KME Memo 040621
- Understand KME’s working capital (WC) cash flow – sensitivity to copper prices; what the current copper forward curve implies for likely WC development pre-mitigation; key levers to manage WC and the magnitude of their potential impacts; KME’s historic WC cash flow during other periods of sharply rising copper prices (e.g. FY 06 and FY 10 – FY 11) and similarities / differences in tools available vs today; extent to which historic unleveraged FCF has been driven by WC release that may not be sustainable going forward; how tolling arrangements work, their accounting treatment and extent to which they have benefitted KME’s WC cash flow thus far
- Understand options for KME to improve its liquidity and capital structure – analysis of potential disposals (Special division, Trefimetaux and 50% stake in KMD JV), Intek’s ability to support KME (including a review in turn of Intek’s core ultimate shareholders) and property monetisation
- Detailed WC analysis
- Analysis of strategic options – potential disposals (Special division, Trefimetaux and 50% stake in KMD JV), Intek’s ability to support KME and property monetisation
- Tactical strategy for SSNs holders in any hypothetical restructuring
- Financial projections (including liquidity), DCF valuation and key sensitivities
- Why is it likely not straight forward for KME to access the remaining headroom on its total €450m factoring facilities?
- How much impact have KME’s increased tolling operations since copper prices started rising sharply after Q3 20 had on its WC cash flow?
- How sensitive is KME’s WC cash flow to the copper forward curve pre-mitigation and how sensitive is it to increasing the share of toll basis copper volume processed?
- Are KME’s bank lenders under its Borrowing Base Facility (BBF) likely to extend maturity beyond Feb-22 given their likely economics, taking into account their regulatory capital, leverage ratio, LCR and NSFR requirements?
- What is our DCF valuation of KME and how is it different to Intek’s valuation of KME?
- What recovery would we expect on KME’s SSNs and how do we view the Group’s pension deficit in this context?
- Can investors engineer a restructuring of KME to gain control?
- What are KME’s Special division, Trefimetaux and 49% stake in KMD JV worth and what challenges might there be to a sale of the Special division?
- How does KME’s group structure look, following legal separation in Q2 20 of its Osnabruck plant’s Copper division and Special division activity as well as M&A / disposals in FY 19, and with what impact for SSNs?
- How dependent has KME’s historic unleveraged FCF been on WC release over many years that may not be sustainable going forward at higher copper prices?
- To what extent is KME’s Adj EBITDA likely to grow given the structural trends in favour of electric vehicles, renewable energy and digitalisation?
- How much extra copper is likely to be needed each year as electric vehicle sales and charging points increase and how much of the semi-finished part of this increased demand could KME capture, production-capacity permitting?
- Why did KME’s Q4 20 and Q1 21 revenue and our estimated volume of copper tonnes produced decline so much YOY and is there a benign explanation?
- How has KME’s market share in European copper rolled products evolved through time?
- Where have all the MKM synergies (FY 19 – FY 21E) and cost savings initiatives over FY 14 – FY 17 gone?
- Have KME’s bank lenders been reducing their credit exposure to KME?
- Is KME likely to benefit from a state-guaranteed loan?
- What liquidity, monetisable assets and ability to raise debt to support KME does Intek have?
- View, Variant Perception & Recommendations
- Business Overview & Analysis
- Working Capital Sensitivity To Copper Prices & Mitigation Tools
- Tools To Address Liquidity & Capital Structure – Potential Disposals (Special Division, Trefimetaux, KMD Stake), Intek Support & Property
- On- & Off-Balance Sheet Debt, Group Structure & Indenture Review
- Financial Model – Projections, Valuation & Sensitivities
- Historic Financial Analysis
- Copper Value Chain & Market Share Analysis
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