Covestro_Jaseem
Covestro_Jaseem
Name: Covestro AG
Bloomberg ticker: 1COV:GR
Primary listing: Frankfurt Stock Exchange
Financial year end: December
Sector: Materials
Industry: Chemicals
Sub-Industry: Basic & Diversified Chemicals
Margins
Gross profit margin (%) 27.7% 33.4% 32.6% 34.9% 35.7%
EBITDA margin (%) 16.9% 23.6% 24.2% 24.4% 25.0%
EBIT margin (%) 11.2% 19.2% 19.6% 20.0% 20.7%
Pre-tax profit margin (%) 9.5% 17.7% 18.7% 19.0% 19.9%
Net income margin (%) 6.8% 13.1% 13.9% 14.0% 16.2%
LIQUIDITY RATIOS
Current ratio (x) 1.7 1.6 1.7 1.9 1.9
Quick ratio (x) 1.0 1.0 1.1 1.3 1.2
RETURN RATIOS
Return on average capital employed (%) 15.7% 34.0% 34.2% 33.7% 36.6%
Return on average equity (%) 19.1% 42% 41% 40% 43%
Return average assets (%) 7.9% 17.9% 18.3% 18.4% 20.4%
FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions
2018E onwards company has net cash, compared to net debt earlier.
est income, while interest has declined due to payment of loans. So effectively EBIT has increased but net interest obligation has decrease
terest obligation has decreased.
Covestro AG
Year ending 31st December
(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017
Income statement
Sales 11904 3586 3498 3532
% change
Cost of goods sold -8611 -2388 -2358 -2298
Gross profit 3293 1198 1140 1234
% change
Margin 27.7% 33.4% 32.6% 34.9%
Selling expenses -1323 -346 -344 -327
Research and development expenses -259 -64 -68 -68
General administration expenses -451 -113 -114 -120
Other operating income 126 24 87 6
Other operating expenses -55 -11 -14 -20
Share of associates profit 0 0 0 0
EBITDA 2014 846 848 862
% change
Margin 16.9% 23.6% 24.2% 24.4%
Depreciation, amortization and impairment expense -683 -158 -161 -157
EBIT 1331 688 687 705
% change
Margin 11.2% 19.2% 19.6% 20.0%
Equity-method loss -20 -6 -6 -6
Interest income 19 3 8 5
Interest expense -133 -41 -30 -27
Other financial result -62 -10 -6 -7
Financial result -196 -54 -34 -35
Income before income taxes 1135 634 653 670
Income taxes -329 -165 -167 -177
Tax rate 29.0% 26.0% 25.6% 26.4%
Income after income taxes 806 469 486 493
Attributed to non-controling interest -11 -1 -2 -2
Attributed to Covestro AG shareholders 795 468 484 491
Check OK OK OK OK
Balance sheet
Non-current assets
Goodwill 264 262 258 254
Other intangible assets 97 90 85 79
Property, plant and equipment 4655 4562 4327 4230
Investments accounted for using equity method 230 234 216 213
Other financial assets 31 33 31 31
Other receivables 41 48 40 39
Deferred tax 648 642 636 661
Total non-current assets 5966 5871 5593 5507
Current assets
Inventories 1721 1868 1842 1827
Trade receivables 1674 1998 1982 1967
Other financial assets 171 201 465 665
Other receivables 316 302 282 303
Claims for income tax refunds 119 98 53 52
Cash and cash equivalents 267 434 300 637
Assets hold for sale 0 12 3 3
Total current assets 4268 4913 4927 5454
Total assets 10234 10784 10520 10961
Equity
Capital stock of Covestro AG 203 203 203 203
Capital reserve of Covestro AG 4908 4908 4908 4908
Other reserve -922 -418 -393 -8
Equity attributable to Covestro AG shareholders 4189 4693 4718 5103
Equity attributable to non-controling interest 27 28 28 29
Total Equity 4216 4721 4746 5132
Non-current liabilities
Provisions for pension and other employement benefits 1209 1144 1167 1208
Other provisions 319 309 287 291
Financial liabilities 1796 1280 1245 1233
Income tax liabilities 36 39 40 44
Other liabilities 26 19 18 16
Deferred taxes 158 193 163 169
Total non-current liabilities 3544 2984 2920 2961
Current liabilities
Other provisions 569 509 384 490
Financial liabilities 135 690 701 607
Trade payables 1536 1577 1358 1393
Income tax liabilities 37 133 236 199
Other liabilities 197 170 175 179
Labilities related to assets held for sale 0 0 0 0
Total current liabilities 2474 3079 2854 2868
Total equity and liabilities 10234 10784 10520 10961
Check OK OK OK OK
Q4 2017 FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions
202 202 199 199 199 199 199 200 200 No guidance on buyback or
202 202 199 199 199 199 199 200 200
OK OK OK OK OK OK OK OK OK
OK OK OK OK OK OK OK OK OK
Assumptions
In line with company's guidance for effective tax rate of 25%-27%, expecting tax rate of 26% for future year.
No guidance on buyback or issuance of shares, hence expecting same level for forecasted years.
The company guided for stable dividend, hence expecting it at same level as of 2017.
Dividend decalred is paid next year
Covestro AG
Year ending 31st December
(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017
Revenue driver
Covestro group
Sales 11904 3586 3498 3532
% change -1.5% 24.7% 17.0% 16.9%
Volume 5.0% 9.9% 0.6% 2.0%
Price -5.2% 13.4% 15.3% 18.4%
Organic -0.2% 23.3% 15.9% 20.4%
Currency -1.3% 1.4% 1.1% -3.5%
Portfolio 0.0% 0.0% 0.0% 0.0%
Check OK OK OK OK
Segments
Polyurethanes
Sales 5927 1821 1889 1938
% change -2.6% 35.0% 27.5% 28.9%
Volume 5.2% 7.6% -0.8% 3.0%
Price -6.4% 25.8% 27.0% 29.7%
Organic -1.2% 33.4% 26.2% 32.7%
Currency -1.4% 1.6% 1.3% -3.8%
Portfolio 0.0% 0.0% 0.0% 0.0%
Polycarbonates
Sales 3298 954 911 933
% change 4.0% 21.4% 9.6% 10.0%
Volume 10.0% 17.2% 2.5% 4.4%
Price -4.3% 2.9% 6.1% 9.4%
Organic 5.7% 20.1% 8.6% 13.8%
Currency -1.7% 1.3% 1.0% -3.8%
Portfolio 0.0% 0.0% 0.0% 0.0%
Cost drivers
Cost of goods sold -8611 -2388 -2358 -2298
% of sales 72.3% 66.6% 67.4% 65.1%
% change na na na na
Selling expenses -1323 -346 -344 -327
% of sales 11.1% 9.6% 9.8% 9.3%
% change na na na na
Research and development expenses -259 -64 -68 -68
% of sales 2.2% 1.8% 1.9% 1.9%
% change na na na na
General administration expenses -451 -113 -114 -120
% of sales 3.8% 3.2% 3.3% 3.4%
% change na na na na
Q4 2017 FY 2017 Q1 2018 Q2 2018E Q3 2018E Q4 2018E FY 2018E FY 2019E FY 2020E Assumptions
In the recent release com
The company is expected
3522 14138 3779 3583 3595 3607 14563 14981 15501
16.5% 18.8% 5.4% 2.4% 1.8% 2.4% 3.0% 2.9% 3.5%
4.3% 4.2% -1.7% -0.2% 0.0% 0.8% -0.3% 1.3% 1.8%
17.5% 16.1% 14.3% 2.6% 1.7% 1.6% 5.2% 1.7% 1.8%
21.8% 20.4% 12.6% 2.4% 1.8% 2.4% 4.9% 3.0% 3.6%
-5.5% -1.6% -7.2% 0.0% 0.0% 0.0% -1.8% 0.0% 0.0%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OK OK OK OK OK OK OK OK OK
Growth rate assumption is based on historical growth rate, as there is no any guidance for growth. % change in revenue from foreign exc
Kept same as historical average as guidance is not there.
ge in revenue from foreign exchange and portfolio change is kept at zero, as I have not forecasted foreign exchange and there is no guidan
g customer experience by symplifying customers access through online portals.
(EURm except per unit or otherwise stated) FY 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Tangible assets schedule
Opening balance 4934 4,655 4,562 4,327 4,230
Total tangible assets 4655 4562 4327 4230 4296
Capex (419) (74) (92) (117) (235)
% of sales 3.5% 2.1% 2.6% 3.3% 6.7%
Depreciation -683 -158 -161 -157 -151
Depreciation rate 3.2% 3.3% 3.5% 3.5% 3.4%
Acqusition / disposal (15) (9) (166) (57) (18)
Capex to depreciation 0.6 0.5 0.6 0.7 1.6
Depreciation rate
Opening balance
2Q 2018E 4,216
3Q 2018E 4,263
4Q 2018E 4,310
FY 2018E 4,296
FY 2019E 4,355
FY 2020E 4,658
Total depreciation
Debt Schedule
Long term borrowings
Opening balance 374 1796 1280 1245 1233
Addition / (repayment) 1422 -516 -35 -12 -20
Issuance of debt 0 0 0 0 0
Closing balance 1796 1280 1245 1233 1213
Interest expense
Average debt 2406 1951 1958 1893 1818
Interest expense 133 41 30 27 22
Interest expense rate (%) 5.5% 8.4% 6.1% 5.7% 4.8%
Acqusition of factory
Cost of acqusition
Debt funding (50%)
Equity funding (50%)
Current share price
Price at shares are issued
Number of share issued
Capital stock of Covestro AG 203 203 203 203 201
Issuance or repurchases 0 0 0 0 0
Total capital stock of Covestro AG 203 203 203 203 201
3.0%
Opening balance Capex
179 132
180 133
180 135
627 556
824 622
853 661
132 133 135 556 622 661
99 15 11 4 0 31 0 (40)
8 the company has guided for capex in the range of EUR600m-EUR650m, for FY2019 and FY2020 capex as a % of sales is expected to be in
has guided for repayment of EUR46m in 2018, EUR31m in 2019 and EUR529m in 2020. In 2018 the remaining amount is expected to be re
ortion of long term liabilities is paid next year. For 2018 the remaing amount is paid equally each quarter.
od long term repayment is transferred to "current portion of long term liabilities".
er historical trend
er historical trend
er historical trend
er historical trend
er historical trend
er historical trend
s expected to make acqusition of a factory for EUR100m in 2019, with 50% debt and rest as equity.
new debt is issued on existing terms and conditions, as details are not available
equity is issued on current market price
have assumed whole depreciation and amortization expense as depreciation and whole capex only for tangible assets. I have kept intangi
% of sales is expected to be in line with historical average, as it is expected that Covestro will take more effort on innovation and environe
ort on innovation and environemnt friendly products due to expected change in environemtal law, demanding sustainable and environemn
ng sustainable and environemnt friendly products.
Covestro AG Current share price (EUR)
Year ending 31st December Target Price - 12 months (EUR)
Potential upside / downside
Assumptions used in the calculation of DCF: Rating
WACC 7.9% Current market cap (EUR)
Terminal growth rate in FCF 2%
0 0.75 1.75
(EURm except per unit or otherwise stated) FY 2016 FY 2017 FY 2018E FY 2019E
Present value of cash flow
Income statement extracts
Sales 11904 14138 14563 14981
% change na 18.8% 3.0% 2.9%
EBITDA 2014 3435 3598 3648
% change na 70.6% 4.8% 1.4%
% of sales 16.9% 24.3% 24.7% 24.4%
Less: deprecation and amortization -683 -627 -556 -622
% of sales 5.7% 4.4% 3.8% 4.1%
EBIT 1331 2808 3042 3027
% change na 111.0% 8.3% -0.5%
% of sales 11.2% 19.9% 20.9% 20.2%
Check OK OK OK OK
yclical in nature, as its overall business is highly impacted by overall GDP growth rate. Its end customer is also impacted by economic cyclic
casted level
fututre owing to higher raw material cost on tightened emvironemnt regulation, higher employee and research and development cost.
mpany needs to expand its capacity, as its current capacity utilisation is around 85%. Capex as a % of sales is expected to increase due to thi
ery high to economic cyclicity, it is expected it might also impact their paying capability in challenging environment, hence working capital
pacted by economic cyclicity.
arch and development cost.