European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

<a href="https://www.smartkarma.com/entities/elementis-plc" target="_blank" data-smartkarma-citation="entities:21916:1" rel="noopener">Elementis PLC (ELM LN)</a> has rejected three approaches from <a href="https://www.smartkarma.com/entities/minerals-technologies-inc" target="_blank" data-smartkarma-citation="entities:6088:1" rel="noopener">Minerals Technologies (MTX US)</a>, at 107p, 117p and 130p (10.3x EV/Fwd EBITDA and 20.3x P/Fwd EPS, Capital IQ consensus).
<ul>
<li>All were unanimously <a href="https://www.elementis.com/sites/default/files/2020-12/201206%20Rejection%20of%20Minerals%20Technologies%27%20proposal.pdf" target="_blank" rel="noopener">rejected by the Board of Elementis</a>, which said that even the last proposal was highly opportunistic, coming at a low point of earnings and value, and significantly undervalues Elementis and its future prospects (it has a point). It is signaling that a bid could be considered at c. 200p.</li>
<li>On 6 December, Minerals Technologies cancelled the acquisition of Elementis.</li>
<li>On 8 December, shareholder J.O. Hambro (4.25% stake) told Elementis to engage with Minerals Technologies to seek an improved bid.</li>
</ul>
Elementis trades at a 20% discount to Diversifieds' peers. Coronavirus pandemic second wave restrictions cloud the outlook, as the Board says, especially for Personal Care and Talc. Nevertheless Elementis is on only a recovered NTM PE of 20.3x for 2021e and trading below Diversifieds' median PE of 25x. This appears low, in spite of higher financial leverage (7.9x total debt/EBITDA which results in a 5-year beta of 2.28 vs. 0.96 median of peers), given lower price cyclicality.
<div>
Valuation is 169p per share (average of NTM EBITDA median implied equity value and NTM P/E), a 30% upside to Minerals Technologies last offer.
<ul>
<li>The last approach by Minerals Technologies (130p) should act as support for the share price of Elementis in the short term.</li>
<li>
Capital IQ complied consensus has a median target price of 142p, also above Minerals Technologies offer.</li>
</ul>
</div>
Recommendation is LONG Elementis, TP 169p.

Elementis PLC (ELM LN) has rejected three approaches from Minerals Technologies (MTX US), at 107p, 117p and 130p (10.3x EV/Fwd EBITDA and 20.3x P/Fwd EPS, Capital IQ consensus).

All were unanimously rejected by the Board of Elementis, which said that even the last proposal was highly opportunistic, coming at a low point of earnings and value, and significantly undervalues Elementis and its future prospects (it has a point). It is signaling that a bid could be considered at c. 200p.
On 6 December, Minerals Technologies cancelled the acquisition of Elementis.
On 8 December, shareholder J.O. Hambro (4.25% stake) told Elementis to engage with Minerals Technologies to seek an improved bid.

Elementis trades at a 20% discount to Diversifieds' peers. Coronavirus pandemic second wave restrictions cloud the outlook, as the Board says, especially for Personal Care and Talc. Nevertheless Elementis is on only a recovered NTM PE of 20.3x for 2021e and trading below Diversifieds' median PE of 25x. This appears low, in spite of higher financial leverage (7.9x total debt/EBITDA which results in a 5-year beta of 2.28 vs. 0.96 median of peers), given lower price cyclicality.

Valuation is 169p per share (average of NTM EBITDA median implied equity value and NTM P/E), a 30% upside to Minerals Technologies last offer.

The last approach by Minerals Technologies (130p) should act as support for the share price of Elementis in the short term.

Capital IQ complied consensus has a median target price of 142p, also above Minerals Technologies offer.


Recommendation is LONG Elementis, TP 169p.

Elementis PLC

Lowball Offers by Minerals Technologies