July 31, 2018 / 6:15 AM / 2 months ago

Belgium's Umicore beats first-half estimate, but debt concerns weigh on shares

(Reuters) - Belgium’s Umicore (UMI.BR) reported on Tuesday better-than-expected recurring earnings before interest and tax (EBIT), boosted by a fast-growing electric vehicle (EV) battery materials business, but concern around the company’s debt had sent shares down 3.5 percent by 0755 GMT.

With demand for EVs expected to surge in the next decade, Umicore has announced over 1 billion euros ($1.17 billion) of investment to increase production of nickel manganese cobalt EV battery cathode materials.

Analysts expect this to give it a dominant position in the market, with capacity exceeding that of rivals Johnson Matthey (JMAT.L) and BASF (BASFn.DE).

The company said capital expenditure was 198 million euros in the first half and that spending would accelerate in the second half. Analysts polled for the company had expected capital expenditure of 292.2 million euros.

“The ramp-up of costs is not linear and the additional production capacity is not linear either,” Chief Executive Marc Grynberg said during a call with analysts.

“In the second part of the year, we will add capacity and we will also continue with the preparation work to build the new green-field sites, which means we will start to have more fixed costs in the second part of this year.”

Net debt was 429 million euros at the end of the first half, above consensus estimates of 206.8 million euros

“I’m guessing the market is a bit spooked by net debt, which came in above consensus despite capex c. 100 million euros below expectations,” said ING analyst Stijn Demeester.

“Knowing that Umicore is planning c. 600 million euros capex this year, this means a massive effort in the second half,” he added.

Berenberg analyst Sebastian Bray said the market reaction was caused by profit-taking, since the shares had had a strong run before the results. By Monday’s close, the stock had risen 25 percent since late April, when the company raised its full-year guidance.

Umicore reported recurring EBIT of 261 million euros for the first half of the year, beating the 250.1 million euros forecast on average by analysts polled for the company.

Growth was driven by the Energy & Surface Technologies division, which includes the company’s battery materials business. The division posted a 97 percent increase in recurring EBIT for the first half.

The company confirmed its full-year target of recurring EBIT of 510 million to 550 million euros.

It will pay an interim dividend of 0.35 euro per share in August.

Reporting by Alan Charlish in Gdynia, editing by Sherry Jacob-Phillips, Kirsten Donovan, Larry King

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