Daily Brief Industrials: Arwana Citramulia, Mineral Resources, ACCO Brands, XP Power Ltd and more

• Arwana Citramulia released a solid set of numbers for FY2022 but we expect growth to continue for the next two years driven by new capacity in higher margin products.
• The company’s new capacity will be focused on expanding its porcelain tile business but it will also expand its higher-margin DigI UNO ceramic product, which will be positive for margins.
• Arwana Citramulia (ARNA IJ) remains a top-quality and high-growth industrial choice in Indonesia. Valuations are attractive with a single-digit PER and high teens EOS growth for the next two years.

• The review period for the March rebalance ended yesterday. Announcement of the changes will be made on 10 March and will be implemented at the close on 17 March.
• Mineral Resources (MIN AU) is a potential index inclusion if it is added to the index universe with lithium revenues nearing the 50% threshold.
• ioneer Ltd (INR AU) is very close to the 98% deletion threshold and could be removed from the index at the March rebalance.

• ACCO affirmed our industry concerns when it reported fourth quarter results that were lower than consensus estimates and resulted in free cash flow falling shy of the Company’s forecasts.
• ACCO has a business that can generate significant amount of free cash flow the second half of each year depending on how much volume it can sell
• ACCO is undertaking a restructuring effort to improve efficiencies to generate greater free cash flow from a tougher retail environment.

XP Power (XP) battled through FY22 to meet strong customer demand despite numerous supply chain challenges. H2 performance was significantly better than H1 as supply chain pressures started to ease, and XP enters FY23 with a record £308m order book. The company is targeting 10% organic revenue growth across the cycle and a return to historic profitability levels; we expect XP to make progress towards these targets in FY23 and FY24 while reducing gearing.