Kepler:" Upgrade to Buy RHI’s shares have been down almost 20% in the last month. Q2 results were okay (especially margins) and the slightly downwards revised outlook for 2014 (flat sales versus 3% growth previously, but margin outlook maintained) hasn’t justified the recent share price weakness in our view. As the valuation has become significantly more attractive recently and potential risks (economic slowdown, no quick fix at the underperforming Norwegian plant) now seem well priced in, we upgrade our ratomg from Hold to Buy.

New TP of EUR24

Following the reduced guidance, we have decreased our sales projections by 4% for 2014 and 2015. Our new EPS forecasts go down by 6% to EUR2.15 for 2014 and to EUR2.52 for 2015.

Conference call highlights

1) In the Steel division, RHI continues to see good demand in Europe, the Middle East and India, whereas CIS, Asia (ex-India) and South America look weak. Margins in the Steel division could be supported by better capacity utilisation after the closure of the Duisburg plant. 2) The underperforming Industrial division could see a clear improvement in H2 (sales and margins) due to a strong project pipeline (cement, non-ferrous metals, glass). However, management believes the higher project activity in H2 will not be able to fully offset lower sales in H1. Hence, the adjustment of the guidance. 3) In the Industrial division, the persistent weakness of the glass division could lead to the closure of the Russian plant (book value: EUR5m) and a refocusing of the US plant on other industries. 4) The weak FCF situation in H1 could mostly reverse in H2, as the build-up in inventories (EUR38m in H1) mainly related to projects which will be executed in H2. 5) At the Norwegian plant, RHI has made good progress in the fusion operations. However, the upstream caster process is still underperforming. As a result, the plant is still not cost competitive and the worst case (plant closure) is still an option. "

RHI

RHI: Letzter Schlusskurs (Euro): 20.700, das ist der 147. beste von 147 Handelstagen (%-Perf.) , das ist der 147. beste von 147 Handelstagen (Preis) , Periodenhoch am 22.01.14 (Kurs: 26.050 Δ% -20.54), Periodentief am 05.08.14 (Kurs: 20.700 Δ% 0), 147 Handelstage, davon ↑ 72 → 2 ↓ 73 , Performance Periode: -8.22 %, Umsatz '14/'13: 71 %

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