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Refractory giant set for UK stock market debut
A producer of bricks to line steel and glass furnaces so they withstand extreme thermal, mechanical and chemical stress is set to join the London Stock Exchange on 27 October. We believe RHI Magnesita is primed to qualify for the FTSE 250 index in the near future.
Austrian group RHI generated €1.6bn revenue in 2016. Its merger with Brazilian group Magnesita finally completed this month after a year of delays and creates the world’s largest maker of heat-resistant refractory materials.
The combined business is likely to use its enlarged scale to strengthen its position in the Chinese market.
Before it linked with RHI, Magnesita was the number one player in South America where it had a strong position in both the steel and cement industries. It was also number one in dolomite products in North America and Western Europe.
RHI as a standalone business generated revenue from many different parts of the world, such as 28% from Western Europe, 7% from Eastern Europe and 22% from Asia, as per its 2016 financial results.
The closest comparison to RHI Magnesita on the UK stock market is Vesuvius (VSVS) whose share price has doubled since February 2016. Both companies make refractory materials but the former also has mining assets.
Magnesite and dolomite are the raw materials used to make refractory products. An estimated 70% of the world’s deposits for these commodities are located in three countries; China, North Korea and Russia.
Prior to its merger, former Austrian-listed RHI obtained around 80% of its raw materials from eight group-owned sites. It has recently focused on optimising existing mines and increasing operational flexibility. In 2016 it also reduced production of fused magnesia in favour of buying material from China due to a decline in prices.
Investors may be concerned in the short term about RHI Magnesita’s rising debt in proportion to its earnings as a result of the business combination, as well as the complexities of integrating two large businesses. (DC)
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