) 166.6
Group NAV 1,190.6
Num. of Shares (m)
116.9
Value Per Share 10.20
Current Share Price
5.67
Upside 79.6% Source: AVG Research
Regarding each division’s valuation method we note:
Aluminium of Greece: Our DCF exercise is based on a 10% WACC and a 1.0% terminal growth to the
average of the 2014-18 FCF. Metka: Under our DCF exercise on a WACC of 12.5% in order to account for the exposure of the company
to regions with high geopolitical tension (MENA), but retain from adopting a terminal growth to
perpetuity.
CCGT units: We adopt a 10-year explicit forecast period with a WACC assumption set at 9.0% due to the
nature of the utility industry, while including a 1.0% growth rate taking into account the positive long term
growth prospects for IPPs.
RES portfolio: Our valuation for the RES portfolio of the group is based on a DCF exercise. Note that we
account for 70MW of wind parks expected to come online between 2015 and 2017. We make explicit
estimates for the following 20 years and we do not apply any terminal values. Our average WACC is set at
6.5%.
Finally, we note that we capitalize HQ costs (estimated at EUR15m p.a.) and Metka management fees
(estimated at EUR6.0m p.a.) on a DCF exercise.
Mytilineos Holdings
AVG Research Page 9
Exhibit 1.b: Peer group valuation multiples per division
Aluminium industry
EV/EBITDA P/E Company Country 2014 2015 2016 2014 2015 2016
Alcoa Inc. UNITED STATES 7.4 x 5.8 x 5.2 x 19.7 x 14.8 x 13.0 x
ALUMETAL S.A. POLAND 8.9 x 8.2 x 8.0 x 6.1 x 6.5 x 6.4 x
Aluminium Bahrain BSC BAHRAIN 6.2 x 5.1 x 4.3 x 14.7 x 9.8 x 9.1 x
Aluminum Corporation of China Limited Class H CHINA 11.4 x 8.4 x 13.3 x AMAG Austria Metall AG AUSTRIA 8.3 x 6.8 x 5.8 x 17.4 x 14.0 x 11.4 x
Century Aluminum Company UNITED STATES 10.6 x 5.4 x 3.7 x 21.8 x 10.0 x 8.3 x
Constellium NV Class A NETHERLANDS 6.6 x 5.9 x 5.0 x 12.9 x 9.9 x 7.8 x
Kaiser Aluminum Corporation UNITED STATES 8.5 x 7.4 x 6.8 x 19.7 x 15.7 x 14.8 x
National Aluminium Co. Ltd. INDIA 8.3 x 6.7 x 7.4 x 15.9 x 14.4 x 14.2 x
Noranda Aluminum Holding Corporation UNITED STATES 8.0 x 5.3 x 4.1 x 21.5 x 8.7 x
Rio Tinto plc UNITED KINGDOM 5.7 x 5.4 x 4.7 x 9.8 x 10.0 x 8.8 x
United Co. RUSAL Plc RUSSIA 14.1 x 9.2 x 7.9 x 17.8 x 6.2 x 5.7 x
AMAG Austria Metall AG AUSTRIA 8.3 x 6.8 x 5.8 x 17.4 x 14.0 x 11.4 x
United Co. RUSAL Plc RUSSIA 14.1 x 9.2 x 7.9 x 17.8 x 6.2 x 5.7 x
Hydro International plc UNITED KINGDOM 5.6 x 4.5 x 16.1 x 11.8 x
Median 8.3 x 6.7 x 5.8 x 17.4 x 10.9 x 8.8 x
Average 8.8 x 6.7 x 6.4 x 15.9 x 11.8 x 9.6 x
Contractors
EV/EBITDA P/E Company Country 2014 2015 2016 2014 2015 2016
Duro Felguera, S.A. SPAIN 4.6 x 5.2 x 5.0 x 8.4 x 9.8 x 11.2 x
Abengoa S.A. Class A SPAIN 8.1 x 7.3 x 6.9 x 21.5 x 13.1 x 9.9 x
Elecnor S.A. SPAIN 7.1 x 6.1 x 5.6 x
Technip SA FRANCE 5.2 x 4.0 x 3.5 x 12.8 x 9.5 x 8.8 x
Aker ASA Class A NORWAY 3.4 x 2.2 x 2.3 x 5.4 x 5.9 x 4.9 x
Petrofac Limited UNITED KINGDOM 6.4 x 5.2 x 4.6 x 10.0 x 8.3 x 7.2 x
Chicago Bridge & Iron Co. NV NETHERLANDS 5.7 x 4.9 x 4.4 x 9.5 x 8.2 x 8.3 x
AMEC plc UNITED KINGDOM 9.4 x 7.0 x 6.0 x 12.9 x 11.1 x 10.1 x
Fluor Corporation UNITED STATES 5.7 x 4.9 x 4.4 x 14.8 x 12.5 x 11.2 x
Babcock & Wilcox Company UNITED STATES 9.1 x 6.8 x 6.4 x 15.9 x 11.8 x 10.7 x
McDermott International, Inc. UNITED STATES 20.8 x 5.4 x 3.8 x 36.8 x 9.8 x
Great Lakes Dredge & Dock Corporation UNITED STATES 7.3 x 5.4 x 26.5 x 14.5 x 9.6 x
MasTec, Inc. UNITED STATES 7.4 x 5.9 x 17.0 x 12.0 x 11.6 x
Jacobs Engineering Group Inc. UNITED STATES 8.1 x 6.0 x 5.3 x 14.1 x 12.1 x 10.8 x
Average 7.8 x 5.4 x 4.8 x 13.5 x 12.3 x 9.3 x
Median 7.3 x 5.4 x 4.6 x 12.9 x 11.5 x 9.9 x
Energy Companies
EV/EBITDA P/E Company Country 2014 2015 2016 2014 2015 2016
E.ON SE GERMANY 4.3 x 4.9 x 4.8 x 13.7 x 13.4 x 13.4 x
EDP - Energias de Portugal SA PORTUGAL 7.6 x 7.3 x 6.7 x 12.8 x 12.4 x 11.7 x
Endesa S.A. SPAIN 5.5 x 5.1 x 4.8 x 17.9 x 16.2 x 28.8 x
Enel S.p.A. ITALY 4.8 x 4.8 x 4.6 x 11.6 x 11.0 x 10.5 x
Gas Natural SDG, S.A. SPAIN 7.2 x 6.8 x 6.5 x 15.1 x 14.2 x 13.1 x
GDF SUEZ SA FRANCE 6.1 x 5.7 x 5.6 x 13.9 x 12.7 x 12.0 x
Iberdrola SA SPAIN 8.7 x 8.5 x 8.2 x 14.7 x 14.1 x 13.3 x
CEZ as CZECH REPUBLIC 6.8 x 7.2 x 7.4 x 10.7 x 12.9 x 14.2 x
RWE AG GERMANY 3.5 x 3.1 x 2.9 x 11.8 x 11.8 x 12.2 x
SSE plc UNITED KINGDOM 9.7 x 9.7 x 9.5 x 12.7 x 13.1 x 12.3 x
VERBUND AG Class A AUSTRIA 11.9 x 10.6 x 9.5 x 40.8 x 26.9 x 20.0 x
Average 6.9 x 6.7 x 6.4 x 15.8 x 14.3 x 14.5 x
Median 6.8 x 6.8 x 6.5 x 13.7 x 13.1 x 13.1 x
Mytilineos Group Greece 4.0 x 3.8 x 4.0 x 10.2 x 6.9 x 7.5 x Source: Factset, AVG Research
Initiation of Coverage
Summary Financials
Profit & Loss (in EUR m) 2013 2014e 2015f 2016f
Turnover 1,403.0 1,239.2 1,140.1 1,102.6
Cost of Goods Sold (1,140.5) (954.3) (840.8) (820.3)
Gross Profit 262.5 284.8 299.3 282.3
Operating Expenses 54.4 48.2 49.2 50.2
Other Income 24.6 13.5 12.6 12.1
EBITDA 232.6 250.1 262.7 244.2
Depreciation 66.0 63.9 67.1 69.5
EBIT 166.6 186.1 195.6 174.8
Net Investment Inc. (Exp.) (14.9) 0.0 0.0 0.0
Net Interest Inc. (Exp.) (58.1) (49.9) (34.5) (27.7)
Other (bank fees) (13.2) (5.9) (1.9) (2.0)
EBT 80.4 130.3 159.2 145.0
Taxes (13.1) (22.2) (35.0) (31.9)
Net Profit After Tax 67.3 108.2 124.2 113.1
Minorities (44.8) (44.3) (30.2) (25.5)
EAT 22.5 63.8 93.9 87.6
Dividends 0.0 12.8 18.8 17.5
Balance Sheet (in EUR m)
Net Fixed Assets 1326.4 1302.4 1345.3 1355.8
Investments 222.2 222.2 222.2 222.2
Other LT Assets & Accruals 125.0 99.1 91.2 88.2
Total Fixed Assets 1673.6 1623.7 1658.7 1666.2
Inventories 128.4 104.6 92.1 89.9
Debtors 575.1 509.2 468.5 453.1
Cash & Equivalents 181.8 161.1 148.2 110.3
Marketable Securities 0.0 142.1 204.7 276.1
Other Current Assets 105.5 99.1 102.6 101.4
Total Current Assets 990.7 1016.1 1016.3 1030.9
Total Assets 2664.3 2639.9 2674.9 2697.1
Creditors 469.0 392.2 345.5 337.1
Short Term Debt 91.6 90.0 90.0 90.0
Other 49.8 58.4 74.7 69.7
Total Current Liabilities 775.1 580.6 570.3 546.8
Long Term Debt 435.1 509.8 449.8 399.8
Minorities 0.0 0.0 0.0 0.0
Other LT Liabil. & Prov. 356.4 356.4 356.4 356.4
Total Liabilities 1800.0 1724.5 1684.4 1636.5
Total Equity 864.3 915.4 990.5 1060.6
Growth Rates
Turnover (3.5%) (11.7%) (8.0%) (3.3%) EBITDA 40.9% 7.5% 5.1% (7.0%) EBIT 60.0% 11.7% 5.1% (10.6%) EBT 45.1% 62.1% 22.2% (8.9%) EAT 15.1% 183.7% 47.2% (6.8%) EPS 8.7% 174.1% 47.2% (6.8%)
Ratios
Gross Margin 18.7% 23.0% 26.3% 25.6% EBITDA Margin 16.6% 20.2% 23.0% 22.1% EBT Margin 5.7% 10.5% 14.0% 13.2% Net Margin 1.6% 5.2% 8.2% 7.9% Tax Rate 16.2% 17.0% 22.0% 22.0% ROE (avg) 2.7% 7.2% 9.9% 8.5% Net Debt / Equity 59.0% 36.8% 24.9% 14.5%
455.9
604.4
369.1
2013 Group Revenues Breakdown (EUR m)
Metallurgy Construction Energy
48.2
107.9
89.1
2013 Group EBITDA Breakdown (EUR m)
Metallurgy Construction Energy
118.8
192.5209.1
170.9
232.6250.1
262.7
244.2253.6 258.3
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Group EBITDA (EUR m)
430.9
532.8574.6
724.8
509.7
336.6
246.8
153.4
28.9
-100.8
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Group Net Debt (EUR m)
Mytilineos Holdings
AVG Research Page 11
15.4%
16.4%
34.5%
16.4%
12.1%
5.0% Mytilineos Evaggelos
Mytilineos Ioannis
Retail
Foreign Institutional Investors
Greek Institutional Investors
Fairfax Financial Holding
50.0%
5.9%
23.1%
10.3%
10.7%
Mytilineos Holdings
Kempen Capital Management
Foreign Institutional Investors
Greek Institutional Investors
Retail
31.9%
42.3%
25.8%
Metallurgy Construction Energy
661.8
1,001.4
1,586.0 1,453.6 1,423.0
118.9 192.7 211.6 178.5 231.9
18.0% 19.2%
13.3% 12.3%
16.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2009 2010 2011 2012 2013
Revenues (EUR m) EBITDA (EUR m) EBITDA margin
Mytilineos Group overview
Mytilineos Group is a Greece-based industrial conglomerate that has established a strong position in a
number of sectors through strategic mergers, acquisitions and investments in crucial and developing
domestic industry sectors. The group is active in:
Metallurgy and Mining sector through the operations of its 100% subsidiary Aluminium of
Greece (AoG);
Construction, through its 50% subsidiary Metka (fully consolidated, listed on Athex, Mcap of
EUR465m); and
Energy sector, through its 100% subsidiary Protergia focusing on electricity production.
Exhibit 2: Mytilineos Group performance
Exhibit 3: Mytilineos 2013 revenue breakdown
Source: The Company AVG Research
The establishment of the group is dated back to 1908 when the Mytilineos family first activities in mining
and metallurgy began. The group was listed on Athex in 1995 and in 1998 acquired a majority stake in
Metka.
In 2005 Mytilineos acquired AoG and in 2008 fired up its first natural gas fired electricity production unit in
Greece.
President and CEO of the group is Mr. Evaggelos Mytilineos, with Mytilineos family holding 31.8% of the
total shares.
In 2013 Fairfax Financial acquired a 5.02% stake (treasury shares) for a consideration of EUR5.13/share.
Exhibit 4: Mytilineos Shareholding structure
Exhibit 5: Metka shareholding structure
Source: The Company AVG Research
Metallurgy and Mining-A significant player in Aluminium and Alumina production in Europe
Aluminium of Greece is the largest fully vertically integrated producer of alumina and aluminium in Europe
with an annual output of 185k tons of aluminium and 810k tons of alumina. The company controls the
bauxite mine Delphoi-Distomon, which is the second largest bauxite producer in the country and S.E.
Europe.
Since the acquisition of AoG, the group has focused on the operational streamlining of the unit and has
made significant improvements starting from the construction of an on-site CCGT-CHP power plant in 2007.
From 2011, following the management’s efforts within the ‘MELLON’ cost cutting initiative, AoG has
lowered significantly its unit production costs and is now one of the most efficient producers in the EU.
Mytilineos Holdings
AVG Research Page 12
521 506 456
432.1
494.7
31.9 29.0 48.2 72.3
127.3 6.1% 5.7%
10.6% 16.7%
25.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
100
200
300
400
500
600
2011 2012 2013 2014e 2015f
Revenues (EUR m) EBITDA (EUR m) EBITDA margin
930
507 604
651.0
468.7
163.5 94.0 107.9 110.8 71.2
17.6%
18.5% 17.9% 17.0% 15.2%
0.0%
10.0%
20.0%
0
500
1,000
2011 2012 2013 2014e 2015f
Revenues (EUR m) EBITDA (EUR m) EBITDA margin
1,728 1,682 1,465
1,290 1,192
512 502 389
235 370
2011 2012 2013 2014e 2015f Backlog (Year-end) (EUR m) Replenishment (New Orders) (EUR m)
Exhibit 6: Metallurgy division performance
Exhibit 7: AoG key figures
2011 2012 2013 2014e 2015f
Aluminium Volume sales (k'tn) 165 165 173 175 175 Alumina Volume sales (k'tn) 477 477 477 477 477
LME prices (USD/tn) 2,395 2,018 1,780 1,905 2,028
Premia (USD/tn) 390 470 450 571 609
EUR/USD 1.39 1.29 1.33 1.34 1.25 Aluminium cash costs (USD/tn) 2,495 2,304 2,144 2,016 1,933
Source: the Company AVG Research
Construction-Metka, a major EPC player in MENA region
Metka is a leading contractor specializing in energy related projects and more specifically in the construction
of natural gas fired power plants. The company has capitalized on its experience from the domestic energy
sector and has expanded aggressively abroad undertaking projects in Europe, Turkey, Middle East and
Africa.
The current backlog of EUR1.3bn provides visibility for a strong performance over the next couple of years,
while the company is taking advantage of its focused bidding strategy having managed to post significantly
above average EBITDA margins (15-17%).
Going forward Metka is expected to turn part of its focus to the domestic construction market in order to
capture local opportunities.
At the same time the international environment seems challenging given the geopolitical tensions in a
number of targeted markets. But the medium-to-longer term prospects of the MENA (region in terms of
CCGT plant construction) are seen as being positive allowing Metka to take advantage of its track record in
the region.
Exhibit 8: Construction division performance
Exhibit 9: Metka backlog replenishment evolution
Source: the Company AVG Research
Energy-Greece’s leading IPP
During the last 10 years Mytilineos has followed an ambitious cEUR700m investment program in the energy
sector with the group being the largest independent power producer (IPP) in the country, holding assets in
thermal production as well as RES.
Protergia (the energy division subsidiary) operates a portfolio of three CCGT units with a total capacity of
1.2GW and another 54MW of installed RES projects.
The company, is well placed to benefit from the ongoing restructuring and the longer term dynamics of the
domestic electricity market. At this point we note the current market environment is pressuring the
operation of the CCGT units to low load factors, while in the short-term the capacity/flexibility payments
scheme will provide significant support to the division’s profitability.
The energy division is also pushing forward the expansion of the group’s RES portfolio, and is expected to
add 70MW of wind parks in 2015-16.
Also the group is becoming active in the electricity supply market as well as natural gas trading through its
JV with Motor Oil, M&M Gas.
Mytilineos Holdings
AVG Research Page 13
135
446
369
156.1 176.8
30.0 65.2
89.1 79.9 77.2
22.2% 14.6%
24.1%
51.2%
43.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0
100
200
300
400
500
2011 2012 2013 2014e 2015f
Revenues (EUR m) EBITDA (EUR m) EBITDA margin
432.1 494.7 481.3 485.0 491.7
651.0 468.7 436.7 428.7 440.4
156.1 176.8 184.6 230.0 253.8
2014e 2015f 2016f 2017f 2018f
Metalurgy Construction Energy
72.3 127.3 115.5 114.9 116.0
110.8
71.2 59.2 60.6 62.8
79.9 77.2
82.5 91.0 92.6
2014e 2015f 2016f 2017f 2018f
Metalurgy Construction Energy
Exhibit 10: Energy division’s performance
Exhibit 11: Protergia electricity generating portfolio
Unit Capacity (MW) Technology Commission date
AoG 334 CCGT-CHP 2008
Korinthos Power 436 CCGT 2012
Viotia 444 CCGT 2011
Wind Parks 36 RES 2010-12
Photovoltaic 11.5 RES 2010-12
Small hydro 6 RES 2010-12
Total capacity 1,268
Source: the Company AVG Research
Solid outlook for the group ahead
Going forward revenues in the coming periods will be driven by the performance of AoG, as the division is
benefiting from the hike in aluminium market, compensating the slowdown in Metka’s activities. The energy
division is expected also to report lower sales impacted current market framework but this will have no
impact on the division’s EBITDA.
Group revenues for 2014E are seen at EUR1,239m (-11.7% y-o-y), though expected to slide to more
normalized levels of EUR1.1bn in the coming years.
On the other hand, group margins should expand significantly driven by the impressive turnaround in AoG
business. AoG is expected to post 6x higher EBITDA (adj.) in 2014 vs. 2013, while its margins should also
remain high in the coming years.
Metka’s EBITDA contribution will be impacted inevitably by the declining top line performance but margins
remain strong. Finally, energy division contribution is seen stable (EUR80-90m p.a. in EBITDA) driven by the
capacity payments and new RES. Group consolidated EBITDA for 2014 is seen at EUR250m (+7.8% y-o-y) and
further improved to EUR262.7m in 2015 (5.1% y-o-y).
Group EPS is expected to grow by 35.2% in 2013-18 with net profits reaching EUR63.8m in 2014 and
EUR93.9m in 2015, positively impacted by the declining financing costs and lower debt levels.
Exhibit 12: Revenues estimates breakdown 2014-2018 (EUR m)
Exhibit 13: EBITDA estimates breakdown 2014-2018 (EUR m)
Source: the Company AVG Research
Increased cash flows from AoG and Metka are expected to help aggressively reduce group debt over the
coming years, with Net Debt for 2016 seen at EUR153m vs. EUR510m at year end-2013 and EUR724m at
year end-2012. Net Debt/EBITDA should also settle below the 1.0x benchmark by 2015 from 4.4x in 2012.
Finally, we expect Mytilineos to resume its dividend policy (last dividend for fiscal year 2008) starting form
fiscal year 2014, assisted by the group’s strong cash flow generation.
Mytilineos Holdings
AVG Research Page 14
1,423.0
1,239.2 1,140.1 1,102.6 1,143.7
231.9 250.1 262.7 244.2 253.6
16.3%
20.2%
23.0% 22.1% 22.2%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
2013 2014e 2015f 2016f 2017f
Revenues (EUR m)
430.9 532.8 574.6 724.8 509.7 336.6 246.8
4.8
3.1 3.0
4.4
2.2
1.3 0.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2009 2010 2011 2012 2013 2014e 2015f
Group Net Debt (EUR m) Net Debt/EBITDA
75.9%
24.1%
International
Domestic 63.1%
36.9%
International
Domestic
Exhibit 14: Group revenues and EBITDA estimates
Exhibit 15: Group net debt and net debt/EBITDA evolution
Source: The Company AVG Research
Exhibit 15.a: Group revenues breakdown by region for 2014
Exhibit 15.b: Group EBITDA breakdown by region for 2014
Source: AVG Research
Mytilineos Holdings
AVG Research Page 15
Metallurgy Division-Aluminum of Greece (AoG) The Metallurgy division flagship company, AoG, is set to provide a spectacular turnaround of its
performance driven by the impressive cost restructuring initiatives and the favorable momentum and
outlook for the aluminium market.
We forecast AoGs EBITDA to grow by 69.1% y-o-y in 2014 and by 76% y-o-y in 2015 as LME prices and
premiums are expected to remain high. EBITDA CAGR for 2013-18 is seen at 22% as we assume more
normalized market conditions from 2015 onwards.
Our DCF exercise returns an equity value for the division of EUR613.2m implying a 2015-2016 average
EV/EBITDA multiple of 6.3x vs. an industry average of 6.5x.
Exhibit 16: LME prices on an upward trend ($/t) Exhibit 17: Premiums remaining at all time highs
Exhibit 18: Favorable USD/EUR momentum Exhibit 19: Cost cutting (Aluminium Cash Costs $/t)
Exhibit 20: AoG Revenues estimates (EUR m) Exhibit 21: AoG EBITDA estimations (EUR m)
Source: Bloomberg, The Company, AG Research
1,773
1,845 1,800 1,785
1,891
1,960 1,965 2,017
2,057 2,098 2,119
0.0%
10.0%
20.0%
30.0%
40.0%
0
200
400
600
800
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Premiums ($/t) % on LME Cash Price 5y Average Premiums (% on LME Cash)
1.15
1.2
1.25
1.3
1.35
1.4
1.45
2,551 2,506 2,495
2,304
2,144
2,016 1,933 1,927 1,904 1,902
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
520
589
428 431
494 480 484 491
2011 2012 2013 2014e 2015f 2016f 2017f 2018f
21.9 18.4
43
90
127
115 115 116
2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Mytilineos Holdings
AVG Research Page 16
AoG- a regional leading producer of aluminium and alumina Aluminum of Greece (AoG) is a 100% owned subsidiary of Mytilineos that was acquired from Pechiney
(now subsidiary of Alcan) in 2005. AoG is among the leading producers in alumina and primary aluminum
in S.E. Europe. Its current alumina production capacity stands at 815,000t (c17% of EU total), while it also
produces 165,000t of primary aluminum.
AoG is a vertically integrated company with:
its own bauxite production (second Bauxite producer in EU c700ktpa);
alumina refinery;
aluminum smelter;
a 330MW co-generation power plant; and
self-owned docking facilities as the unit has been constructed near the sea.
The company produces and sells alumina and aluminum in Greece and abroad. In 2013 c30% of its total
production was sold domestically, 55% exported to the EU and the remaining exported to international
markets. The main markets for AoG are Italy and Germany.
The company in 2013 signed a USD2.0bn contract with Glencore for the bulk amount of its produced
alumina.
AoG sources c50% of bauxite needs from its own bauxite mines while the rest is acquired through long-
term contracts signed with S&B Industrial Minerals and international commodity traders. In respect of
electricity (c41% of total production costs), the main supplier is the Public Power Corporation and tariffs
are set through bilateral agreements.
Aluminium market outlook is favorable
LME prices on the rise supported by strong fundamentals
In Q1:14 LME prices recorded the lowest reading over the last 5 years or 30% lower than the last 5 year
average. Since the lowest reading (in February 4th
at USD1,641/tn), LME spot prices have rallied by 17.5% to
date settling at a 30-day average of USD1,945/tn.
Exhibit 22: LME Aluminium Prices ($/t)
Source: Bloomberg, AVG Research
We expect these price levels to be maintained in the medium-to-longer term supported by demand-supply
dynamics of the aluminium market.
1,000
1,500
2,000
2,500
3,000
3,500
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4E
2006 2007 2008 2009 2010 2011 2012 2013 2014 3M LME Aluminium Cash Forwards Past 5y Average Past 5y High Past 5y Low
Mytilineos Holdings
AVG Research Page 17
Demand driven by China
Both the short and the long term demand trends for the metal are favorable.
In the short-term, demand is expected to remain strong due to increased consumption from emerging
markets, mainly China. Despite the recent economic slowdown, China has reached a critical size to
significantly impact the market as it now accounts for 50% of the total global aluminium demand.
In the long-term, transportation and construction are expected to drive the global demand for aluminium as
these two sectors account for 60% of the total aluminium take.
According to International Aluminium Institute (IAI), global aluminium demand for 2014-2018 is estimated
to grow by 6.5% CAGR, reaching 64kmt in 2018 from 50kmt in 2014. Aluminium consumption is estimated
to reach 94kmt in 2030 implying a CAGR 2014-30 growth rate of c4.2%.
Exhibit 23: Aluminium Consumption estimates (mt) Exhibit 24: Aluminium demand dynamics
Region Demand
(mmt) (%) of total
Demand
Growth rate for
2014
Russia 1 1.9% 2%
Brazil 1.1 2.1% 1%
Other 2 3.8% 4%
MENA 2 3.8% 8%
SE Asia 2 3.8% 8%
India 2.1 4.0% 5%
North Asia 4.2 8.0% 5%
North America 6.4 12.1% 5%
Europe 6.6 12.5% 2%
China 25.4 48.1% 10%
Total 52.8
Source: IAI, Alcoa, AVG Research
Constrains in Supply
The supply side is currently facing constraints on the back of capacity curtailment over the last few years.
With production costs on the rise, driven by higher energy costs and bauxite/alumina sourcing difficulties
but also limited funding availability, many producers have reduced capacity either permanently or on a
temporary basis.
The recent rally both in LME prices as well as in premiums could push producers with idle capacity to start
weighing up restart options. We note however that such decisions will be taken based on the specific
characteristics of each producer (location, sourcing of materials, cost base), therefore the LME levels are
just one part of their consideration.
Keeping this in mind production is expected to lag demand in the ex-China world for the following years.
Alcoa, a leading aluminium producer revised its estimates on aluminium market deficit for 2014 to
1,201mmt from 0.7mmt earlier this year, while Rusal (another leading player) estimates market deficit to
reach 1,051mmt until 2018.
Exhibit 25: Capacity curtailments since 2012 (ex-China) (mt) Exhibit 26: Aluminium production ex-China (mmt)
Source: Companies statements, Rusal, AVG Research
-
20,000
40,000
60,000
80,000
100,000
120,000
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
464
179
609
282 180 200
449
468
31 100
Permanently Idle Temporary idle
25.8 25.7 25.6 26.8
27.9 29.1
30.5
26 26 27
28 29.1
30.3 31.5 -188
-306
-1378
-1241 -1250 -1213
-1051
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
15
17
19
21
23
25
27
29
31
33
2012 2013 2014f 2015f 2016f 2017f 2018f
Production Consumption Balance
Mytilineos Holdings
AVG Research Page 18
…while premiums remaining at high levels… Market premiums (that is the amount paid on top of LME prices related to warehousing, fabrication and
delivery costs) surged to record highs of cUSD450/tn (or 22.5% of LME price -2014 ytd average- vs. 6.6% in
2010) driving the all-in aluminium prices to a 14-month high during the second quarter of this year to
cUSD2,500/tn.
The rising premium levels are attributed to two main reasons:
Contago in the aluminium market that has locked in warehouses (LME and non-LME) large stockpiles
of metal attached to financing deals (key factors here are the low interest rate and warehousing
costs), making very difficult the timely access to metal despite the high inventory levels; and
Curtailments in capacity in the world ex-China that turned market into a deficit and thus making
physical availability to metal difficult.
Exhibit 27: Regional premiums performance (USD/t) Exhibit 28: Global aluminium Inventory levels (k’ mt)
Source: IAI, Bloomberg, AVG Research
LME has intensified its efforts to face the high inventory levels that reached record highs since the beginning
of the financial crisis. Regulatory efforts have not made much of an impact on the market yet, as a slow
decline in inventories is absorbed instantly by the market. Given that fundamental contago drivers (low
interest rates and warehousing costs) will be maintained at least in the short term and the market being in a
deficit, we would expect premium levels for the short to medium term at least to remain in the USD400-
450/tn region on average.
This market environment is expected to lead to considerable profitability gains for AoG, as we expect the
average premium realization for the metallurgy division to reach USD571/t for 2014 (30% over our 2014E
LME price) and USD609/t (30% over 2015E LME price). Our assumptions are based on the geographical
characteristics of the premiums for AoG and also on the product mix that is traditionally curved towards
billets (c65-68% of total smelter output) that traditionally carry the higher premiums amongst smelters end-
products, with Mytilineos reporting a premium for billets of cUSD800/tn during Q3:14.
In the medium to long term thought, we would expect a normalization and gradual return of premiums for
AoG to the levels of c20% over LME prices (2009-2014 average), driven by the rationalization of the global
inventories that will increase availability for end-users.
Exhibit 29: Contago in the aluminium market (USD/tn) Exhibit 30: Realized premia as % of LME price for AoG
Source: Bloomberg, AVG Research
0
50
100
150
200
250
300
350
400
450
1/1
2/0
4
1/7
/05
1/2
/06
1/9
/06
1/4
/07
1/1
1/0
7
1/6
/08
1/1
/09
1/8
/09
1/3
/10
1/1
0/1
0
1/5
/11
1/1
2/1
1
1/7
/12
1/2
/13
1/9
/13
1/4
/14
Japan Rotterdam
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
1000
1500
2000
2500
3000
3500
30
/3/2
00
1
30
/3/2
00
2
30
/3/2
00
3
30
/3/2
00
4
30
/3/2
00
5
30
/3/2
00
6
30
/3/2
00
7
30
/3/2
00
8
30
/3/2
00
9
30
/3/2
01
0
30
/3/2
01
1
30
/3/2
01
2
30
/3/2
01
3
30
/3/2
01
4
15M LME Forward LME Spot
13.0%
19.0%
15.2% 16.3%
23.3% 25.3%
2008 2009 2010 2011 2012 2013
Premia (USD/tn)
Mytilineos Holdings
AVG Research Page 19
…provide visibility for strong top line performance
Taking into account both LME price drivers and premiums evolution estimates we derive a cash realization
for the aluminium production of AoG at USD2,476/tn for 2014 and USD2,637/tn in 2015. At the same time
we do not expect any capacity surges or curtailments from the company, thus we account for output levels
of 175,000 tones of aluminium p.a.
Note that AoG smelter processes c350ktns out of the total 815ktns output of the alumina refinery. The
remaining alumina is sold to the market through long-term deals. In this respect we note the deal with
Swiss-based Glencore to sell alumina for over a 10-year period with the contract size reportedly at
USD2.0bn and Glencore contributing c20% of the bauxite input for the production.
All in all, at this point we expect a robust top line performance of AoG in the coming years driven by the
rising aluminium all-in prices, while the secured alumina sales provide strong support. We note that we do
not account for any hedging to lock current LME levels as the management is expected to try to benefit the
most from the current market momentum.
Exhibit 31: LME prices assumptions ($/t) Exhibit 32: Premiums assumptions
Source: Bloomberg, AVG Research
Controllable cash costs down by 25% within 3 years
Since the acquisition of the AoG Mytilineos has been making constant efforts to improve the efficiency of the plant and reduce operating expenses. In 2011 Mytilineos group launched its “MELLON” cost efficiency program targeting some USD145m of
sustainable cost savings from AoG’s operations.
In order to put this into context, the aluminium production costs for AoG back in 2011 stood at
cUSD2,500/tn, positioning AoG at the bottom of the 3rd
quartile in the global cost curve.
Following the efforts of the management team across all lines of the cost structure (energy, raw material,
technology, personnel), AoG now records, according to our estimates, a cash cost of cUSD2000/tn that is
sliding lower, having achieved a bulk portion of its targeted savings. More specifically, we estimate
cUSD130m p.a. in sustainable cost reduction, with the large of these efforts implemented during 2012 and
2013. This effort positions AoG high in the second quartile of the global cost curve, as one of the most
efficient EU producers.
Exhibit 33: AoG cash costs dynamics ($/t)
Source: AVG Research
1,773
1,845 1,800 1,785
1,891
1,960 1,965 2,017
2,057 2,098 2,119
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Premiums ($/t)
% on LME Cash Price
5y Average Premiums (% on LME Cash)
2,551 2,506 2,495
2,304
2,144
2,016 1,933 1,927 1,904 1,902
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Mytilineos Holdings
AVG Research Page 20
Key achievements that played an important role in the total cost reduction are:
Competitive electricity tariffs. Electricity tariffs account for c40% of the total aluminium production
costs (the production of 1.0tn of aluminium consumes c13.5GWh). AoG covers its electricity needs
from PPC (the main energy producer that exploits the low cost lignite and hydro reserves of the
country).
AoG as the largest industrial consumer (accounting for 5-6% of the total domestic demand) is charged
based on a bilateral agreement with PPC. Nevertheless we note that in late 2013 the market regulator
following an independent arbitration over the dispute between PPC and AoG on the charged tariffs
ruled in favour of AoG, setting the tariff charges at EUR40.7/MWh for the period between July 2010
and December 2013 (significantly lower that what PPC was charging) thus resulting in a significant one
off gain for AoG of EUR29m booked in Q3:13.
Note that the aforementioned amount includes grid charges, Public Service obligations and
administrative fees, while on top of that AoG has to pay taxes, RES fees and other administrative fees.
We assume an all in electricity price for AoG at EUR45/MWh going forward.
In house CHP unit providing steam using natural gas, lowering oil share in overall cost base. Since
the CHP unit came online oil consumption has been reduced according to AoG to 5.0ktns vs. 117ktns
back in 2009, resulting in sustainable cost savings of cUSD40m p.a.
Labor Costs-Productivity. Management has achieved a reduction in employee related expenses from
15.8% of COGS (ex-depreciation) in 2009 to 9.8% in 2013, or from cEUR60m in 2009 to EUR39m in
2013, while keeping the number of employees at the same levels.
Raw materials, freight, logistic improvements etc. Specific actions resulted to estimated cost savings
of USD30-40m p.a.
Exhibit 34: AoG production cost dynamics Exhibit 35: AoG refinery cost structure
Source: Mytilineos, AVG Research
Expectations for even lower cost base We identify two key areas that could potentially generate additional cost savings for AoG in the medium to
long term. Both of them are related to the energy intensity of the aluminium sector.
The restructuring of the domestic electricity market. The domestic electricity market has entered a
new restructuring phase in a bid to tackle inefficiencies and promote competition following the
agreement with the county’s international lenders.
The spin-off and privatization of the High Voltage Grid Operator (IPTO), the spin-off and the
privatization of the “small-PPC”, NOME type electricity auctions and increased mandate for market
coupling are setting a basic framework for structural changes.
A key point in this opportunity is the leading presence of the group’s energy division in the domestic
market that could result in significant synergies for both divisions.
Natural gas prices. Mytilineos group utilized c1.5bcm of natural gas and paid some EUR400m in 2013
for natural gas with 1/3 attributed to the AoG unit. The negotiations on natural gas prices between
DEPA (Greece’s natural gas provider) and Gazprom in early 2014 resulted to a c11% discount on
realized prices for Mytilineos group. Yet, natural gas prices in Greece remain c10% above the
continental EU realizations, while currently there is no pipeline link to major EU hubs. In this context
we note: i) the proximity of the country to a number of potential natural gas pipelines; ii) the shale gas
impact on the market; iii) lower LNG demand from Japan; and v) geopolitics normalization in MENA
39.3%
2.6%
25.3%
9.6%
19.4%
3.8%
2015f
Other
Fabrication
Coke
Alumina
Oil
Electricity
Mytilineos Holdings
AVG Research Page 21
and Eastern Europe as potential catalysts that could affect natural gas prices for AoG and lead to lower
production costs.
Exhibit 36: AoG quarterly adj. EBITDA performance
Adjusting for one-off gains in 2013, Source: Mytilineos, AVG Research
FX effect
AoG, books the bulk of its expenses in Euro with the exemption of some imports for limited quantities of
bauxite and other raw materials (coke, soda) used by the refinery and the smelter. At the same time the
majority of its sale contracts are USD denominated. The current strengthening of the USD against the Euro
provides an additional boost in the AoG performance. We account for EUR/USD in our model at 1.34 for
FY:14 and at 1.25 thereafter.
Please refer to Appendix I, page 43, for more details on the aluminium market overview and outlook
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
-30
-25
-20
-15
-10
-5
0
5
10
15
20
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2012 2013 2014 EBITDA (EUR m0 LME Price (% change)
Mytilineos Holdings
AVG Research Page 22
Assumptions and estimates for AoG Overall we expect a strong performance from AoG in the coming years
Below we summarize our key assumptions and estimates:
We account for 2014, 2015 and 2016 LME prices of USD1,905/t, USD2,028/t and USD2,069t
respectively. In the long run we set our assumption at USD2,110/t for 2017 and USD2,153/t for 2018
converging with the long term average LME quote;
We expect a stable production output of 175ktns p.a. from the smelter;
Regarding Alumina, given the Glencore contact, we assume a price of USD302/t for 2014 to gradually
reach up to USD344/t in 2018, with stable annual output at 477ktns p.a. from the refinery.
Our estimates on premia call for realized cash considerations of 30%, 30% and 22% on top of our
2014E-16E LME prices. Going forward we expect premia to settle at c20% of our LME long run
estimates.
On the cost side, we retain a rather conservative approach as we account for aluminium production
costs of USD2,016/t for 2014 and USD1,933/t throughout the remaining forecast period, keeping the
risk from further cost curtailment efforts to the upside.
Based on these assumptions we expect revenues for AoG for 2014 at EUR431m (+0.9% y-o-y) and at
EUR494m for 2015 (+14.5% y-o-y), with 2014-18 revenues CAGR of 3.3%. Turning to the EBITDA line, we
expect AoG to deliver EBITDA of EUR72.2m in 2014 (+68.9% y-o-y) and post a further 76% increase in 2015
at EUR127.1m, resulting in a 2014-18 CAGR of 12.5%.
Exhibit 37: AoG modeling assumptions and forecasts
2014e 2015f 2016f 2017f 2018f
Aluminium output (k't) 175 175 175 175 175
Alumina output (k't) 477 477 477 477 477
LME prices (USD/t) 1,905 2,028 2,069 2,110 2,153
Premia (USD/t) 571 609 455 422 409
EUR/USD 1.34 1.25 1.25 1.25 1.25
Revenues (EUR m) 431 368 367 364 364
y-o-y 0.9% 14.5% -2.7% 0.8% 1.4%
Aluminium cash costs ($/t)
2,016
1,933
1,927
1,904
1,902
y-o-y -6.0% -4.1% -0.3% -1.2% -0.1%
EBITDA (EUR m) 72 127 115 115 116
EBITDA margin 16.7% 25.7% 24.0% 23.7% 23.6%
y-o-y 68.9% 76.0% -9.3% -0.5% 0.9% Source: AVG Research
Exhibit 38: 2015E EBITDA sensitivity to LME prices and EUR/USD exchange rate
2015E EBITDA
LME Price ($/t)
127.1 1,900 1,950 2,028 2,100 2,150
EUR/USD exchange
rate
1.15 123.3 136.8 157.9 177.4 190.9
1.2 108.6 121.6 141.8 160.5 173.4
1.25 95.1 107.6 127.0 144.9 157.3
1.3 82.7 94.7 113.3 130.5 142.5
1.35 71.2 82.7 100.7 117.2 128.8
Source: AVG Research
Mytilineos Holdings
AVG Research Page 23
Valuation Our DCF valuation on AoG returns a targeted EV of EUR759m, while the end-14 estimated Net Debt stands
at EUR145.1m, thus the equity valuation for Mytilineos reaches EUR614.3m.
Our WACC stands at 9.0% (risk free of 5.5%, risk premium at 4.5%, beta at 1.0), while we set long term
growth at 1.0%. Targeted capital structure (Debt/Equity) at 40%.
Exhibit 39: AoG DCF exercise
EUR m 2014e 2015f 2016f 2017f 2018f
EBIT 43.9 98.0 85.4 84.0 84.2
(+) Depreciation 28.4 29.2 30.1 30.9 31.7
(-) Taxes 9.6 22.7 20.1 20.0 20.4
Gross Cash Flow 62.7 104.6 95.4 95.0 95.6
(-) Capex 33.0 33.0 33.0 35.0 32.0
(-) Change in WC -0.8 11.9 -1.8 -9.8 -2.9
FCF 30.6 59.7 64.2 69.8 66.6
NPV of FCF 30.6 54.8 54.0 53.9 47.2
Terminal Value 520.2
EV 760.6
Net Debt (end-2014) 147.3
Equity Value 613.2 Source: AVG Research
I
n
t
e
r
In terms of multiples our valuation yields an average 2015-16 EV/EBITDA of 6.3x vs. an industry average of
6.5x for the same period implying a small discount which we believe is partially justified by our country risk
assumptions.
Exhibit 42: AoG peer group EV/EBITDA, EBITDA growth and EBITDA margin
EV/EBITDA EBITDA growth (y-o-y) EBITDA margin
Company 2014 2015 2016 2014 2015 2016 2014 2015 2016
Alcoa Inc. 7.4 x 5.8 x 5.2 x 36.6% 22.2% 7.4% 14.4% 16.4% 16.6%
ALUMETAL S.A. 8.9 x 8.2 x 8.0 x 48.3% 10.3% 4.2% 6.6% 6.9% 6.9%
Aluminium Bahrain BSC 6.2 x 5.1 x 4.3 x -3.7% 10.5% 7.8% 16.9% 18.2% 19.3%
Aluminum Corporation of China Limited Class H 11.4 x 8.4 x 13.3 x 195.2% 35.2% -37.1% 9.0% 11.5% 7.2%
AMAG Austria Metall AG 8.3 x 6.8 x 5.8 x -3.8% 21.6% 11.8% 13.9% 14.6% 14.7%
Century Aluminum Company 10.6 x 5.4 x 3.7 x 498.5% 69.5% 22.3% 11.4% 17.2% 20.1%
Constellium NV Class A 6.6 x 5.9 x 5.0 x 8.0% 22.9% 18.6% 8.0% 8.5% 9.1%
Kaiser Aluminum Corporation 8.5 x 7.4 x 6.8 x -8.3% 13.3% 5.0% 13.3% 14.0% 13.4%
National Aluminium Co. Ltd. 8.3 x 6.7 x 7.4 x 59.6% 21.2% 0.7% 17.2% 19.7% 18.5%
Noranda Aluminum Holding Corporation 8.0 x 5.3 x 4.1 x 41.7% 47.4% 24.7% 8.2% 11.3% 13.5%
Rio Tinto plc 5.7 x 5.4 x 4.7 x 8.6% 3.5% 10.6% 40.1% 40.1% 41.6%
United Co. RUSAL Plc 14.1 x 9.2 x 7.9 x 104.4% 44.7% 8.5% 13.5% 17.8% 18.1%
AMAG Austria Metall AG 8.3 x 6.8 x 5.8 x -3.8% 21.6% 11.8% 13.9% 14.6% 14.7%
United Co. RUSAL Plc 14.1 x 9.2 x 7.9 x 104.4% 44.7% 8.5% 13.5% 17.8% 18.1%
Hydro International plc 5.6 x 4.5 x 14.9% 19.0%
5.9% 6.4% Median 8.3 x 6.7 x 5.8 x 36.6% 21.6% 8.5% 13.5% 14.6% 15.7%
Average 8.8 x 6.7 x 6.4 x 73.4% 27.2% 7.5% 13.7% 15.7% 16.5%
AoG (@ Axia Research Valuation) 10.5 x 6.0 x 6.6 x 68.9% 76.0% -9.3% 16.7% 25.7% 24.0% Source: Factset, AVG Research
Exhibit 40: Sensitivity to WACC and terminal growth
Exhibit 41: WACC assumptions WACC
8.00% 8.50% 9.00% 10.00%
Gro
wth
0.00% 632.2 589.2 550.9 485.7
0.50% 670.7 622.6 580.2 508.7
1.00% 714.7 660.6 613.2 534.2
1.50% 765.4 703.9 650.7 562.8
2.00% 824.6 754.0 693.4 594.9
Risk free (Rf) 5.50%
Market risk premium (Rf-Rm) 4.50%
Beta 1.0
Tax rate 26.0%
Cost of Equity 12.0%
Target Capital Structure( Debt/Equity) 40.0%
WACC 9.00%
Source: the Company AVG Research
Mytilineos Holdings
AVG Research Page 24
Construction-Metka Metka is a leading EPC contractor focusing on turnkey projects for natural gas fired power plants mainly
in MENA region. Despite our conservative stance on expected new backlog from this region in the coming
years, we recognize the strong potential of these markets for energy projects based on the demand-
supply dynamics.
Metka could secure new projects as it capitalizes on its expertise, its stand-out track record and its strong
ties with both equipment providers and energy producing companies.
At the same time, as the Greek economy sets for a rebound, opportunities will arise for infrastructure
related projects, privatizations but also private investments. So far the company has won a large railway
upgrade tender (cEUR220m) in Greece, while we highlight Metka’s bid (jointly with Corporacion America)
for the privatization of the country’s regional airports.
Our DCF model returns an equity value for Metka of EUR684.0m or EUR13.2/share (the company is listed
in the Athens stock exchange currently trading at EUR8.93/share).
Please find more details on Metka on our recent initiation report: “Metka-Well positioned for the new growth cycler”
Exhibit 43: Metka revenue estimates (EUR m) Exhibit 44: Metka EBITDA estimates
Source: AVG Research
Background check and business model
Metka is focused on the East Med region with key expertise the construction natural gas CCGT (Combined
Cycle Gas Turbine) power plants. Also Metka has strong expertise in technically demanding infrastructure
applications like complex steel constructions, civil engineering applications and oil & gas/refinery market,
while is co-producing defense related applications with major industry players.
Gaining expertise from local projects (gas fired units and complex infrastructure applications), the company
turned its focus in the second part of last decade to international projects in the Balkans, Turkey and
Europe, undertaking contracts for major energy players (EON, RWE, OMV) and major equipment suppliers
(GE, Siemens, Ansaldo, Alstom).
Metka built on its relationship with the energy community and eventually turned its attention to the
booming energy markets of the Middle East and Africa, where demand for new energy projects was and
remains very strong. Over the last 5 years the company has successfully opened 7 new markets signing
projects with a total value of EUR3.1bn. By 2013 Metka’s sales mix comprised by 88% international projects
in vs. 57% in 2010 and 20% in 2006.
Exhibit 45: Metka’s historical EBITDA performance (EUR m) Exhibit 46: Metka’s new-order intake p.a. (EUR m)
Source: AVG Research
606.5 651.0
468.7 436.7 428.7 440.4
2013 2014e 2015f 2016f 2017f 2018f
101.9 110.8
71.2
59.2 60.6 62.8
2013 2014e 2015f 2016f 2017f 2018f
34.0
54.0 61.0 57.0 67.0 61.0
134.0
161.0
93.0 102.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
74
659
1,237
969
744
512 502 389
2006 2007 2008 2009 2010 2011 2012 2013
Mytilineos Holdings
AVG Research Page 25
12.2 11.7
9.7
5.9 5.2 5.1
2.1 2.0 1.7 0.9
0.1
49.6 49.1
48.7 49.2
50.3
51.7
53.0 53.8
54.8
2014 2015 2016 2017 2018 2019 2020 2021 2022
144.6 146.7
148.5 150.6
152.0 153.5
155.6 157.8
160.0
2014 2015 2016 2017 2018 2019 2020 2021 2022
International EPC sector is the focus region
Focusing on energy thirsty regions
The main characteristics of the markets Metka is aiming at are:
i) limited or inefficient electricity production infrastructure that cannot cope with rising demand;
ii) availability or proximity to natural gas sources (reserves/pipelines) that make natural gas both an
accessible and affordable energy source.
During 2000 to 2013 electricity consumption in the Middle East increased by 5.5% CAGR while Africa posted
a 3.7% CAGR for the same period. At the same time natural gas consumption in Middle East and Africa
increased by 7.1% and 5.8% CAGR in these regions, respectively.
Exhibit 47: Implied Load Factors at key markets for Metka
Exhibit 48: Electricity Consumption per capita (TWh/m)
Consumption per Capita
(TWh/mil) Electricity Consumption (TWh)
Nigeria 0.1 35.61 Algeria 0.9 13.54 Jordan 1.7 170.4 Syria 2 499.9 Turkey 2.1 20.38 UK 5.1 20.51 Greece 5.2 46.71 Europe 5.9 323.3 Qatar 9.7 33.68 Kuwait 11.7 30.37 USA 12.2 38.86
Source: OECD, AVG Research
Demand to remain strong…
OECD and EIA estimates call for a continuing strong trend in electricity consumption in the Middle East and
Africa in the following decades.
Regarding the Middle East, EIA expects 90GW of total installed capacity to be added up to 2040, pointing to
a CAGR growth of 1.1%, with 26GW estimated to be added up to 2020 (2013-2020 CAGR at 1.6%). The
agency estimates that the bulk of the new capacity will be natural gas fired (57GW out of total 90GW to be
natural gas fired), with 15.4GW coming online up to 2020.
Following similar and stronger trends, Africa is expected to almost double its installed capacity by adding
144GW up to 2040 from c140GW currently, posting a 1.9% CAGR growth. Note that 50% of this new
capacity is estimated to be natural gas fired (62GW), but in this case growth is backward loaded with only
24.6GW installed up to 2020.
Exhibit 49: Estimated M. East gas fired capacity evolution (GW)
Exhibit 50: Estimated Africa gas fired capacity evolution (GW)
Source: OECD, EIA, AVG Research
…but geopolitical concerns will weigh on the short term prospects vis-a-vis new order intake.
Despite the persisting strong demand for new capacity, MENA region, especially over the last 3-4 years, is
witnessing significant geopolitical turmoil. There is no visibility for normalization (especially in the Middle
East) at least in the short-to-medium term and this is impacting EPC contractors. Moreover this has
impacted new contract flow, as well as execution risks and the ability to secure favorable financing terms.
Mytilineos Holdings
AVG Research Page 26
19.6%
23.7%
20.7%
20.1%
17.6%
18.0%
21.8%
16.0%
16.98%
16.83%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
We expect a slowdown in new orders from abroad
Metka up till now has shown a remarkable track record of carefully selecting and securing its projects thus
limiting the impact of turmoil in its project flow. That said, we are more cautious about its ability to continue
at the same pace over a short-to-medium term horizon.
In an effort to mitigate the above described environment, we would expect the company to turn its focus to
new markets (sub-Saharan Africa, Nigeria). Metka’s potentials are backed up also by its strong relationships
with equipment suppliers that make Metka a preferred partner in the MENA region as well as the solid
brand name from the successful and timely execution of projects for local energy companies. In addition we
have to note Metka’s competitive advantage in executing fast track projects.
We estimate that Metka will have no problem booking cumulative international EPC contracts of
cEUR600m (that is 1-2 medium sized power plants or similar fast track projects p.a.) in the next 3-years
(2015-18). Note that during the last three years (2011-2013) Metka booked new contacts of EUR1.4bn in
total, with the major portions standing for international EPC. While margins should slide The combination of good cost control, superior risk management, efficiency and the timely execution of
fixed-price projects has allowed Metka to create a strong competitive advantage whilst enjoying very high
margins, better than most peer companies. Over the past few years management has guided the targeted
EBITDA margin of 15%-17% that the company comfortably delivered.
Going forward we would expect Metka to maintain its strong profitability on the international front but we
remain cautious and assume lower margins on these projects on the back of:
i) increased competition that would prompt for pressured bidding; and
ii) lower profitability projects that might find their way on Metka’s backlog in its attempt to
replenish.
Nevertheless, we note that EBITDA margin is strongly related to project nature and risks, thus we would
expect projects in Syria and Iraq to carry stronger margins as to ones in Jordan and Algeria.
Under our current assumptions we expect strong performance for the next couple of years following the
execution of the current contracts (c16.5% EBITDA margin for 2014-15), while in the longer term we assume
EBITDA margin from the international EPC sector to gradually reach 13.5%.
Exhibit 51: Metka’s EBITDA margin performance
Exhibit 52: Peer group EBITDA margin
2010 2011 2012 2013
Chicago Bridge and Iron 9.78% 8.98% 9.38% 8.46%
Duro Felguera, S.A. 12.74% 13.46% 12.95% 11.95%
Fluor Corp. 3.51% 5.01% 3.48% 5.11%
Petrofrac 14.62% 13.12% 13.51% 16.02%
Abengoa S.A. Class A 12.50% 12.90% 12.70% 14.90%
Elecnor S.A. 8.00% 8.80% 3.70% 10.10%
Technip SA 12.60% 12.20% 12.10% 11.20%
Aker ASA Class A 21.10% 19.50% -8.80% 7.00%
Average 11.86% 11.75% 7.38% 10.59%
Median 12.55% 12.55% 10.74% 10.65%
Source: OECD, EIA, AVG Research
Mytilineos Holdings
AVG Research Page 27
36.4
29.9
26
21.1
16.6
12.8 10.9 11 12.1
2007 2008 2009 2010 2011 2012 2013* 2014* 2015*
-7.4%
-25.8%
-8.4%
-13.7%
-19.2%
-6.4%
7.6% 11.1%
-1.6%
-21.1%
6.8% 5.3%
-3.6%
-2.9% 5.0%
5.7%
2008 2009 2010 2011 2012 2013* 2014* 2015* Greece EU (28 countries)
The Greek market becomes attractive again Looking for opportunities in Greece In order to support the country’s new and more extroverted economic growth plan that focuses more on
domestic production of goods and services, Greece is expected to invest more than EUR25bn by 2020 in
applications that will enhance its dynamics. At the same time, a more flexible economy allows for increased
private investments.
In this context it is important to note that Metka is one of the few local players that could benefit from
these investments as it takes advantage of its flexible structure, expertise and strong backlog.
Metka’s turn to the Greek market is supported by:
New infrastructure projects included in the Public Investment Program
Privatization of state owned assets offer opportunities for upgrading/expanding existing
infrastructure.
The private public partnership projects (PPPs) that should generate a pool of medium to large
contracts.
New investments in the country, as investor’s appetite for opportunities in Greek assets
increase.
Exhibit 53: Gross fixed capital formation for Greece (EUR bn)
Exhibit 54: Gross capital formation of total economy (%
change)
Source: Ameco, AVG Research
Infrastructure/concession projects are a key focus area
Metka recently signed with ERGOSE (rail network operator) a project for the completion of a rail track
upgrade. Metka was awarded preferred bidder late in 2013 but the signing of the contract has been
delayed until recently. The budget of the project stands at EUR274m, with Metka offering a c17.5%
discount, thus accounting for cEUR220m of invoices for Metka. The execution of the project is
expected to start in 2015 and to be completed within 2016.
Metka has submitted a binding bid for the privatization of the country’s regional airports in a JV with
Corporacion America. Note that the tender consists of 14 major regional airports and another seven
smaller ones that will be tendered in two groups-clusters. Under the tender’s terms the contractors
will undertake the operation of the airports for 30 years with an option for another 10 years and the
possibility for a further extension if there is sufficient interest. Contractors will also have to implement
investments in the infrastructure of airports for the first three years, estimated reportedly at EUR250-
300m.
Keep a watchful eye on other potential projects for Metka
Cyprus natural gas terminal. Metka has shown interest in natural gas upstream related projects in
Cyprus. Metka has expressed its interest for the construction of the infrastructure that will allow
the sourcing of natural gas to Cyprus from abroad until the exploit of its own off-shore gas
reserves is implemented. Metka is participating in the tender in a consortium with M&M Gas (a JV
of Mytilineos and Motor Oil) and the consortium has advanced to the second stage of the process.
Power Plant Projects. In respect of concession type investments management has indicated that it
could consider investing further in power plants. This could entail Metka taking a stake in existing
Mytilineos Holdings
AVG Research Page 28
energy assets or participating in the funding of new units. Under this approach Metka could
assiste the financing of some projects as the company also undertakes their construction.
Salamina subsea interconnection. According to press reports the company has expressed its
interest to participate in the tender for a subsea tunnel interconnection of Salamina-Perama (a
small island next to Athens). The project refers to the construction of 1.1km subsea tunnel that is
budgeted at cEUR400m. The project will be funded exclusively by the toll fees.
Order intake…
We would not expect Metka to get involved in general construction projects (highways for example), but
rather to target more complicated infrastructure projects and technically demanding infrastructure
applications. This would allow Metka to take advantage of its traditional expertise and book profitable deals.
As such we recognize amongst others:
waste management projects;
opportunities arising for the need of complex energy related infrastructure projects;
infrastructure upgrades on State assets; and
opportunities related to other projects under the country’s privatization scheme, i.e. airports, railways
etc.
We conservatively estimate that Metka will secure EUR750m of contracts in Greece during the period
2015-18.
…and profitability Regarding the domestic projects we believe that Metka will follow a more aggressive bidding behavior at
least in the short term in order to attract contracts while facing competition from the traditional domestic
players (Ellaktor, Gek Terna, J&P Avax).
Nevertheless although our estimates for the general construction sector call for an average EBITDA margin
of 5.0-5.5% we assume that Metka will target applications carrying above average margins, thus we look for
EBITDA margins in the high single digits.
Mature current backlog at EUR1.3bn Metka has a current backlog of cEUR1.3bn (from EUR1.7bn at end 2013) that is clearly skewed towards
highly profitable international energy related EPC projects. Based on the contracts timetables we have a
sound view on the expected performance over the next couple of years that will be driven by the execution
of the current backlog.
We note that we take a more conservative stance on the Syria II project completion. Metka has already executed c17% of the EUR678m budget while we account for another EUR60m to be booked in H2:14. In our model we expect the company to book EUR60m in 2015, EUR80m in 2016 and the balance in beeween 2017-18 In the current backlog we do not include Metka’s signed project in Iraq (Al-Anbar) budgeted at cUSD1.0bn
that the company has sold to the Chinese SEPCO III. We do not exclude the potential for Metka to book one-
off income gains from this transaction in the region of 1-2% of the project value either in H2:14 or early
2015. Note that Metka’s defense project division is also executing a contract for the Taiwanese government
in co-production with Intracom Defense electronics and Raytheon Company, while in 2013 it had completed
a similar project for UAE government.
Exhibit 55: Major Projects included in current backlog
Country Project Owner
Equipment Supplier
Capacity (MW)
Expected End Date Contract Value
(EUR m)
Algeria
SPE GE 368 H2:15 93
SPE GE 590 H2:15 176
SPE GE 178 H1:14 48
Jordan SEPCO Alstom 143 H1:15 120
SEPCO Alstom 146 H1:13 82
Iraq Rep. of Iraq GE 1,250 H1:16 260
Rep. of Iraq
146 H1:16 123
Syria PEEGT Ansaldo 700 H2:14 650
PEEGT Ansaldo 724 Delayed 678
Greece ERGOSE
H2:16 274 Source: The Company, AVG Research
Mytilineos Holdings
AVG Research Page 29
Assumptions and estimates
Revenue forecasts
Signed backlog at the end of H1:14 stood at EUR1.3bn. The current backlog provides us with adequate
visibility over the next couple of years for top line performance with the risk being on the upside especially
from the signing and execution of fast track projects as well as the pace of execution of Syria II project.
From the new order intake we account for EUR340m of revenues (in total) in 2015-18 from abroad and
EUR400m from Greece.
More specifically we expect:
The completion of the current contracts in Algeria that will contribute cEUR170m in 2014 and
cEUR140m in 2015;
The completion of the remaining of the contract in Jordan that will contribute EUR76m in 2014
We model Iraq projects to be completed by 2016 contributing EUR100m in 2014 and 2015
respectively with the remaining EUR50m in 2016;
In Syria we expect the completion of the first project (Syria I) within 2014 contributing EUR97m
(H1:14 booked EUR32.7m). Regarding the second project (Syria II) the execution of which has been
slow, the company booked EUR116m in H1:14 and we call for the project to be completed in the
next four years bringing EUR218m in 2014, EUR60m in 2015, EUR80m in 2016 and the remaining
EUR320m in 2017-18;
Regarding the ERGOSE project in Greece, as well as per the project specs, we expect the railtrack
project to be completed in 18-months, contributing EUR110m both in 2015 and in 2016.
Finally, as we have noted above we expect after 2015 the company to start executing new EPC
orders and infrastructure related projects, which we assume to contribute revenues of cEUR200m
p.a.
Operating Profitability
For the current international backlog we feel comfortable with management’s guidance for an EBITDA
margin of 15%-17% as the sales mix is clearly skewed towards EPC projects abroad. Still the blended margin
should slide lower as the company executes the ERGOSE project in Greece, which we calculate comes with
an EBITDA margin of 8%.
Going forward regarding the new projects from abroad we assume that the company will adopt a more
aggressive approach in its efforts to book new contracts given strong competition especially in tapping new
markets. As far as the new orders in Greece, we believe that Metka’s expertise on sophisticated applications
would allow the company to secure projects that carry high single digit EBITDA margins.
Source: AVG Research
Exhibit 56: Revenues and EBITDA estimates for Metka (EUR m)
2013 2014e 2015f 2016f 2017f 2018
Revenues
EPC 553.0 615.4 306.9 230.2 260.0 300.0
Defense 19.0 20.0 30.0 19.7 28.3 26.0
Infrastructure 34.0 15.0 131.5 186.5 140.0 114.0
Total Revenues 606.0 650.4 468.4 436.4 428.3 440.0
y-o-y 10.7% 7.3% -28.0% -6.8% -1.8% 2.7%
EBITDA
EPC 93.0 105.1 52.8 37.3 41.4 49.0
margin 16.8% 17.1% 17.2% 16.2% 15.9% 16.3%
Defense 7.0 5.0 7.5 4.9 7.5 5.5
margin 36.8% 25.0% 25.0% 25.0% 26.6% 21.2%
Infrastructure 3.0 0.6 10.8 16.8 11.5 8.3
margin 8.8% 4.0% 8.2% 9.0% 8.2% 7.2%
Total EBITDA 102.0 110.7 71.1 59.0 60.4 62.8
margin 16.8% 17.0% 15.2% 13.5% 14.1% 14.3%
Mytilineos Holdings
AVG Research Page 30
Valuation
Our DCF valuation is adopting a WACC of 12.5% which depicts :i) Metka’s current exposure to region
with geopolitical tension; and ii) the inefficient capital structure. Our WACC is derived on the basis of a
6.5% risk free rate and a 7.0% market risk premium, reflecting exposure to MENA region. Beta is set at
1.2x.
We assign no terminal growth. Targeted capital structure (Debt/Equity) at 25%
We point out the low sensitivity of our valuation to WACC and growth rate assumptions as illustrated
in Exhibit 2. This is mainly attributed to the cash rich position of the company.
Exhibit 57: Metka DCF exercise
2014e 2015f 2016f 2017f 2018f
EBIT 106.5 66.7 54.4 55.4 57.3
(+) Depreciation 4.3 4.5 4.9 5.2 5.5
(-) Taxes paid 19.7 14.0 12.0 13.1 13.7
Gross Cash Flow 91.1 57.2 47.3 47.5 49.1
(-) Change Working Capital -112.9 -18.7 10.6 13.6 21.7
(-) Capex 5.0 5.0 7.0 7.0 7.0
(+) Non-Oper. Cash Flow -5.9 -1.9 -2.0 -2.1 -2.1
FCF 193.1 69.0 27.7 24.8 18.2
Discounted FCF 193.1 61.4 21.9 17.5 11.4
Continuing Value 91.4 EV 396.6 Net Cash Position (end 2014) 287.4 Equity Value 684.0 Mytilineos Stake 50.0%
Equity Value for Mytilineos Stake 342.0
Source: AVG Research
Exhibit 58: Valuation sensitivity to WACC and terminal
growth
Exhibit 59: WACC Assumptions
WACC
TP 11.5% 12.0% 12.5% 13.0%
Gro
wth
0.0% 696.8 689.8 684.0 677.5
0.5% 702.0 694.5 694.5 681.4
1.0% 707.6 699.7 699.7 685.6
1.5% 713.9 705.3 705.3 690.2
2.0% 696.8 689.8 689.8 677.5
Risk free (Rf) 6.5%
Market risk premium (Rf-Rm) 7.00%
Beta 1.2
Tax rate 26.0%
Cost of Equity 15.0%
Target Capital Structure Debt/Equity 25.0%
WACC 12.5%
Source: The Company AVG Research
Exhibit 60: Metka peer group valuation multiples and forecasted EBITDA margins
P/E EV/EBITDA Dividend Yield EBITDA margin Company Country 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015
Duro Felguera, S.A. SPAIN 8.4 x 9.8 x 11.2 x 4.6 x 5.2 x 5.0 x 7.4% 6.6% 6.2% 10% 11% Abengoa S.A. Class A SPAIN 21.5 x 13.1 x 9.9 x 8.1 x 7.3 x 6.9 x 3.2% 3.4% 3.7% 5% 5% Elecnor S.A. SPAIN 7.1 x 6.1 x 5.6 x 2.8% 3.1% 3.4%
Technip SA FRANCE 12.8 x 9.5 x 8.8 x 5.2 x 4.0 x 3.5 x 3.3% 3.8% 4.2% 10% 8% Aker ASA Class A NORWAY 5.4 x 5.9 x 4.9 x 3.4 x 2.2 x 2.3 x 6.8% 8.4% 8.7% 9% 6% Petrofac Limited UK 10.0 x 8.3 x 7.2 x 6.4 x 5.2 x 4.6 x 3.7% 4.3% 4.8% 6% 6% Chicago Bridge & Iron Co. NV NETHERLANDS 9.5 x 8.2 x 8.3 x 5.7 x 4.9 x 4.4 x 0.6% 0.6% 0.7% 11% 11% AMEC plc UK 12.9 x 11.1 x 10.1 x 9.4 x 7.0 x 6.0 x 4.2% 4.6% 5.0% 11% 11% Fluor Corporation US 14.8 x 12.5 x 11.2 x 5.7 x 4.9 x 4.4 x 1.3% 1.3% 1.4% 17% 18% Babcock & Wilcox Company US 15.9 x 11.8 x 10.7 x 9.1 x 6.8 x 6.4 x 1.4% 1.5% 1.5% 9% 7% McDermott International, Inc. US 36.8 x 9.8 x 20.8 x 5.4 x 3.8 x 0.0% 0.0% 0.0% 48% 12% Great Lakes Dredge & Dock Co. US 26.5 x 14.5 x 9.6 x 7.3 x 5.4 x 72.7% 0.8% 1.5% 9% 8% MasTec, Inc. US 17.0 x 12.0 x 11.6 x 7.4 x 5.9 x 0.0% 0.0%
11% 10%
Jacobs Engineering Group Inc. US 14.1 x 12.1 x 10.8 x 8.1 x 6.0 x 5.3 x 0.0% 0.0% 0.0% 17% 15%
Average 13.5 x 12.3 x 9.3 x 7.8 x 5.4 x 4.8 x 7.7% 2.7% 3.2% 13% 10% Median 12.9 x 11.5 x 9.9 x 7.3 x 5.4 x 4.6 x 3.0% 2.3% 3.4% 10% 10%
Metka Greece 5.5 x 8.3 x 10.0 x 1.6 x 2.5 x 3.0 x 7.3% 4.8% 4.0% 17.0% 15.2% Source: Factset, AVG Research
Mytilineos Holdings
AVG Research Page 31
Energy Division-The next day profitability driver…? Following an extensive investment program since 2007, Mytilineos Group invested over EUR700m
eventually to become the largest Independent power Producer (IPP) in the country, holding a portfolio of
three natural gas fired units (1.2GW total capacity) and exposure to RES (53.5MW installed).
Currently the energy division, and more specifically CCGT units, are operating under challenging market
conditions impacted mainly by regulatory restrictions, soft demand and increased RES penetration.
We look favorably at the long term prospects of the division, as we believe it could significantly support
future profitability of the group on the back of regulatory market changes, demand evolution, natural gas
prices and an overall EU wide re-assessment of the role of natural gas-fired fleet in electricity generation.
In the short term, the division will continue to generate EUR80-90m of EBITDA p.a. driven by the capacity
adequacy certificates scheme and increasing RES capacity.
We derive a valuation for the energy division of EUR477.4m (equity value).
Exhibit 61: Mytilineos natural gas fired portfolio
Unit Agios Nikolaos Korinthos Power Aluminium of Greece
Location Viotia Korinthos Viotia
Technology Combined Cycle Thermal
Unit (CCGT) Combined Cycle Thermal
Unit (CCGT)
Combined Heat and Power Plant (CHP/High
Efficiency CHP)
Commission Date January 2011 April 2012 May 2008
Capacity (MW) 444.5 436.6 334.0
Construction Cost (EUR m) 242 290 216
Owner Entity Protergia Korinthos Power Aluminium of Greece
Operator Entity Protergia Protergia Protergia
Mytilineos Group Stake 100% 65% 100%
Other Stakeholders - 35% Motor Oil - Source: The Company, AVG Research
Note that the profitability and valuation of CCGT-CHP unit of AoG is accounted for in the Metallurgy and
Mining division (Aluminium of Greece). Protergia (energy division subsidiary) assumes only the operation
and management of the unit.
Brief overview of the Greek electricity market
The Greek electricity market currently operates under a day-ahead mandatory pool scheme, with all energy
produced in the country (including imports) ejected into the pool. The units are then dispatched following a
merit order curve whereas RES production is fully dispatched before all others. The System Marginal Price
(SMP) is determined by the merit curve, as all units are obliged to submit their offers at least at their
variable costs. Lignite fired units set the SMP for most of the time (60%-70%) followed by natural gas units
and hydro. Currently SMP is in the region of EUR55/MWh.
Public Power Corporation (PPC) holds the dominant stake in electricity generation in Greece (12.5GW, 75%
of total installed capacity) with Mytilineos being the largest Independent Power Producer (IPP) in the
country with 1.2GW installed. Other local IPPs include Elpedison holding 810GW and Heron with 569GW
installed.
With respect to the production mix of the Greek market, lignite is the key source covering 50% of total
production with natural gas and hydro covering 15% and 8% respectively (2013 figures). We note the
booming RES sector contribution that increased its stake in the production mix from 7% in 2009 to 16%
currently.
Demand in the country is primarily driven by household and SME’s consumption that account for 90% of the
total demand, while large industrial clients account for 10% of the total demand (2013). Demand in the
country over the last 5 years declined by 9.0% following a GDP decline of 29% during the respective period.
Over the last decade electricity demand has risen by a 0.7% CAGR, while during 2001-2007 demand grew at
a c3.4% CAGR.
Please refer to Appendix II, page 46, for more details on the Greek electricity market
Mytilineos Holdings
AVG Research Page 32
42,000
44,000
46,000
48,000
50,000
52,000
54,000
56,000
58,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
10
20
30
40
50
60
70
80
90
Jan
Feb
Mar
Ap
r
May
Jun
jul
Au
g
Sep
t
oct
No
v
Dec
Jan
Feb
Mar
Ap
r
May
Jun
jul
Au
g
Sep
t
oct
No
v
Dec
Jan
Feb
Mar
Ap
r
May
Jun
jul
Au
g
Sep
t
oct
No
v
Dec
Jan
Feb
Mar
Ap
r
May
2011 2012 2013 2014
Exhibit 62: Electricity Demand in Greece (GWh)
Exhibit 63: Market capacity highlights
Installed Capacity (MW)
Thermal 10,239 58.8%
Hydro 3,018 17.3%
RES 4,170 23.9%
Total 17,426
Thermal Units by Technology (MW)
Lignite 4,930 48.2%
Natural Gas-CCGT 3,736 36.5%
Natural Gas-OCGT 509 5.0%
Aluminium CHP 334 3.3%
Oil 730 7.1%
Total Thermal 10,239
Source: IPTO, AVG Research
Current market conditions
Natural gas fired units in the Greek market (owned both by PPC and IPPs) are currently running on very low
load factors impacted by the market framework. Following the abolition of the Variable Cost Recovery
Mechanism (VCRM allowed natural gas units to recover their variable cost plus a small profit margin) and
the 30% biding rule (allowed natural gas units to place bids at very low prices in order to get dispatched),
natural gas producers are effectively operating only at certain peaking hours of the system given the low
System Marginal Prices.
Source: LAGIE, AVG Research
The increased RES penetration in the Greek market that is covering a big part of intraday demand is limiting
the operation timeframes for the natural gas fired units during day time.
On the contrary, late in the afternoon when RES and especially photovoltaic production get out of line, the
system requires a fast ramp-up of conventional units.
The flexibility of CCGTs is key at this point as the units can ramp-up their production at a fast pace and cover
the declining RES. Considering that when a CCGT unit is dispatched from the operator its technical specs
keep it online for six to eight hours, we understand that producers are cautious when placing their bids as
they might catch themselves operating under their variable costs.
The Greek market regulator, in order to compensate all the producers for the availability of their capacity to
the system, has launched over the last few years a Capacity Assurance Certificate (CACs) scheme that is
aiming to cover fixed and capital costs of the units. For 2014 this amount was set at EUR45k per available
MW, with modern CCGT units like Mytilineos receiving two certificates. That represents for Protergia units
cEUR80m p.a. on the EBITDA line. According to our estimates this amount is considered adequate to provide
support to the division in terms of covering fixed and capital costs.
Exhibit 65: Greek electricity markets CACs structure (for 2013-14 period)
Unit Type Certified Capacity
(MW) Number of Certificates per
MW
Unit Capacity Remuneration
(EUR/MW)
Lignite (PPC) 3,692 1x 45 CCGT (PPC) 1,706 2x 90 CCGT (IPP) 2,174 2x 90 Hydro (PPC) 2,582 1x 45
Total 10,154 Source: IPTO, RAE, AVG Research
Exhibit 64: SMP evolution (EUR/MWh)
Mytilineos Holdings
AVG Research Page 33
45
50
55
60
65
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Low Reference Max
9.4 9.5 9.6
9.8 9.9 10.0
10.2
10.9 11.1
11.2 11.3
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Going forward
As the operational availability and flexibility of the natural gas fired units is necessary to the system, the
regulator has launched a public consultation for the establishment of a framework for the CACs.
We expect, at least in the short-to-medium term, the remuneration fees to remain at current levels.
In our modeling we assume CACs of EUR40k per MW for 2015-19. At the same time the market framework
is in a restructuring mode aiming to enhance competition amongst players. The establishment of intraday
balancing market (current only day forward market exists), interconnections with bordering countries and
rising demand (most importantly demand spikes) are expected to widen the operational timeframe of the
CCGT units and thus allow higher utilization rates (30%-40%).
During this period the profitability of Protergia will continue to be supported mainly by CACs as we expect
marginal gains from the actual operational performance of the units (sparking spreads between EUR10-
13/MWh). We assume EBITDA during this period from the two thermal units of cEUR70m p.a.
In the longer term, we believe that improved market structure, increased demand (accounting for the
interconnection of Crete and Cyclades islands by 2019) and lower natural gas prices could allow the
operation of the CCGT units under more normalized conditions (sparking spreads at EUR18-20/MWh). In
this environment we expect Mytilineos units to report utilization rates of c55%. We also account for a
significant reduction of CACs after 2020 in the region of EUR20k/MW.
Exhibit 66: Electricity demand evolution scenarios (GWh)
Exhibit 67: Demand peak evolution estimates (GW)
Source: IPTO, AVG Research
Modeling assumptions and valuation for natural gas fired units
In the table below we summarize our modeling assumptions for the CCGT units of Mytilineos Group
operation.
Exhibit 68: CCGT units modeling assumptions
2014 2015 2016 2017 2018 2019 2020
Load factor 15% 22% 30% 35% 40% 50% 50%
SMP (EUR/MWh) 55.0 55.6 56.1 56.7 57.2 57.8 58.4
CACs (EUR/MW) (2x) 45 45 45 45 45 45 45
Natural Gas Prices (DEPA) (EUR/MWh-th) 27 27 27 25 25 25 25
LNG shipments (EUR/MWh-th) 25 25 25 23 23 23 23
Ratio (DEPA/LNG) 90% 85% 80% 75% 75% 70% 65%
Special tax on natural gas prices 5% 5% 5% 5% 5% 5% 5%
Effective Price (EUR/MWh-th) 28.1 28.0 27.9 25.7 25.7 25.6 25.5
Spark Spread (EUR/MWh) 4.8 5.5 6.2 10.7 11.3 12.1 12.8
CO2 prices (EUR/ton) 6 7 9 10 11 12 13
Other Variable Costs (% on sales) 6% 6% 6% 6% 6% 6% 6%
Overheads (% on sales) 3% 3% 3% 3% 3% 3% 3%
All-in spread (EUR/MWh) -8.5 -6.2 -5.1 -0.6 -0.1 0.7 1.0 Source: AVG Research
Mytilineos Holdings
AVG Research Page 34
Expansion in the supply market could potentially add cEUR5-10m p.a. to EBITDA
Protergia has recently been involved in the electricity retail supply market looking to take advantage of
opportunities arising from the liberalization of the market. PPC currently controls c98% of the supply in the
country with other small independent players controlling the remaining 2%.
Following the launch of the NOME auctions scheme that will allow access to cheap lignite and hydro
production to all suppliers, we could estimate that Protergia will gain a 3-4% market share in the close
period from PPC. Note that past attempts by some independent players in the supply market managed to
get as much as 8% market share from PPC. Under this assumption and keeping in mind an average
consumption for the country of 50TWh p.a. a 3-4% market share would result to volume sales of 1,750GWh.
If on this volume we apply a marginal gain of EUR3-4/MWh, we get forecast gains in the region of EUR5-10m
p.a. from this activity.
At this point we do not include this activity in our valuation as we await for more solid evidence of its
market performance.
RES portfolio
70MW of new wind parks coming online in 2015-17
Protergia is active in the RES sector having currently installed 53.5MW in wind parks, photovoltaic parks and
small hydro units. At the same time the company holds a significant portfolio of RES projects with
cumulative capacity above 1.2GW, out of which it intends to install 70MW of wind parks over the next
couple of years contributing cEUR20m in EBITDA in 2016-2017.
Exhibit 69: Protergia RES portfolio Exhibit 70: RES figures in Greece
Num. of Parks
Capacity (MW)
FiT (EUR/MWh)
Wind 5 36 82-105
Small hydro 4 6 84-107
PV 3 11.5 180-220
Total
53.5
MW Currently Installed
Capacity 2020 penetration IPTO
estimates
Wind 1,495 2,800 PV 2,270 4,000 Small Hydro 218 250 Biomass/Biogas 46 200 Joint Production 90 119
Total 4,119 7,369
Source: The Company, IPTO, AVG Research
The company is taking advantage of a favorable environment for RES operators in the country, as Greece is
trying to provide incentives to producers to align with EU 20-20-20 targets.
Below we summarize the key regulatory framework for RES developers and operators in the country:
Guaranteed Power Purchase Agreement (PPA) with duration of 20 years with the optionality of
further expansion. Thus all RES production is submitted into the market pool with priority,
eliminating any market related risk.
Guaranteed Feed-in-Tariffs (FiTs) for the entire production. FiTs per RES class is pre-determined
by the regulator, so all the production is purchased under specific FiT for the lifetime of the PPA.
Subsidization on Capex that reaches 30%-40% of the total investment. Alternatively the operator
of the park can receive higher tariffs on its production if they did not receive the subsidy.
In 2014 the regulatory authority (RAE) and the ministry of Energy proceeded with changes to the framework
allowing more clarity on the RES market and helping reduce and eventually eliminate the deficit in the RES
payable account.
RES producers are paid based on their PPAs by the electricity market operator (LAGIE). Given that currently
SMP is standing below FiT levels across all RES classes, there are two special levies that have been
introduced to the retail clients and wholesale market participants in order to tackle the deficit. Following
the relevant legislation initiative the market reduced its payable cycle from 10 months in end 2013 to 2-3
months posting a significant improvement in market liquidity.
Mytilineos Holdings
AVG Research Page 35
36.0 36.0
71.0
106.0 106.0 106.0 11.5 11.5
11.5
11.5 11.5 11.5
6.0 6.0
6.0
6.0 6.0 6.0
2013 2014 2015e 2016e 2017e 2018e
Wind PV Hydro
Exhibit 71: RES modeling assumptions Exhibit 72: Capacity evolution estimates
Key assumptions Wind PV Small Hydro
FiT (EUR/MWh) 82 175 87
Load factor 27% 16% 40%
CPI 1% 1% 1%
Overheads (% on revenues) 3% 3% 3%
O&M (% on revenues) 15% 12% 5%
Municipal tax (% on revenues)
5% 5% 5%
Capex per MW (EUR m) 1.3 1.1 2.0
Source: The Company, IPTO, AVG Research
We expect the company to install 70MW of wind parks in 2015-16.
Assuming an investment of EUR1.2-1.3m per MW, Protergia will need to invest cEUR90m to install 70MW.
Given the subsidization framework, we can assume that the company will finance its projects with 35% bank
debt (that is EUR31m), 35% subsidy (EUR31m) while the rest 30% (EUR30m) will be contributed in equity
from Protergia/Mytilineos group.
Regarding the financing we note that following the recap of the domestic banking sector financing is now
more feasible, especially for investments with the specific characteristics and we keep in mind the strong
cash flow generation capabilities from Mytilineos Group activities in EPC and metallurgy.
Exhibit 73: RES division Revenues and EBITDA estimates
EUR m 2014e 2015f 2016f 2017f 2018f
Installed Capacity 53.5 88.5 123.5 123.5 123.5
Sales 11.89 18.90 25.91 25.89 25.86
Wind 7.24 14.28 21.32 21.32 21.32 PV 2.8 2.8 2.8 2.7 2.7 Hydro 1.83 1.83 1.83 1.83 1.83
EBITDA 9.42 14.78 20.10 20.01 19.93 EBITDA margin 79.2% 78.2% 77.6% 77.3% 77.1%
Wind 5.58 10.96 16.31 16.26 16.20 EBITDA margin 77.0% 76.8% 76.5% 76.2% 76.0% PV 2.26 2.23 2.20 2.17 2.14 EBITDA margin 80.0% 79.7% 79.4% 79.1% 78.8% Hydro 1.59 1.59 1.59 1.59 1.59 EBITDA margin 87.0% 87.0% 87.0% 87.0% 87.0%
Source: AVG Research
For the valuation of the RES portfolio we made explicit forecasts based on the above mentioned assumptions for up to 20 years (duration of the PPAs). Our DCF exercise is based on an average WACC of 6.5%.
Exhibit 74: RES division valuation
RES Class EV/MW multiple
(EUR m) Equity Value/MW
(EUR m) Equity Value
(EUR m)
Wind (166 MW) 1.60 1.15 121.86
PV (11.5MW) 1.60 1.16 13.35
Hydro (6.0MW) 2.64 1.74 10.45
Total EV: 204.40 Total Equity Value: 145.66
Source: AVG Research
Mytilineos Holdings
AVG Research Page 36
Our forecasts and assumptions for the energy division Summarizing our assumptions for the energy division we highlight:
CACs standing at EUR40,000/MW going forward, with Mytilineos units receiving two certificates;
SMP gradually increasing to EUR60/MWh in 2020form EUR55/MWh for FY:14;
Utilization rates remain pressured until 2019 in the region of 35%, while going forward we expect
utilization factors to reach 60% following increased demand;
Regarding natural gas prices we maintain the 5% special tax going forward, while we gradually
increase LNG’s stake in the supply mix (to reach 30% in 2020 from 5% currently). We also assume
some mild reduction in natural gas prices driven mainly by the macro market environment;
We account for a gradual increase in CO2 prices reaching EUR12-13/ton in 2020 from EUR6.0/ton
currently.
Finally, regarding the RES division we assume the group will implement its capacity expansion
program adding 35MW in 2015 and 35MW in 2016. For new installations we assume overnight
cost of EUR/MW of EUR1.3m
Revenues from energy sales for 2014 are seen declining by 58% y-o-y on the back of the lower utilization of
the CCGT units following the abolishment of the VCRM within this year.
Going forward we expect revenues from the division to move higher driven by higher utilization rates of the
CCGTs (on the back of higher SMP and demand), while in the RES division we account for the gradual
commissioning of the new MWs.
Despite the drop in expected revenues, EBITDA performance of the division in 2014 is seen declining by just
10.3% y-o-y as profitability is supported by the CACs remuneration (CACs are flat y-o-y). Going forward we
account for a gradual pick up of the division’s EBITDA on the back of improvements in the sparking spreads
and new wind capacity.
Exhibit 75: Energy division Revenue and EBITDA estimates
2013* 2014e 2015f 2016f 2017f
Revenues CCGT units 357.1 144.2 157.9 158.7 204.2
y-o-y
-60% 9% 1% 29%
RES 12.0 11.9 18.9 25.9 25.9 y-o-y
-1% 59% 37% 0%
Total Energy 369.1 156.1 176.8 184.6 230.0 y-o-y
-58% 13% 4% 25%
EBITDA CCGT units 80.1 70.51 62.45 62.42 71.04
margin 22.4% 48.9% 39.6% 39.3% 34.8% y-o-y
-12.0% -11.4% 0.0% 13.8%
RES 9.0 9.42 14.78 20.10 20.01 margin 75.0% 79.2% 78.2% 77.6% 77.3%
y-o-y
4.7% 56.8% 36.0% -0.4%
Total Energy 89.1 79.9 77.2 82.5 91.0 margin 24.1% 51.2% 43.7% 44.7% 39.6%
y-o-y
-10.3% -3.4% 6.9% 10.3% Source: AVG Research
Mytilineos Holdings
AVG Research Page 37
Valuation of the Energy Division We apply a DCF exercise for the valuation of the two CCGT units. We set the WACC at 9.0%, while we account for a long term growth of 1.0%. As a sanity check we compare our derived NAV/MW multiple of 0.42x (average) for the two natural gas fired units with the relevant metric of the Gek Terna transaction that sold 25% of a similar CCGT unit to QPI last year yielding an NAV/MW of 0.44x.
Exhibit 76: Korinthos Power (436MW) DCF valuation Exhibit 77: Ag. Nikolaos Viotias (444MW) DCF valuation
2014 2015 2016 … 2024
EBITDA 34.9 30.9 30.9 … 36.0 (-) Tax Paid 1.8 0.8 0.8 … 2.1 (-) Maintenance Capex 1.0 1.0 1.0 … 1.0 (-) Changes in WC 0.0 0.7 0.0 … 1.2 FCF 32.1 28.5 29.1 … 31.7
Discounted FCF 32.1 26.1 24.5 … 22.5
Terminal Value 149.2 EV 359.5 EV/MW 0.8 Net Debt 180.0 NAV 179.5 Mytilineos stake 65% Equity Value for
Mytilineos 116.7
2014 2015 2016 … 2024
EBITDA 35.6 31.5 31.5 … 36.7 (-) Tax Paid 5.1 4.1 4.1 … 5.4 (-) Maintenance Capex 1.0 1.0 1.0 … 1.0 (-)WC changes (10% of sales) 0.0 0.7 0.0 … 1.2 FCF 29.4 25.7 26.4 … 29.0
Discounted FCF 29.4 23.6 22.2 … 20.6
Terminal Value 125.9 EV 314.5 EV/MW 0.7 Net Debt 110.0 NAV 204.5 Mytilineos Stake 100% Equity Value for Mytilineos
Stake 204.5
Source: AVG Research
Exhibit 78: Mytilineos Energy division SOTP valuation
EUR m MW EV EV/MW Debt Equity Value Mytil. Stake Equity For Mytil Stake
Korinthos Power 436 360 0.8 180 180 65% 117
Viotia 444 315 0.7 110 205 100% 205
RES 124 204 1.7 48 156 100% 156
Total 1,004 878
338 540
477 Source: AVG Research
Mytilineos Holdings
AVG Research Page 38
Examining new opportunities
Group net debt for end-2014 stands at EUR337m according to our estimations from EUR725m in 2012, with
net debt/EBITDA declining from 4.4c in 2012 at 1.3x at end-2014
We view Mytilineos’ efforts to drastically reduce debt as a strategic move that will allow the group to take
advantage of new opportunities, as presented, especially in the Greek market.
The group has already stated that it could be conditionally interested in the privatization of Larco (one of
the five largest ferronickel producers in the world).
Mytilineos could also express interest in the opportunities presented in the thermal energy sector especially
following the regulatory efforts to liberalize the market.
Finally, the group could look after privatizations, concessions and M&A activity, while the Greek economy is
set for a rebound
Exhibit 78: Mytilineos group net debt (EUR m) Exhibit 79: Net Debt/EBITDA evolution
Source: The Company, AVG Research
The case of Larco
Larco is a state-owned metallurgy company that stands among the global top five nickel producers. The
company operates four mines in central and northern Greece, while its smelting unit is located in Larymna
(Central Greece). Its assets contain proven lateritic ore reserves exceeding 100 million tones at a grade of
0.95%-1.00% nickel. The company is operating at its full production capacity of 19,000tn p.a. of Ferro-nickel.
The company is owned by 55.2% by the (Hellenic Republic Asset Development Fund) with the remaining
stakes held by NBG 34.4% and PPC 11.4%. The Greek State includes the company in its asset privatization
scheme and has transferred its stake to the HRADF. Yet, the exact framework of the privatization process as
well as the timing remains unknown.
Mytilineos, having already gained valuable experience from the AoG operations and turnaround, has
iterated that under specific terms could be interested in this privatization.
We think that the potential acquisition of Larco by Mytilineos could lead to another very successful
turnaround story, similar to that of AoG.
Privatization of energy assets
In the context of electricity market reforms, the states has launched a scheme to spin-off and privatize 30%
of PPC’s generation and supply divisions, in order to reduce the company’s effective monopoly in the
electricity market.
Recall that PPC is the only energy producer that operates lignite and hydro fired units and has access to
lignite mine fields. According to the framework that has been voted by the parliament the new company (so
called “small-PPC”) will receive 30% of the generation portfolio (including lignite fired units and mines and
large hydro units) and supply clientele on a representative basis.
Given that Mytilineos is the largest IPP in the market holding a portfolio of 1.2GW, we could assume tha the
group could be interested in these assets. Specifically we believe the group could benefit by a more diverse
portfolio of electricity generating assets in order to enhance its competiveness and increase its footprint in
the local electricity market.
430.9
532.8 574.6
724.8
509.7
337
246.8
153.3
28.8
-100.8
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
4.8
3.1 3.0
4.4
2.2
1.3 0.9
0.6 0.1
-0.4 2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Mytilineos Holdings
AVG Research Page 39
Group estimates and forecasts
Mytilineos revenues are forecasted at EUR1,239.2bn in 2014 or -12.9% y-o-y mainly the result of lower
energy sales, while they are expected to settle at the level of EUR1,140bn to EUR1,190bn over the period
2015-18, as we take a cautious approach on Metka’s turnover and a more defensive stance on aluminum
prices for the medium term.
On the other hand, EBITDA is seen up 7.8% y-o-y in 2014 and up 5.1% y-o-y in 2015 on the back of
aluminum prices, CAC’s and Metka’s profitability.
For the 2016-18 our conservative approach on Metka’s turnover and margins as well as on LME drive
EBITDA slightly lower for the period.
We expect EPS to grow by 35.2% CAGR in 2013-2018 mainly due to AoG turnaround.
We expect medium term sustainable group turnover of EUR1.4-1.9bn p.a.
Metallurgy is expected to post revenues for 2014 of EUR432m (-5.2% y-o-y) impacted by the very
low aluminium prices during the first part of the year (reached USD1,641/tn in H1:14). Note that
since the lows LME has rebounded significantly and we expect an average price for H2:14 close to
USD2,000/tn, while premia remain in high levels.
For 2015 as we expect the LME prices and premia to move higher (all-in prices of USD2,700/tn) we
forecast revenues of EUR494m (+14.5% y-o-y). Going forward we account for normalized all-in
prices of USD2,500/tn that translate to revenues in the region of EUR480-490m.
Construction (Metka) division is expected to post 7.7% y-o-y increase in revenues for 2014
(EUR651m) driven by the execution of the projects in Syria, Algeria and Jordan. For 2015 we
expect a significant decline in revenues of 28% y-o-y mainly attributed to our cautious approach
on the Syria II project completion, with 2015 revenues seen at EUR468.7m.
Going forward we expect the company to post revenues in the region of EUR430-450m p.a.
supported by the completion of domestic infrastructure projects and some new projects abroad.
Note that we do not exclude the possibility of a one-off positive item in H2:14-early 2015 related
to the project in Iraq. The impact of this item is estimated at 1%-2% of the USD1.0bn contract.
Energy division’s revenues are seen significantly declining in 2014 impacted by the low utilization
rates of the units (c10% ytd). For 2014 we expect the division to post revenues of EUR156.1m (-
57.7% y-o-y).
Going forward increased load factors (30-40%) are pushing division’s revenues higher to
EUR176.8m in 2015, posting a 13% 2015-18 CAGR.
We expect group revenues for 2014 at EUR1,239m vs. EUR1,432m in 2013 (-12.9% y-o-y) affected by the
energy division decline. For 2015 group revenue is seen declining by 8.0% y-o-y at EUR1,140m impacted by
the decline in construction division. Going forward we expect group revenues in the region of EUR1,100-
1,200m.
Exhibit 80: Revenue forecasts breakdown 2013-2018
EUR m 2013 2014e 2015f 2016f 2017f 2018f
Metallurgy 456 432.1 494.7 481.3 485.0 491.7
y-o-y -9.9% -5.2% 14.5% -2.7% 0.8% 1.4%
% of total 31.9% 34.9% 43.4% 43.6% 42.4% 41.5%
Construction 604 651.0 468.7 436.7 428.7 440.4
y-o-y 19.1% 7.7% -28.0% -6.8% -1.8% 2.7%
% of total 42.3% 52.5% 41.1% 39.6% 37.5% 37.1%
Energy 369 156.1 176.8 184.6 230.0 253.8
y-o-y -17.3% -57.7% 13.3% 4.5% 24.6% 10.3%
% of total 25.8% 12.6% 15.5% 16.7% 20.1% 21.4%
Discontinued -6.3
Total 1,423.0 1,239.2 1,140.1 1,102.6 1,143.7 1,185.9
y-o-y -2.1% -12.9% -8.0% -3.3% 3.7% 3.7% Source: AVG Research
Mytilineos Holdings
AVG Research Page 40
Exhibit 81: Historical and forecasted revenues 2009-2018 (EUR m)
Source: The Company, AVG Research
Sharply higher margins driven by AoG
AoG is the key driver of the strong profitability of the group in the coming periods. With cash costs
reduced to cUSD2,000/tn for 2014 and to cUSD1,900/tn for 2015, the division is set for a
spectacular improvement of its profitability.
EBITDA for 2014 is seen at EUR72.3m improving by 50.1% y-o-y or by 280% on an adjusted basis
(2013 included positive one-offs of EUR29m).
A further improvement by 76% y-o-y is expected in 2015 with 2015E EBITDA standing at
EUR127.3m driven by higher LME prices and further cost reductions. Going forward we normalize
our top line estimates and assume no further cost reductions, thus resulting in EBITDA settling in
the region of EUR110m p.a.
Construction division (Metka) is expected to continue posting above sector high profitability
margins especially for international EPC projects. We expect a slight improvement in EBITDA of
2.7% y-o-y for 2014 with the division reporting EBITDA of EUR110.8m.
Going forward, as we account for lower revenues as well as lower margins, EBITDA in 2015 and
2016 is seen settling at EUR71.2m and EUR59.2m respectively. From 2017 onwards we expect the
division to post an EBITDA in the region of EUR60-65m.
Energy EBITDA to be driven by the CAC scheme for the CCGT units and the new wind parks coming
online in 2015-16. We expect 2014 EBITDA of EUR79.9m (-10.3% y-o-y) despite the big top line
drop (-57.7% y-o-y).
Going forward we expect slightly higher EBITDA levels of EUR77.2m for 2015 and EUR82.5m in
2016, due to higher utilization rates and a contribution of cEUR10m p.a. from 2016 from the
70MWs of new wind parks.
Group Consolidated EBITDA for 2014 is seen at EUR250.1m (+7.8%) y-o-y positively impacted by the
improvements in the AoG performance. For 2015 we expect EBITDA of EUR262.7m that will be further
enhanced by AoG performance. Note that we account for overhead costs of EUR13m p.a.
Going forward we expect the group to report EBITDA in the region of EUR240-260m.
Regarding capex, we assume: i) EUR30-35m p.a. for AoG mainly related to maintenance; ii) EUR5-8m p.a. for
Metka; iii) something in the region of EUR1-2m p.a. for the CCGT units; and finally iv) we assume capex for
the new RES installation (70MW) of EUR90m split between 2015 and 2016.
473.3 501.4 521.3 506.0 455.9 432.1 494.7 481.3 485.0 491.7
212.6
499.4
929.8
507.4 604.4 651.0 468.7 436.7 428.7 440.4 4.3
9.5
134.9 446.1 369.1
156.1 176.8 184.6 230.0
253.8
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Metalurgy EPC Energy Discontinued
Mytilineos Holdings
AVG Research Page 41
Exhibit 82: Group EBITDA forecasts 2013-2018
EUR m 2013 2014e 2015f 2016f 2017f 2018f
Metallurgy 48.2 72.3 127.3 115.5 114.9 116.0
margin 10.6% 16.7% 25.7% 24.0% 23.7% 23.6%
% of total 19.7% 27.5% 46.2% 44.9% 43.1% 42.8%
y-o-y 66.3% 50.1% 76.0% -9.3% -0.5% 0.9%
Construction 107.9 110.8 71.2 59.2 60.6 62.8
margin 17.9% 17.0% 15.2% 13.6% 14.1% 14.3%
% of total 44.0% 42.1% 25.8% 23.0% 22.7% 23.1%
y-o-y 14.8% 2.7% -35.7% -16.8% 2.4% 3.5%
Energy 89.1 79.9 77.2 82.5 91.0 92.6
margin 24.1% 51.2% 43.7% 44.7% 39.6% 36.5%
% of total 36.3% 30.4% 28.0% 32.1% 34.1% 34.1%
y-o-y 36.8% -10.3% -3.4% 6.9% 10.3% 1.7%
Other (inc. HQ costs) -11.7 -13.0 -13.0 -13.0 -13.0 -13.0
Discontinued -1.6
Total 231.9 250.1 262.7 244.2 253.6 258.3
EBITDA margin 16.3% 20.2% 23.0% 22.1% 22.2% 21.8%
y-o-y 29.9% 7.8% 5.1% -7.0% 3.9% 1.8% Source: AVG Research
Exhibit 83: Historical and forecasted EBITDA breakdown 2009-2018 (EUR m)
Source: The Company, AVG Research
Below the EBITDA line we account for:
Depreciation charges of EUR63.9m for 2014 and gradually increasing to EUR71.8m by 2018;
Significantly lower financial expenses from 2015 onwards stemming from the deleveraging of the
group due to the strong cash flows of AoG and Metka and also via the refinancing of the group’s
debt in 2014 at significantly lower interest rates.
Effective tax rate is estimated at 17% for 2014 due to Metka’s low effective tax rate for this year
(bulk of the revenues booked abroad) and at 22%-23% onwards.
Minorities attributed to Metka (50%) and Korinthos Power CCGT (35%)
Finally, 2014 net income after minorities is seen at EUR63.8m (+174.1% y-o-y). In 2015 a further 47% y-o-y
increase is expected with 2015F net income standing at EUR93.9m. In the longer term we expect income to
move closer to the EUR100m benchmark. 2013-2018 EPS CAGR is seen at 35.2%
70.8 58.9 31.9 29.0 48.2
72.3
127.3 115.5 114.9 116.0
68.0
147.6 163.5
94.0
107.9
110.8
71.2 59.2 60.6 62.8
30.0
65.2
89.1 79.9
77.2 82.5 91.0 92.6
-17.6 -18.5 -8.5 -11.7 -13.0 -13.0 -13.0 -13.0 -13.0
2009 2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f
Metalurgy EPC Energy Other (inc. HQ costs)
Mytilineos Holdings
AVG Research Page 42
Exhibit 84: Mytilineos P&L estimates
EUR m 2013 2014e 2015f 2016f 2017f 2018f
Revenues 1,402.95 1,239.16 1,140.14 1,102.64 1,143.70 1,185.86
y-o-y -3.5% -11.7% -8.0% -3.3% 3.7% 3.7%
Cost of Goods Sold 1,140.46 954.33 840.82 820.32 850.19 886.32
Gross Profit 262.49 284.83 299.32 282.32 293.51 299.54
SGA 54.43 48.23 49.25 50.18 52.12 53.24
Other Oper.Income/Expense 24.59 13.47 12.64 12.08 12.23 12.01
EBITDA 232.59 250.06 262.71 244.21 253.62 258.31
y-o-y 36.1% 7.5% 5.1% -7.0% 3.9% 1.8%
EBITDA margin 16.6% 20.2% 23.0% 22.1% 22.2% 21.8%
Depreciation Expense 66.01 63.95 67.14 69.46 70.68 71.84
EBIT 166.64 186.11 195.57 174.75 182.94 186.47
Investment Income -14.90 0.00 0.00 0.00 0.00 0.00
Net Interest Expense 58.14 49.88 34.46 27.74 23.63 18.35
Extra and non-oper items -13.23 -5.92 -1.90 -2.00 -2.09 -2.15
EBT 80.38 130.31 159.21 145.01 157.22 165.97
Income Taxes 13.06 22.15 35.03 31.90 36.16 38.17
Reported Net Income 67.32 108.16 124.18 113.11 121.06 127.80
Minority Interest 44.82 44.32 30.24 25.55 25.47 26.16
EAT 22.51 63.84 93.94 87.56 95.59 101.64
EPS 0.20 0.55 0.80 0.75 0.82 0.87
y-o-y 8.7% 174.1% 47.2% -6.8% 9.2% 6.3% Source: AVG Research
Mytilineos Holdings
AVG Research Page 43
Appendix I
Aluminum market overview and outlook Demand outlook strong like no-other: All the major players call for a 4-6% annual growth rate going
forward
Aluminium demand over the last decade posted a CAGR growth of 6.5% despite the strong downtrend
during the 2008 crisis. The specific characteristics of the product such as lightweight, strength, moderate
melting point and corrosion resistance are driving demand.
As far as end use markets are concerned, building and construction accounts for c23% of the global usage,
while transportation accounts for c17% of total consumption.
Growing demand is driven primarily by the booming Chinese economy that also assumes a major part of the
global production. With economists’ estimates calling for strong growth trends in automotive industry and
construction expenditure to cover urbanization trends, China is expected to gain even larger market shares.
On the other side, the automotive industry is expected to increase its demand for the lightweight metal as it
is shifting towards more eco-friendly vehicles, while regulators introduce stricter CO2 requirements. A kilo
of aluminium, used as a substitute for heavier metals in the car industry, reduces gas consumption
by 8.5 liters and produces 20 kg less CO2 emissions. A 10% reduction of car weight results in a 9% increase
of fuel consumption efficiency.
Exhibit 85: Global aluminium demand growth (y-o-y) Exhibit 86: Aluminium demand contribution per sector in 2012
Building & Construction 25.7%
Transportation - Auto & Lt Truck 18.1%
Transportation - Aerospace 0.4%
Trans - Truck/Bus/Trailer/Rail/Marine/Other 7.2%
Packaging - Cans 5.9%
Packaging - Other (Foil) 5.3%
Machinery & Equipment 8.8%
Electrical - Cable 9.8%
Electrical - Other 4.5%
Consumer Durables 7.1%
Other (ex Destructive Uses) 3.6%
Destructive Uses 3.6%
Source: IAI, AVG Research
Production and Cost issues
Global aluminium production is expected to grow by c4.0% in the coming years, only partially catching up
with demand. Sensitivity to local macro economic conditions is always a key factor as the production cost
comes into play.
Over the last few years there has been a swift shift in producing capacity geography, driven primarily by
energy costs, bauxite availability, logistics and funding availability. In this context capacity in EU and US
decreased while MENA and China posted significant capacity expansion.
BRIC countries now account for almost 40% of global bauxite output (the primary ingredient of alumimina),
while four countries (China 35%; Australia 23%; Brazil 11%; India 4%) have a combined share of 73% of
global alumina output. Production has shifted towards countries with access to an abundant and
inexpensive source of bauxite. In addition to being the most important cost element, the bauxite cost is the
most important source of variation of alumina production cost. China has become the largest alumina
producer, but continues to import a large share of its bauxite needs.
In order to transform alumina to aluminium, energy is the key cost driver accounting for 80%-70% of total
aluminium’s production cost. This has played a key role in shifting capacity towards the Middle East.
Additionally, it is important to keep in mind the impact of public policy regulatory and decisions on tariffs
that intend to promote competiveness in the aluminium industry (this is the case in China).
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
World ex-China China Total
Mytilineos Holdings
AVG Research Page 44
In recent years, the operating cost curve for the aluminium industry has shifted upwards on the back of
soaring energy prices, weak US dollar and higher alumina and carbon inputs affected. Environmental
regulation has also played a role in driving up the cost curve. Improvements in alumina and aluminium
technology have assisted in cost containment but the impact of the abovementioned drivers more than
offset this positive effect.
Exhibit 87: Four step aluminium production process
Industry Aluminium of Greece
Bauxite mining
Bauxite mainly consists of aluminium
hydrates. Nearly all bauxite is mined
through open pit mines by removing
overburden and loosening the deposit
with explosives. Bauxite then is treated
with water to remove impurities and
dried prior to shipment to the refining
unit. Current market bauxite quotes at
USD35/tn.
Mytilineos, AoG sources c50% of its
bauxite from owned mines in Greece’s
mainland not far away from the refinery
unit (long life mines have reserves of
11mil. tons). The rest is purchased from
S&B that also operates bauxite mines in
the country. Finally, a small portion of
tropical bauxite that is needed for the
specs of the blend is imported through a
long term agreement with Glencore.
Alumina (OX)
refining unit
The bauxite blend is steam-heated in a
rod mill while some catalysts are also
added in the mix (caustic soda), then the
slurry is flashed cooled and the
remaining known red mud is washed
away. Eventually the mix is dried out to
1000 0C to form alumina. One tone of
bauxite produces on average 0.42 tons of
alumina. Current market price for
alumina stands at USD300/tn
The AoG alumina refining unit is one of
the largest units in the EU accounting for
c20% to total EU production. Our
estimated production cost for alumina
stands at USD250/tn, with expenses for
gas steam (natural gas) accounting for
c35% of the total. AoG utilizes the on-site
CHP unit to generate steam. The refinery
produces on average 800ktns p.a. and
utilizes c50% of its production for the
aluminium smelter while the rest is sold
to the market under long-term contracts
(long-term deal with Glencore).
Primary Cast
Aluminium (Al)
1.0tn of alumina is electrolyzed to 0.5tn
of aluminium. This is a very energy
intensive procedure with c13.5MWh
needed for 1,000 tons of aluminium. Also
at this stage each unit adds the
fabrication casting costs to convert to
end products (billets, slabs and T-ingots).
London Metal Exchange is the major
aluminium market worldwide. Current
aluminium market prices stand at
cUSD2,000/tn.
AoG produces c175ktns p.a. being one of
the largest units globally. Key to this
process is the electricity tariffs that AoG
purchases from PPC. AoG accounts for 4-
5% of the country’s total electricity
consumption. Current production costs
are estimated at USD2,000/tn, down
from USD2,500/tn in 2010. End-product
is curved towards billets 63.8%, while
c50% of the production is sold to EU, and
30% in Greece.
Physical delivery
of the metal
Finally, the end-products are shipped
either to the physical market or
warehouses (LME operated or not), with
freight and logistics expenses pending
upon the agreement to assume the final
premium over the spot price.
AoG has its own on-site port facilities
thus reducing delivery and minimizing
logistical costs both for finished products
and incoming raw material.
Source: AVG Research
Mytilineos Holdings
AVG Research Page 45
Exhibit 88: AoG cost base breakdown
Source: AVG Research
A closer look on premiums: “water, water everywhere, nor any drop to drink”*
Premiums refer to costs over the LME price of the metal related to supply, demand, freight, rental,
withdrawal and trading costs. The key driver is the supply demand balance in the market, as premiums tend
to increase on tight markets and vise versa. Typically premiums have a positive correlation to LME cash
prices.
Since the burst of the economic crisis in 2008, LME inventories have greatly increased as a result of the
declining demand. According to the past market behavior premiums should have accordingly decreased, but
premiums for physical delivery of aluminium posted record quotes breaking down the premium-LME spot
relationship.
The market indentifies two main reasons for this discrepancy, low financing and warehousing costs.
As large stockpiles of metal were available at warehouses due to: i) the declining demand; ii) the availability
of cheap market financing; iii) wide contago; and iv) low return environment in other asset classes, this
increased investor’s appetite for aluminium. At the same time warehouses lowered their rental fees and
provided incentives in order to attract metal, while many market players (banks, trading houses) acquired
warehouses.
This situation resulted in large amounts of metal stock tied up to financial deals, while investor’s appetite
remained strong for financial deals. The shortage of metal available for physical delivery that was created
raised premiums.
In this context the market is trying to normalize the conditions calling for greater transparency. LME has
taken a series of initiatives to lower outflow cues trying to regulate warehouse flows. At the same time
producers call for the introduction of a mechanism that will allow them to hedge premiums.
Currently premiums remain at record levels as supply curtailments and strong demand with the market ex.-
China being in a deficit are mitigating the impact of the regulatory changes.
Exhibit 89: World reported inventories evolution (tn) Exhibit 90: Regional premiums evolution (USD/tn)
Source: Bloomberg, AVG Research
*”The rime of the ancient mariner” by Samuel Taylor Coleridge
39.3%
2.6%
25.3%
9.6%
19.4%
3.8%
2015f
Other
Fabrication
Coke
Alumina
Oil
Electricity
0
1000
2000
3000
4000
5000
6000
7000
0
50
100
150
200
250
300
350
400
450
1/12
/200
4
1/5/
2005
1/10
/200
5
1/3/
2006
1/8/
2006
1/1/
2007
1/6/
2007
1/11
/200
7
1/4/
2008
1/9/
2008
1/2/
2009
1/7/
2009
1/12
/200
9
1/5/
2010
1/10
/201
0
1/3/
2011
1/8/
2011
1/1/
2012
1/6/
2012
1/11
/201
2
1/4/
2013
1/9/
2013
1/2/
2014
1/7/
2014
Japan Rotterdam
Mytilineos Holdings
AVG Research Page 46
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2011 2012 2013 2014
Appendix II
Greek electricity market challenges for CCGT units
Current market conditions
Challenges in the Greek market
The performance of the natural gas fired CCGT (Combined Combustion Gas Turbine) units in the Greek
market during the last years is remaining under pressure impacted by:
Low System Marginal Price (SMP) that is not allowing the plants to be fairly compensated for
their production.
Increased RES penetration that is covering demand (especially through day time) leaving very
small operating timeframes for thermal units.
High natural gas prices and taxes that are increasing the generation costs of CCGT units, not
allowing them to compete with the lignite fleet that are also benefiting from the very low CO2
emissions prices.
Regulatory distortions in the market that create the “missing money problem” with CCGT units
operating for certain time periods with SMP below their variable generation costs.
Soft demand, impacted by the economic recession of the last six years.
Monopolistic positioning of PPC in the market controlling c65% of generation (inclusive of lignite
and hydro units) and 97% of the supply market.
Utilization rates of natural gas fired units have significantly declined since the beginning of the year and
even more since July 1st
, following the partial fade out of the Variable Cost Recovery Mechanism (VCRM),
thus providing no incentive for the units to come online.
At the same time the increased RES contribution during the day time has magnified the problem with the
sunset/sunrise effect making the demand for flexible thermal capacity more intense.
Soft electricity demand following the economic recession combined with the high RES penetration has also
reduced peaking demand spikes during the day.
Under these market conditions, CCGT units come online in peaking demand times, that is in the afternoon
mainly in order to cover the sunset effect of the RES production. Thus they set the SMP for only 2-3 hours
per day, while their technical specifications obliges them to stay online for 8-10 hours from ignition,
operating under loss for c70% of their total operational time (missing money problem).
In this market environment the current utilization rates of the natural gas fired units of Protergia currently
stand at 10%.
Exhibit 91: Spark Spreads for domestic CCGT units (EUR/MWh)
Exhibit 92: Load factors
2013 2014
Korinthos Power 38.4% 9.7%
Protergia 40.4% 12.6%
Aluminium 37.5% 40.1%
PPC 35.1% 34.2%
Heron I 0.0% 0.0%
Heron II 39.0% 12.8%
Elpedison 36.9% 13.6%
Source: IPTO, LAGIE, AVG Research
Mytilineos Holdings
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0
10
20
30
40
50
60
70
80
90
Jan Mar May jul Sept Nov Jan Mar May jul Sept Nov Jan Mar May jul Sept Nov Jan Mar May
2011 2012 2013 2014
Capacity payments to provide amortization on fixed and capital costs
In front of the challenging market environment, the regulator has launched a capacity payment scheme on
the back of remunerating producers for their unit availability to the system. Capacity Assurance Certificates
(CACs) provide currently EUR45,000 per available MW (based on September 2013 to October 2014 period
calculations) for eligible units, with modern CCGT power plants receiving two (2x) certificates.
The aforementioned period was recently extended to December 2014, while there is an ongoing public
consultation for the remuneration framework of the units in the context of the CACs.
In any case this provides a steady stream of cash flows to the producers that is the main driving source of
their EBITDA.
Exhibit 93: SMP evolution for the domestic market (EUR/MWh)
Exhibit 94: Capacity Payments Scheme
Unit Type
Certified Capacity
(MW)
Number of Certificates
per MW
Unit Capacity amount
(EUR k/MW)
Lignite (PPC) 3,692 1x 45
CCGT (PPC) 1,706 2x 90
CCGT (IPP) 2,174 2x 90
Hydro (PPC) 2,582 1x 45
Total 10,154
Source: IPTO, AVG Research
What is currently under discussion?
Restructuring of the domestic market
Included in the efforts of the country to implement wide structural changes across all sectors, are the
electricity sector reforms, aiming to promote and enhance competiveness, reduce state intervention and
align with EU-wide industry guidelines of the industry.
In this context we recognize the following key schemes:
Privatization of PPC, including the sale of the IPTO (High Voltage System Operator), the spin-off
and privatization of 30% of PPC (“Small-PPC”) and the sale of a 17% stake of the state in the
company to private investors.
Review of the regulatory market regime, i.e. market type, introduction of electricity exchange,
bilateral agreements.
Review of the various remuneration schemes (Capacity Assurance Certificates, Cost Recovery etc).
Investments in transmission grids (Cyclades and Crete interconnections)
Alignment of domestic market with the EU target model.
Market support mechanisms
As of July 1st
2014, following RAE’s (energy market regulator) decision, VCRM was fully abolished. RAE has
asked IPTO to keep data on the impact of the VCRM abolishment on the market and its participants, so at a
later point re-examine the issue in parallel with the review on the CACs remuneration scheme.
Currently there is an extensive public consultation on the CACs structure. Following EU commission
guidelines, RAE and market participants have submitted their proposals on the structure of the scheme and
the remuneration pattern. As the negotiations between market participants and the RAE are currently
ongoing, on the basis of the submitted proposals, we would expect the updated framework sometime
before year end with the new framework becoming effective from early 2015.
With the CACs theme becoming more and more popular on a EU wide basis and the electricity markets in
constant consultations, we believe this will be a key issue for the performance of natural gas fired units
especially in the short-to-medium term.
Mytilineos Holdings
AVG Research Page 48
EU considerations on CAC framework
With peaking hours moving from during the day to late in the afternoon system flexibility adequacy has
become even more important. The flexibility concept relates to the reliability of the system to provide
ramp-up and ramp-down services on the back of the stochastic behavior of RES. In this context the EU
Commission and EU electricity system supervisor (ENTSO-E) have provided some guidelines regarding the
remuneration of the units capable to provide such services to the system. The EU guidelines provide for four
(4) pillars: i) capacity availability; ii) flexibility; iii) strategic reserve; and iv) demand side response.
Effectively the markets are contemplating a mechanism that will remunerate power plants not only for
providing their capacity to the system but also for their technical aspects i.e. their flexibility on ramp up and
ramp down rates, as this feature is now put more and more into perspective by the market trends.
Exhibit 95: Capacity certificates pillars
Pillar Resource adequacy purpose Mechanism of remuneration
Capacity Availability Meeting peak load Remunerate true capacity of dispatchable units using a unit capacity payment approach
Flexibility Meeting ramping system requirements and avoiding over-generation or renewable curtailment
Remunerate capability of dispatchable plants to perform ramping at rates beyond a certain threshold using a mixed system combining fixed and variable payment component
Strategic Reserve Meeting peak load in rare cases of extreme events involving simultaneously high demand and low RES availability
Contracts with plants remaining in cold reserve following a procurement procedure
Demand Side Response Meeting peak load at times of high demand on a daily and seasonal basis through interruption of load by large industries
Remunerate energy demand reduction at system marginal price levels
Source: RAE, AVG Research
Domestic market outlook
In Greece, as we have highlighted earlier, the increased RES (mainly PV) penetration has shifted peaking
demand hours for conventional units from mid-day to the afternoon hours, during the time that their
production is fading out. This is the key focus area on the public consultation scheme of RAE, the availability
of the units to provide ramping up services, while at the same time tackling the “missing money problem”.
We expect that market participants will reach a short-to-medium term deal that will provide a fair
compensation structure for CCGT operators, while at the same time minimizing the impact on the electricity
market and thus the consumers. In our modeling assumption we maintain CACs at the current levels
(EUR45,000/MW with 2x for CCGT units), while going forward accounting for the overall outcome of the
public consultation (CACs and VCRM) we would expect the maintenance of the CACs at least in the short to
medium term at current levels. In this context it is important to highlight the ongoing restructuring of the
domestic electricity market that should gradually reduce regulatory interventions in the market upon the
enhancement of competition amongst participants.
Variable costs always remain on the table
Key cost input for CCGT units is the natural gas prices. Producers get their natural gas form DEPA (Natural
Gas company) under long term agreements, while also taking advantage of LNG markets. Also we note that
the effective price on natural gas is burdened by a 5.0% special tax. Natural gas expense for natural gas fired
units represents c80% of total variable costs according to our estimations.
In this context we note the agreement between DEPA and Gazprom on natural gas prices (Gazprom covers
c65% of DEPA needs) that resulted in a price reduction for Greece of c11%. Despite the recent deal natural
gas prices in Greece remain amongst the highest in Europe due to the limited availability of input sources
(no access to EU hubs).
Although we do include in our model any significant price discounts, we believe that DEPA could achieve
lower prices in the coming periods taking advantage of alternative sources (mainly LNG) following the
completion/upgrade of infrastructure projects (Revythousa LNG terminal upgrade, South Kavala storage
facility, Alexandroupolis LNG terminal).
In the same context we should expect more material impact from the natural gas trading activity, as
industry could have access to cheaper LNG shipments, given recent key market trends like shale gas and
reductions in demand by Japan.
Regarding CO2 prices exposure, the low emission technology of CCGT units (estimated at 0.36 tones of CO2
emissions per GWh produced), as well as the prevailing low market prices at this point (cEUR6.0/ton) make
Mytilineos Holdings
AVG Research Page 49
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Natural gas Prices (EUR/MWh-thermal)
CO2 expense accounting for only 3% of the total expense base. Going forward and being on the
conservative side we assume that CO2 prices will post some increases reaching EUR10-11m per ton in 2017-
18.
Source: RAE, AVG Research
Sparking spreads to rise in the longer term
As we expect the CACs scheme to be maintained (and possibly enhanced) going forward and providing an
adequate cash flow support (for IPPs to cover fixed and in some extend variable costs) we estimate the
group could add value from the widening of the sparking spreads. This should be driven by a higher
expected SMP but most importantly lower variable costs. This should allow the utilization rate of the units
to reach above 60% and start generating some positive cash flows from actual electricity production.
As described earlier SMP, is a function of system generation costs and demand. Demand in the Greek
electricity market is expected to increase by 2.2% CAGR up to 2019 and the 2.9% CAGR up to 2024,
incorporating the interconnection of Cyclades islands. At the same time there are announced plans for the
construction of new conventional units in the system (excluding PPC’s unit in Ptolemaida).
On top of that the system operator expects a sharp increase in the system peaking demand, that is demand
covered in to large extend by natural gas fired units.
On the contrary, we note that since lignite will remain the key generating technology SMP should be
maintained in the region of EUR50-60/MWh.
Finally we note lignite’s sensitivity to CO2 prices, thus any potential sharp increases in CO2 markets will
drive lignite generation variable costs higher making natural gas generation direct competitive to lignite
generation stakes.
At the same time, as presented above, there are indications on natural gas prices decreasing on the back of:
i) lower Gazprom prices as DEPA continues to negotiate; ii) increased LNG contribution to the mix; and iii)
potential removal of the special levy on natural gas imposed by the State.
In this context we believe that sparking spreads for CCGT units should widen to EUR12-13/MWh in 2018-19
from our current estimations for a sparking spread of just EUR4.8/MWh.
Exhibit 96:Natural gas import prices for Greece
Mytilineos Holdings
AVG Research Page 50
Detailed Financials
Profit & Loss (in EUR m) 2012 2013 2014e 2015f 2016f 2017f 2018f
Turnover 1,453.6 1,403.0 1,239.2 1,140.1 1,102.6 1,143.7 1,185.9
Cost of Goods Sold (1,256.2) (1,140.5) (954.3) (840.8) (820.3) (850.2) (886.3)
Gross Profit 197.4 262.5 284.8 299.3 282.3 293.5 299.5
Operating Expenses 52.4 54.4 48.2 49.2 50.2 52.1 53.2
Other Income 20.1 24.6 13.5 12.6 12.1 12.2 12.0
EBITDA 165.1 232.6 250.1 262.7 244.2 253.6 258.3
Depreciation 61.0 66.0 63.9 67.1 69.5 70.7 71.8
EBIT 104.2 166.6 186.1 195.6 174.8 182.9 186.5
Net Investment Inc. (Exp.) 1.2 (14.9) 0.0 0.0 0.0 0.0 0.0
Net Interest Inc. (Exp.) (42.4) (58.1) (49.9) (34.5) (27.7) (23.6) (18.4)
Non op. inc/(Exp) (7.6) (13.2) (5.9) (1.9) (2.0) (2.1) (2.1)
EBT 55.4 80.4 130.3 159.2 145.0 157.2 166.0
Taxes (9.6) (13.1) (22.2) (35.0) (31.9) (36.2) (38.2)
Net Profit After Tax 45.8 67.3 108.2 124.2 113.1 121.1 127.8
Minorities (26.2) (44.8) (44.3) (30.2) (25.5) (25.5) (26.2)
EAT 19.6 22.5 63.8 93.9 87.6 95.6 101.6
Dividends 0.0 0.0 12.8 18.8 17.5 19.1 20.3
Balance Sheet (in EUR m)
Net Fixed Assets
1326.4 1302.4 1345.3 1355.8 1327.2 1295.3
Investments
222.2 222.2 222.2 222.2 222.2 222.2
Other LT Assets & Accruals
125.0 99.1 91.2 88.2 91.5 94.9
Total Fixed Assets
1673.6 1623.7 1658.7 1666.2 1640.8 1612.4
Inventories
128.4 104.6 92.1 89.9 93.2 97.1
Debtors
575.1 509.2 468.5 453.1 470.0 487.3
Cash & Equivalents
181.8 161.1 148.2 110.3 114.4 118.6
Marketable Securities
0.0 142.1 204.7 276.1 346.5 372.0
Other Current Assets
105.5 99.1 102.6 101.4 102.9 106.7
Total Current Assets
990.7 1016.1 1016.3 1030.9 1127.0 1181.7
Total Assets
2664.3 2639.9 2674.9 2697.1 2767.8 2794.1
Creditors
469.0 392.2 345.5 337.1 349.4 364.2
Short Term Debt
91.6 90.0 90.0 90.0 90.0 90.0
Other
49.8 58.4 74.7 69.7 76.2 80.2
Total Current Liabilities
775.1 580.6 570.3 546.8 615.6 534.4
Long Term Debt
435.1 509.8 449.8 399.8 299.8 299.8
Minorities
0.0 0.0 0.0 0.0 0.0 0.0
Other LT Liabil. & Prov.
356.4 356.4 356.4 356.4 356.4 356.4
Total Liabilities
1800.0 1724.5 1684.4 1636.5 1630.8 1575.8
Total Equity
864.3 915.4 990.5 1060.6 1137.0 1218.3
Cash Flow Statement (in EUR m)
EBITDA
232.6 250.1 262.7 244.2 253.6 258.3
Taxes Paid
8.5 16.2 22.2 35.0 31.9 36.2
Cash Tax rate (%)
10.6% 12.4% 13.9% 24.2% 20.3% 21.8%
Trade Wkg Capital needs
-73.8 -12.9 -6.5 -9.2 7.9 6.4
Capex and Participations
46.9 40.0 110.0 80.0 42.0 40.0
Other non-opg Items
-113.4 38.1 13.4 39.4 -10.1 -12.7
Free Cash Flow bef. Finc.
137.6 244.9 150.5 177.8 161.7 163.0
Dividends Paid
0.0 1.3 13.4 18.7 17.7 19.2
Net Interest Payments
58.1 49.9 34.5 27.7 23.6 18.4
Change in Debt
-170.0 -51.6 -40.0 -60.0 -50.0 -100.0
Capital Gains
-14.9 0.0 0.0 0.0 0.0 0.0
New Equity
0.0 0.0 0.0 0.0 0.0 0.0
Change in Mkt Securities
0.0 142.1 62.6 71.4 70.4 25.4 Source: AVG Research
Mytilineos Holdings
AVG Research Page 51
Per Share Data (in EUR) 2012 2013 2014e 2015f 2016f 2017f 2018f
EPS 0.18 0.20 0.55 0.80 0.75 0.82 0.87
CEPS 0.75 0.78 1.09 1.38 1.34 1.42 1.48
DPS 0.00 0.00 0.11 0.16 0.15 0.16 0.17
BVPS 7.50 7.65 7.83 8.47 9.07 9.73 10.42
No Of Shares (Yr-end, m) 106.7 113.0 116.9 116.9 116.9 116.9 116.9
Adj. No Of Shares (m) 106.7 113.0 116.9 116.9 116.9 116.9 116.9
Valuation Data
P/E (x) 30.9 28.5 10.4 7.1 7.6 6.9 6.5
P/CF (x) 7.5 7.2 5.2 4.1 4.2 4.0 3.8
P/BV (x) 0.8 0.7 0.7 0.7 0.6 0.6 0.5
Div. Yield (%) 0.0% 0.0% 1.9% 2.8% 2.6% 2.9% 3.1%
EV / Sales (x) 0.7 0.7 0.8 0.9 0.9 0.9 0.8
EV / EBITDA (x) 6.1 4.3 4.0 3.8 4.1 3.9 3.9
Growth Rates
Turnover (7.5%) (3.5%) (11.7%) (8.0%) (3.3%) 3.7% 3.7%
EBITDA (14.2%) 40.9% 7.5% 5.1% (7.0%) 3.9% 1.8%
EBIT (35.4%) 60.0% 11.7% 5.1% (10.6%) 4.7% 1.9%
EBT (49.8%) 45.1% 62.1% 22.2% (8.9%) 8.4% 5.6%
EAT (54.1%) 15.1% 183.7% 47.2% (6.8%) 9.2% 6.3%
EPS (49.7%) 8.7% 174.1% 47.2% (6.8%) 9.2% 6.3%
Ratios
Gross Margin 13.6% 18.7% 23.0% 26.3% 25.6% 25.7% 25.3%
EBITDA Margin 11.4% 16.6% 20.2% 23.0% 22.1% 22.2% 21.8%
EBT Margin 3.8% 5.7% 10.5% 14.0% 13.2% 13.7% 14.0%
Net Margin 1.3% 1.6% 5.2% 8.2% 7.9% 8.4% 8.6%
Tax Rate 17.4% 16.2% 17.0% 22.0% 22.0% 23.0% 23.0%
ROE (avg) 2.5% 2.7% 7.2% 9.9% 8.5% 8.7% 8.6%
Net Debt / Equity 91% 59% 37% 25% 14% 3% -8%
Interest Coverage 2.5 2.9 3.7 5.7 6.3 7.7 10.2 Source: AVG Research
Mytilineos Holdings
AVG Research Page 52
Disclosures
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Key Definitions
AVG Research 12-month rating*
Buy The stock to generate total return** of and above 10% within the next 12-months
Neutral The stock to generate total return* *between -10% and 10% within the next 12-months
Sell The stock to generate total return* * of and below -10% within the next 12 months
Under Review Stock’s target price or rating is subject to possible change
Restricted Applicable Laws / Regulation and AXIA Ventures Group Limited policies might restrict certain types of communication and investment recommendations
Not Rated There is no rating for the company by AXIA Ventures Group Limited
* exceptions to the bands may be granted by the Investment Review Committee of Axia taking into account specific characteristics of the Subject Company. **total return: % price appreciation –percentage change in share price from current price to projected target price plus projected dividend yield
AXIA Ventures Group Limited Rating Distribution as of today
Coverage Universe Count Percent Of which Investment
Banking Relationships Count Percent
Buy 10 100% 5 50%
Hold
Sell Restricted
Not Rated
Under Review
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Mytilineos Holdings
AVG Research Page 53
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