Befesa S.A.

The possibility of a turnaround in 2020 has evaporated in the past few weeks with the implementation of restrictions across Europe to limit the spread of the coronavirus. As of today, we expect a 0.5% contraction in European GDP in 2020 ("high base"), and a potential contraction of 1.0% ("low base"). In our view, a contraction in GDP will lead to a drop in steel production in Europe of up to 5% under the high-base scenario and of between 5% and 10% under the low-base scenario. (Europe accounts for about 70% of Befesa's steel dust recycling capacity.) Under those scenarios, we project that Befesa's EBITDA in 2020 would be in the range of €110 million-€150 million, compared to our earlier

...Key Strengths Key Risks The largest European steel dust and aluminum salt slags recycler, with a 45%-50% market share in both segments. Exposure to volatile zinc prices, albeit limited by a hedging policy. Comfortable leverage of about 2.5x, supported by robust liquidity, with the next debt maturity not until July 2026. A contraction of the European economy by 0.5% or more in 2020, resulting in a material contraction in steel production. The need for relatively high capital expenditure (capex) to carry out international greenfield projects, with spending of above 60 million in 2020 and 2021....

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