Trading update: 2Q figures came in below our estimates. Revenues of EUR 437 mn (RCBe EUR 450 mn) implied a growth slowdown to -1% yoy from 7.5% in 1Q. The operating profit of EUR 21.1 mn missed RCBe by ca. 30% due to higher M&A costs (EUR 9 mn in 2Q vs. EUR 3.8 mn in 1Q), negative FX effects (EUR -6 mn, valuation of inter-company financing), lower revenues in the Industrials and Raw materials segments and the time lag to pass on rising raw material prices. However, regarding the latter the management displayed confidence that this will be caught up in 3Q. Importantly, RHI talked upbeat about the order intake, heralding a strong 2H 17. This was especially true for the Industrial division (backlog indicated at ca. EUR 190 mn, strong cement and glass units, solid non-ferrous and EEC). We remind that the sharp appreciation of the EUR vs. the USD represents a headwind due to the transaction risk. As a rule of thumb, 1 cent movement impacts EBIT by EUR 1 mn (but positive effect on NWC).
 
Valuation: The total-return target price of EUR 36 is derived from assigning an EV/EBITDA target multiple of 7.0x to RHI Magnesitas assumed 2020e EBITDA, discounted back to YE 18e. While this implies a premium compared to RHIs stand-alone historical forward multiple of ca. 6x, we think it is warranted given the improved market position and scope for rising profitability. We point out that the financial tables still contain RHI-stand-alone figures.