New research report: Monbat keeps scaling up



Monbat, the largest lead-acid battery producer in Bulgaria, reported 28% y/y rise in group sales in October 2017 and 29% y/y top line expansion for the 10M17 – comment ELANA Trading analysts.

The Company’s sales came at BGN 266m for the 10M17 on strong third party recycled lead sales as well recovery in batteries volumes. The Group managed to completely offset the lead prices effect from the beginning of 2017 on the top line. According to Company data, Monbat managed to sell 10k tons of scrap lead over the 10M7 vs only 0.5k tons an year earlier.

Profitability, however, declined in October and Monbat’s profit before tax fell 3.5% y/y to BGN 2.9m. Since the beginning of 2017, Monbat posted 21% y/y growth of consolidated profit before taxes to BGN 29.8m. EBITDA is up 15.7% y/y to BGN 43.5m with a positive business combination one off effect.

Focus on new horizons

Amid a hectic lead acid batteries year, Monbat ventured into sustaining its organic growth model and expanding its horizons via a three stage strategic investment plan. The Company announced its plans to scale up its existing business model via two strategic acquisitions in Italy (recycling facility) and Tunisia (lead acid batteries producer (ASSAD); initiate niche diversification in recycling operations via tin and antimony recycling; and commercialize and scale the production of new li-ion batteries for high power applications. The latter is an entirely new venture for Monbat, yet is expected to have considerable impact on the Company from 2019 onward.

With the above mentioned strategic new investments, Monbat’s management expects EBITDA to triple over the next 5 years from EUR 22.5m in 2016 to EUR 69.8m in 2021. The key EBITDA expansion contributors are expected to be market expansion, current organic operations, li-ion venture and recycling diversification, each contributing 48%, 26%, 17% and 9% to additional EBITDA, respectively.

Financing new investment ventures

To finance its new investment ventures, Monbat plans to issue 7- year EUR 30m convertible bond. The issue’s prospectus has already been approved by the Bulgarian Financial Supervision Commission with public offering expected shortly. The bond poses a dividend like investment exposure to Monbat as coupon is slightly above average DY of the Company. Thus, the bond offers lucrative current income investment opportunity with the option to take considerable upside if Monbat achieves targets via the bond conversion option. Bondholders can convert the bond into common stock three times over the life of the issue at a price of 90% of the weighted average price per share prior to the conversion.

Read in detail in ELANA Trading equity research report