IPO Preview: Constellium Holdco B.V.

May.22.13 | About: Constellium Holdco (CSTM)

Based in Schiphol-Rijk , Netherlands, Constellium Holdco B.V. (NYSE:CSTM) scheduled a $400 million IPO with a market capitalization of $1.8 billion at a price range mid-point of $18, for Thursday, May 23, 2013.

Five other new IPOs are scheduled for IPOs for this week. The full IPO calendar is here.

  • F-1 filed May 14, 2013
  • Manager, Joint Managers: Goldman; DeutscheBank; J.P. Morgan
  • Co-Managers: Barclays; Credit Suisse; Morgan; BNP PARIBAS; UBS; Citigroup; HSBC; SOCIETE GENERALE; Lazard; Apollo Global Securities; Moelis; Rothschild; Davenport

SUMMARY

CSTM is a European company that reports in Eurodollars rather than U.S. dollars (Eurodollars are converted to $ for this report).

VALUATION

CSTM showed a loss in the March 2013 quarter of $2 million on sales of $1.1 billion after showing a profit of $165 million on sales of $4.4 billion for all of 2012. CSTM says the March loss was "primarily as a result of higher financing costs due to the accelerated amortization of fees following the March refinancing and unrealized losses on derivatives held at fair value."

Adjusted EBITDA, however, rose to 7% of revenue for the March 2013 quarter, up from 5% for calendar 2012. Based on 2012 profits, CSTM expects to IPO at a little less than 10 times 2012 earnings.

But CSTM also has a revenue problem: the March 2013 quarter revenue is expected to be down 2%-3% from the March 2012 quarter.

Retained deficit (negative net worth)

CSTY post-IPO will have a retained deficit of $201 million, because Apollo (private equity firm) in its usual style has sucked out as much cash as can through borrowings and paying dividends.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing March qtr

Cap (MM)

Sales

Earnings

BkValue

TangibleBV

in IPO

Constellium Holdco B.V.

$1,541

0.3

-214.0

8.5

-6.9

26%

Click to enlarge

Glossary

CONCLUSION

There are too many moving parts to get a positive feel for expected top line revenue for CSTM and for profit trends. Plus, shareholders are selling 50% of the offering, which doesn't reflect well on their confidence in the business. Avoid the CSTM IPO.

HISTORY

Constellium acquired the AEP Business (the operating company) from Rio Tinto on January 4, 2011 using private equity financing.

To put the above conclusions and observations in context, the following is reorganized , edited and summarized from the full S-1 referenced above.

BUSINESS

CSTM is a specialty metals company that participates in select segments of the aluminum semi-fabricated products industry, including rolled and extruded products. CSTM does not mine bauxite, refine alumina, or smelt primary aluminum as part of our business. Its industry is cyclical and is affected by global economic conditions, industry competition and product development. CSTM is focused on three strategic end-markets-aerospace, packaging and automotive-which CSTM believes have attractive growth prospects for aluminum.

MARKETS

The expected growth through 2017 for the extruded products market and the flat rolled products market is 6.2% and 5.5%, respectively.

CUSTOMERS

CSTM has a relatively diverse customer base with 10 largest customers representing 43% of revenues and 48% of volumes for the year ended December 31, 2012. The average length of relationships with the top 20 customers exceeds 25 years, and in some cases goes back as far as 40 years, particularly with aerospace and packaging customers

LEADING MARKET POSITIONS

  • CSTM is the largest supplier globally of aerospace plates.
  • CSTM is the largest supplier of European can body stock by volume with approximately 36% of the market.
  • In automotive, CSTM believes its leading positions in the supply of aluminum products are due to advanced design capabilities, efficient production systems and established relationships with leading automotive OEMs. CSTM is the second largest global supplier of auto crash management systems by volume.

CYCLICALITY

Although the metals industry and end-markets are cyclical in nature and expose CSTM to related risks, CSTM believes that its portfolio is relatively resistant to these economic cycles in each of the three main end-markets (aerospace, packaging and automotive).

SEASONALITY

Volumes are impacted by the timing of the holiday seasons in particular, with August and December typically being the lowest months and January to June being the strongest months.

COMPETITION

The specialty metals industry is comprised of producers of a variety of high performance metals and semi-fabricated products manufactured from those metals, which include stainless steel and titanium in addition to aluminum.

CSTM also competes with producers of other materials that can be used in the target end markets, such as composites in aerospace or copper in certain automotive applications, as well as traditional carbon steel in automotive and packaging.

5% STOCKHOLDERS PRE-IPO

  • Apollo Funds, 54%
  • Rio Tinto International Holdings Limited, 39%
  • Fonds Stratégique d'Investissement, 10%
  • Note: adds up to 103%, page 138.

USE OF PROCEEDS

CSTM intends to offer 11.1 million shares to net $180 million. Shareholders also intend to sell 11.1 million shares. Proceeds are allocated for general corporate purposes, which may include working capital, capital expenditures, repayment of debt and funding acquisition opportunities.

Disclaimer: This CSTM IPO report is based on a reading and analysis of CSTM's F1-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.