Saturday 25 May 2019

Bekaert, the Belgian giant that they couldn't fence in

John Lynch

A reliable old 17th Century proverb says 'good fences make good neighbours.' If that is the case then the Belgian company we are considering this morning, Bekaert, will never have trouble with 'the crowd next door.'

Bekaert has been a producer of the best fencing since 1880. Indeed, its founder patented a special pointy bit to make the fence more intimidating. But of course Bekaert did not get to where it is today by just producing barbed wire, however scary.

In the 1950s it started to make steel cord to reinforce car tyres and then progressed to the more sophisticated steel cable work that has changed the construction and mining industries over the past 50 years and has even played a part in space exploration.

However, today Bekaert wouldn't be able to sell you a few metres of barbed wire. It sold the original fencing business five years ago, proving that business has no sentiment.

Bekaert is a little known Belgian industrial concern, yet its products impact on most of our lives. The business is based on the transformation of steel wire and its coating application. If you know a business that drives, ascends, hoists, or filters, there is a good chance Bekaert is involved. The company, with 30,000 employees, has customers in 120 countries and facilities on most continents. Recently it purchased the Pirelli steel cord business; it's most expensive to date, increasing its global share of the steel cord market to 30pc.

The company also purchased an Australian producer of steel mining ropes, making it the global leader, so it is ready and waiting for the next mining boom - the problem is when.

The automotive industry accounts for 40pc of Bekaert's group sales and include products for car doors, car seats, windshield wipers, exhausts and tyres. Its construction business is the second largest with 23pc of turnover. The wire mesh and steel fibre is used for concrete reinforcement.

In addition to the steel wire business, the company also has a coating business. By coating the steel wire, Bekaert provides corrosion protection, heat resistant, improves aesthetics, increases conductivity and gives a durable finish. The company has high hopes for a new revolutionary coating called Tawi, a process that has attracted the attention of the world's major tyre manufactures.

Sales last year were €3.2bn and associate companies added an additional €800m. Europe is its biggest market with over one-third of group sales, and demand was strong particularly for steel cord; it expects demand this year to continue, helped by the acquisition of Pirelli's business. The Asia Pacific region sales are marginally lower than Europe, at €1bn.

The Chinese market is particularly important to the company, having one-fifth of group sales. However, Bekaert is experiencing difficulty because of intense price competition and a market downturn.

Latin America sales last year were €600m but profits are minuscule at €40m. Price competition from Asian imports, the collapse of the Venezuelan market, and the decline of activity in the mining industry is not helping. The North American market had sales of €555m, unfortunately the improved demand from the auto market could not compensate for the decline in industrial and agricultural markets.

The company floated on the Belgium stock exchange 43 years ago and its share price today is €26 with a market cap of €1.6bn. Its share price history over the past decade is interesting. Apart from a spike in 2010 (when the stock rose to €90) the shares have traded in a narrow band of €20/€35.

Recently, net debt increased from €570m to €850m, largely due to the Pirelli acquisition. Its dividend yield is modest at 2.3 with a chunky enough price earnings multiple of 22.

Bekaert is a steady company and if you think its products are a little boring, consider this: they were used in the Space Shuttle programme and not many 135-year-old companies can claim that. As for its shares I think there are better opportunities.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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