Acquisitions aid performance at RHI Magnesita

Refractory products supplier RHI Magnesita (RHIM) cited substantial M&A progress as the primary driver behind growth in its revenue and adjusted Ebitda figures in 2023. The group completed six transactions across the year in what it deems “high-priority geographic or product markets”. 

Its new additions ultimately contributed €56mn to adjusted Ebitda – significantly more than the €40mn guidance that was previously issued by management. The company’s sales performance was also boosted by the acquisitions, which helped to offset a 5 per cent decline in volumes in its base business. 

Positive as its top-line numbers are, there remain ongoing challenges in two of RHI’s most important end markets: construction and transportation. As a result, it expects like-for-like volumes to remain flat in 2024, although overall volumes should grow by 10 per cent. 

The firm’s high-grade refractory products are used in furnaces, kilns and other high-temperature equipment that is crucial to industries such as steelmaking and cement production. It saw strong take-up from glass and non-ferrous metal projects in 2023, although management said demand in these areas “will markedly reduce in 2024, creating additional pressure on plant utilisation”. 

But according to analysts at Peel Hunt, “strong operating cash flow should continue to enable RHIM’s value-creating M&A strategy”. Encouragingly, the group’s leverage position – currently 2.3 times net debt to adjusted Ebitda – was the same as last year, despite all the acquisitive action. This is within management’s target range of 2.0-2.5 and is (arguably) evidence of the company’s ability to manage macro pressures. 

With its shares trading on just 8.2 times projected forward earnings for this year, we think it’s worth seeing how the next few quarters play out. Buy.

Last IC view: Buy, 4,122p, 8 March 2021