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RHI Magnesita profits dive on weak markets

The world's largest manufacturer of refractories is slashing costs
August 5, 2020

A slump in revenues across RHI Magnesita’s (RHIM) steel and industrial divisions more than halved its half-year pre-tax profits. The world’s largest manufacturer of refractories expects activity levels to remain low during its third quarter and admitted limited visibility thereafter, and has set about cutting costs accordingly.

IC TIP: Buy at 2,586p

RHI’s austerity measures included the temporary closure of four plants and deferral of €45m (£41m) in capital expenditure, helping to save €25m in its second quarter and keep adjusted profit margins in the double digits, at 11.4 per cent. It is targeting further savings of €10m and €30m for this year and 2021, respectively. Global steel production fell 6 per cent over the half (or 14.3 per cent, if you exclude China), while delays to customer infrastructure projects and commodity price volatility helped hamper RHI’s industrial arm. Revenues in both divisions fell by more than a fifth.

RHI also conducted a review of its raw material costs compared with those of its competitors during the period and established that its internal costs to produce grades of fused magnesia are too high. It suspended fused magnesia production in Norway and Brazil earlier this year and has agreed alternative supply arrangements.

House broker Peel Hunt forecasts full-year 2020 adjusted pre-tax profits and EPS of €213m and 327¢, respectively, rising to €285m and 431¢ in 2021.

RHI MAGNESITA (RHIM)   
ORD PRICE:2,586pMARKET VALUE:£1.27bn
TOUCH:2,584-2,596p12-MONTH HIGH:4,512pLOW: 1,419p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:1,523¢*NET DEBT:89%
Half-year to 30 JunTurnover (€bn)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)
20191.54165231nil
20201.7770.2103nil
% change+15-57-55-
Ex-div:na   
Payment:na   
£1=€1.11 *Includes intangible assets of €392m, or 798¢ a share