IBU-tec — Greentech to drive future growth

IBU-tec (DB: IBU)

Last close As at 21/12/2024

33.60

0.30 (0.90%)

Market capitalisation

160m

More on this equity

Research: Industrials

IBU-tec — Greentech to drive future growth

Management’s stated expectation of a recovery in FY21 appears justified as sales jumped 40% year-on-year in H121 and the group returned to profit at EBITDA level. Management predicts further improvement in H221, supported by the launch of the group’s own battery materials for electric vehicles (EVs). Management expects demand for battery materials, together with coatings that extend the number of times glass bottles can be reused and service revenues from recycling battery materials to raise turnover to between €80m and €100m or more by 2025.

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Industrials

IBU-tec

Greentech to drive future growth

Speciality chemicals

Scale research report - Update

1 September 2021

Price

€47.3

Market cap

€225m

Share price graph

Share details

Code

IBU

Listing

Deutsche Börse Scale

Shares in issue

4.75m

Net cash at end June 2021 (including €13.0m short-term securities and €1.9m shareholder loan)

€11.2m

Business description

IBU-tec is an international full-service provider in the field of thermal process engineering, predominantly treating inorganic materials. The acquisition of BNT added complementary wet chemical processes for manufacturing tin-based products.

Bull

Serving high-growth segments such as battery materials.

BNT integration complements existing thermal treatments with wet chemical processes.

New Bitterfeld site supports expansion into new thermal process applications.

Bear

Reliance on key customers, although this is reducing.

Lockdown delayed commissioning of new glass coating materials line at BNT.

Low free float.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Management’s stated expectation of a recovery in FY21 appears justified as sales jumped 40% year-on-year in H121 and the group returned to profit at EBITDA level. Management predicts further improvement in H221, supported by the launch of the group’s own battery materials for electric vehicles (EVs). Management expects demand for battery materials, together with coatings that extend the number of times glass bottles can be reused and service revenues from recycling battery materials to raise turnover to between €80m and €100m or more by 2025.

H121 results show recovery from pandemic

Group sales rose by €5.7m year-on-year during H121 to €20.0m, in line with management’s target, as customers started to outsource production again following the drop in demand caused by the pandemic. Stripping out insurance payments relating to a fire in December 2019 and the cost of the February placing, the group moved from a €0.4m EBITDA loss in H120 to a €1.6m EBITDA profit in H121.

Battery materials continue to drive growth

Management has reiterated the guidance given in January of an increase in sales to €37–39m (assuming no significant change in raw material prices) during FY21 with an EBITDA margin of 17–19%. The key growth driver is the battery materials segment, where management expects sales to increase by over 50% as the group starts to sell its battery product for use in lithium iron phosphate (LFP) battery cells for EVs and stationary applications during the autumn. Management has set itself a target of growing turnover to between €80m and €100m or more by 2025, representing average growth of 20–25% each year, with an EBITDA margin of more than 20%. It expects demand for battery materials and, to a lesser extent, for glass coatings and recycling services to be the main drivers of this growth. In February 2021, IBU-tec raised €25.5m (gross) through a placing at €34/share to finance further growth, particularly in the area of proprietary battery materials.

Valuation: Premium for faster growth

IBU-tec’s share price has risen by more than 60% since the start of 2021. We believe this is attributable to investor appetite for shares linked to the EV sector. At the current level, IBU-tec’s shares are trading on prospective multiples that are above the peer group average on all metrics (eg year 1 EV/EBITDA: 33.7x versus 8.8x). Further share price appreciation depends on the level of premium investors are prepared to pay for IBU-tec’s higher rate of growth (15.0% 3Y revenue CAGR versus 4.9% mean).

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

PAT
(€m)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

48.5

1.5

0.9

0.19

N/A

0.4

12/20

33.0

1.6

1.0

0.00

N/A

N/A

12/21e

40.2

1.1

1.0

0.16

N/A

0.3

12/22e

62.8

7.0

4.2

0.19

N/A

0.4

Source: IBU-tec accounts, Refinitiv

H121 performance

Revenues affected by fire as well as coronavirus pandemic

Group sales rose by €5.7m year-on-year during H121 to €20.0m. The result was in line with management’s target but substantially below the €27.6m reported in H119. Part of this increase compared to H120 is attributable to a recovery in output from the original IBU-tec site in Weimar, which operates under a service model. During Q220 and Q320, the site’s customers experienced lower demand themselves because of the coronavirus pandemic and therefore used their in-house production capacity in preference to outsourcing production to IBU-tec. Sales of catalytic powders for the automotive industry were significantly higher than H120, slightly exceeding management’s expectations. Demand for battery materials for the automotive industry and for chemical catalysts were also well above H120 levels, even though Q121 output was adversely affected by interruptions to raw material supplies caused by severe winter conditions. Encouragingly, small-scale project business, which dominated Q121 revenues, is increasingly being supplemented by longer-term projects for contract production.

Sales from the BNT subsidiary continued to be affected by the fire at the site in December 2019, which affected parts of the plant used in the production of glass coating and pharmaceutical products, and the production area dedicated to the manufacture of chemical catalysts used for dip painting in the automotive industry. Travel restrictions imposed during the coronavirus outbreak delayed reconstruction work, so production of glass coatings has not yet resumed, although BNT is sourcing product from third parties for resale to maintain the customer relationships. BNT is seeing a positive impact on revenues from selling a higher proportion of glass coating product compared to metal oxides and from higher prices as it passes on rising raw material costs to customers.

EBITDA comparisons distorted by insurance payouts

The cost of materials rose by €2.4m in H121, reflecting higher sales volumes and price increases. Personnel costs were flat. Other operating expenses grew by €1.2m because of the costs associated with the capital increase (see below). EBITDA benefited from insurance pay-outs of €4.3m in H120 and only €1.0m in H121. The distorting effect of the fund-raising costs plus insurance payments resulted in unadjusted EBITDA decreasing by €2.5m year-on-year to €1.4m. Stripping out both of these distorting effects, the group moved from a €0.4m EBITDA loss in H120 to a €1.6m EBITDA profit in H121 and losses before tax narrowed by €2.0m to €0.9m.

Fund-raising to finance growth in battery materials

In February 2021, IBU-tec raised €25.5m (gross) through a placing of 750,000 new shares at €34/share. At the same time, the CEO sold 250,000 shares, also at €34/share, to satisfy institutional demand. The funds are being used to finance further growth, particularly in the area of proprietary battery materials. As a result of this activity, the group moved from €11.3m net debt at end December 2020 to €11.2m net cash at end H121 (including €13.0m in short-term securities and a €1.9m shareholder loan). Cash consumed in operations was €1.3m, reflecting higher working capital associated with rising revenues. €1.6m was allocated to capital expenditure, primarily equipment following the fire at BNT. The equipment is not being replaced on a like-for-like basis. Instead, management is adapting the production facilities to make the processes more efficient and environmentally friendly, and accommodate rising demand for its monobutyltin trichloride (MBTC) glass coating product (see below). This investment will still be covered by insurance.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Prospects: Developing new markets in greentech

Management guiding for growth in FY21

Management has reiterated the guidance given in January of an increase in sales to €37–39m (assuming no significant change in raw material prices) during FY21 with an EBITDA margin of 17–19%. One of the key drivers of this growth is the battery materials segment, where management expects sales to increase by more than 50% as the group starts to sell its battery product for use in LFP battery cells during the autumn.

Management targeting €80–100m revenues by 2025

Management has set itself a target of growing turnover to between €80m and €100m or more by 2025, representing average growth of 20–25% each year, with an EBITDA margin of more than 20%. It expects demand for battery materials and, to a lesser extent, glass coatings and recycling services to be the main drivers of this growth.

Battery materials: Launching own product in H221

LFP is currently the dominant battery technology in e-buses, e-bikes, fleet vehicles and entry-level mass-market EVs because although its energy density is less than that of lithium cobalt oxide (LCO), which was the original lithium-ion battery technology, LFP has a longer cycle life and good thermal stability. LFP is also relatively low cost because the cathode does not contain cobalt. In February this year, Elon Musk announced that Tesla was shifting standard range cars from a nickel cathode to an iron cathode (ie LFP battery technology) to reduce the risk of potential cobalt and nickel shortages. LFP is also becoming increasingly popular for stationary storage applications. (See our sector report EV outlook #2 Driving better performance from EV batteries for details.)

IBU-tec’s thermal treatment processes, which use either rotary kilns or its proprietary pulsation reactors, provide higher-quality, more homogenous materials than most Asian suppliers. During FY19, IBU-tec started supplying materials directly to a major EV battery manufacturer in the Far East. In addition to significant volumes for stationary energy storage applications, IBU-tec has worked with several major battery manufacturers on the development of materials for use in EV battery cathodes and anodes. Until now, IBU-tec has acted only as a service provider and contract manufacturer in this area. However, the patent protection of LFP battery material that IBU-tec previously produced under licence for a third party expired at the end of 2020, leaving the company free to start producing its own LFP product in Q421. The company already has approved production capacity of around 4,000 tonnes per year of the material at its Weimar site and has projects for increasing this capacity in progress. So far IBU-tec has won German battery company Varta and cathode manufacturer Blackstone Technology as customers for the new product. During the first year covered by the letter of intent signed in August 2021, IBU-tec expects to supply Blackstone with hundreds of tonnes of LFP material annually, corresponding (according to Blackstone) to sufficient cathode material for around 2GWh of battery cells. IBU-tec expects tonnages sold to Blackstone to increase to ‘up to the middle four-digit range’ in subsequent years. Management is targeting a tenfold increase in sales of battery materials overall to c €21m between 2020 and 2025.

Glass production

MBTC is used as a coating for glass bottles to improve mechanical strength and seal micro cracks caused by roughness in the mould. As a result, glass bottles can be reused more times before needing to be replaced. Glass packaging is becoming more and more important in Europe as an environmentally friendly alternative to plastic. In addition, the growing middle class in the emerging countries of South America and Asia is driving demand for glass products in these regions.

Following the closure of Lanxess’s organotin specialities facility, IBU-tec will become the sole European producer of glass coatings by 2022 and one of only three worldwide, so management is aiming to double the group’s sales in this segment to c €12m by 2025. During H121 IBU-tec built a new pilot plant for MBTC glass coating and applied for a patent to cover the associated process that improves output and generates material cost savings by enhancing yield. Since engineering and the approval procedure for the associated full-scale production plant are already well advanced, management expects to commission the plant in H122.

Service/recycling

The group’s service offer was significantly expanded following the acquisition of BNT in June 2018, which added complementary wet chemistry processes to the original thermal processing capabilities. Management is targeting a doubling in service revenues by 2025 to €23m. It expects to achieve some of this growth through cross-selling and providing a more complete package to new customers. In addition, the group is beginning to offer its services to potential customers interested in recycling, focusing primarily on recycling battery materials and building materials and processing sewage sludge to extract phosphorus. Management is targeting €20m revenues from recycling battery materials by 2025, in addition to €23m other service revenues, potentially making revenues from sales of battery materials and recycling them around one-third of the group total.

Valuation: Premium for faster growth

Exhibit 1: Multiples for listed peers

Name

Ytd performance (%)

Market cap
(€m)

EV/sales 1FY (x)

EV/sales 2FY (x)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x

P/E 1FY
(x)

P/E 2FY
(x)

Revenue CAGR*

BASF

3.2

61,465

1.1

1.1

7.0

7.5

10.9

12.0

5.7%

Johnson Matthey

23.4

6,773

1.5

1.4

7.9

7.4

12.5

11.5

3.9%

Nabaltec

25.5

300

1.7

1.6

9.2

8.0

22.7

17.9

5.0%

Nippon Shokubai

0.9

1,839

0.8

0.8

4.7

4.7

13.5

12.6

2.6%

Umicore

44.8

14,054

3.6

3.4

11.5

12.3

19.7

22.5

9.2%

W R Grace & Co

27.0

3,923

3.6

3.3

12.7

11.4

18.2

15.0

3.0%

Mean

2.1

1.9

8.8

8.5

16.3

15.2

4.9%

IBU tec

62.3

225

5.9

3.8

33.7

17.6

295.6

47.3

15.0%

Source: Refinitiv. Note: Prices at 31 August 2021. *Year -1 (ie FY19 for IBU-tec) to year 3.

For our peer group, we use a sample of companies in Europe, North America and Asia involved in the manufacture of mobile and process catalysts and battery materials. IBU-tec’s share price has risen much more strongly since the start of 2021 than its peers. We believe this is attributable to investor appetite for shares linked to the EV sector. At the current level, IBU-tec’s shares are trading on prospective multiples that are above the peer group average on all metrics. However, consensus estimates show IBU-tec’s revenues growing substantially more strongly than both the average for our sample and the fastest growing company, Umicore. This growth is underpinned by an increasing focus on manufacturing and recycling battery materials, which management intends to grow from around 5% of revenues in FY20 to one-third by 2025. The companies in our sample of peers are typically much larger and more diversified, so consensus estimates do not show them growing as quickly as IBU-tec. Further share price appreciation depends on the level of premium investors are prepared to pay for IBU-tec’s higher rate of growth.


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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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