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Based in Salford, England, Luxfer Holdings (NYSE:LXFR) scheduled a $104 million IPO with a market capitalization of $341 million at a price range mid-point of $13 for Wednesday, October 3, 2011.

Eight IPOs are scheduled for the week of October 1. Full IPO calendar available here.

  • S-1 filed September 19, 2012

  • Manager / Joint Managers Credit Suisse/ Jefferies

  • Co Managers KeyBanc Capital Markets/ Oppenheimer

SUMMARY & CONCLUSION
LXFR believes it is the leading manufacturer in the western world of high-performance magnesium alloys, powders, plates and rolled sheets in its Electron division, which contributes most of the earnings.

At a P/E of 7.7 and an expected annual yield of 3%, LXFR looks like a promising intermediate-term hold, with the expectation that brokerage firm analyst reports will be favorable.

However, IPOdesktop doesn't expect an IPO 'pop' from LXFR, which may even be priced down a little from the price range mid-point.

Each ADS (American Depository Share) represents one-half of an ordinary share.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing June 6 mos

Cap (MM)

Sales

Earnings

BookValue

TangibleBV

in IPO

Luxfer PLC

$341

0.6

7.7

2.2

3.0

31%

Financial term glossary

BUSINESS
LSFR has two divisions. The Elektron division focuses on specialty materials based on magnesium, zirconium and rare earths. The other division makes gas cylinders. Customers include both end-users and manufacturers that incorporate LSFR products into their finished goods.

BUSINESS SEGMENTS
LXFT is organized into two operational divisions, Elektron and Gas Cylinders, which represented 56% and 44%, respectively, of total revenue for the six months ended June, 2012.

For the six months to June 2012, the Elektron division contributed 79% of trading profit, defined as "operating profit before restructuring and other income (expense)" and Gas Cylinders contributed 21%.

ELEKTRON
LXFR believes it is the leading manufacturer in the western world of high-performance magnesium alloys, powders, plates and rolled sheets used in the aerospace, defense and photo-engraving industries. Magnesium Elektron operates plants in Swinton, United Kingdom, the Czech Republic, numerous plants in the United States and a plant in Ontario, Canada.

Magnesium alloys offer significant advantages over aluminum alloys, as they are around a third lighter, while exhibiting similar properties in terms of strength and stability.

Two brands
The Elektron division focuses on specialty materials based on magnesium, zirconium and rare earths. Within this division, LSFR sells its products through two brands.

Under the Magnesium Elektron brand, LXFR develops and manufactures specialist lightweight, corrosion-resistant and flame-resistant magnesium alloys, extruded magnesium products, magnesium powders, magnesium plates and rolled sheets and photo-engraving plates for the aerospace (light-weight alloys and components), automotive (lightweight alloys and components), defense (powders for countermeasure flares) and printing (photo-engraving sheets) industries.

Under the MEL Chemicals brand, LXFR develops and manufactures specialty zirconium compounds for use in automotive applications (exhaust catalysts), electronics (ceramic sensors), structural ceramics (dental crowns), aerospace (thermal barrier coatings) and chemical synthesis (industrial catalysts).

GAS CYLINDERS
The Gas Cylinders division focuses on products based on aluminum, composites and other metals using technically advanced processes. Within this division, LXFR sells its products through two brands.

Under LXFR's Luxfer Gas Cylinders brand, LXFR develops and manufactures advanced high-pressure aluminum and composite aluminum/carbon fiber gas containment cylinders for use in healthcare (oxygen), breathing apparatus (AIR), electronics (industrial gas), fire-fighting (carbon dioxide) and transportation (CNG) applications.

Under the Superform brand, LXFR designs and manufactures highly complex shaped, sheet-based products for a wide range of industries, including aerospace (engine air intakes), specialist automotive (body panels and door inners), rail transport (train fronts and window frames) and healthcare (non-magnetic equipment casings).

END MARKETS
The key end-markets for fall into four categories:

Environmental technologies: LXFR believes many of its products serve a growing need to protect the environment and conserve its resources.

For example, LXFR's products are used to reduce weight in vehicles improving fuel efficiency, in catalytic converters in automotive engines, removing noxious gases and to remove heavy metals from drinking water and industrial effluent.

Healthcare technologies: LXFR has a long history in the healthcare end-market, and sees this as a major growth area through the introduction of new product technologies.

Protection technologies: LXFR offers a number of products that are used to protect individuals and property. Principal factors driving growth in this end-market include increasing societal expectations regarding the protection of individuals and armed forces personnel, tightening health and safety regulations and the significant cost of investing in and replacing technologically-advanced military property.

Specialty technologies: LXFR's core technologies have enabled LSFR to exploit various other niche and specialty markets and applications.

CUSTOMERS
Magnesium Elektron serves a wide range of customers globally and has close and collaborative relationships with its customers. The top ten customers for magnesium products accounted for 26% of the Elektron division's revenue in 2011.

Magnesium Elektron competes in various specialist niches, including in the production of military powders and high-performance alloys. Competition is fragmented and varies from sector to sector, and includes competition from Chinese suppliers of magnesium die-casting alloys.

ENVIRONMENTAL REMEDIATION
LXFR has $3.0 million between 2009 and 2011 on environmental remediation efforts, including with respect to investigations at the Redditch, United Kingdom site of a closed tubes plant and a landfill at our Swinton, United Kingdom site. LSFR estimates that environmental compliance and related matters at these and other sites will cost $1.9 million in 2012.

INTELLECTUAL PROPERTY
Key patents held by the Elektron division relate to lightweighting alloys, magnesium gadolinium alloy (protection applications), water treatment and G4 (environmental applications).

Key patents held by LXFR's Gas Cylinders division relate to smartflow technology, aluminum alloy for pressurized hollow bodies and superplastic forming techniques.

COMPETITION
In the U.S., the medical cylinder market has a number of dedicated producers with excess capacity, making it very difficult for LXFR to raise customer prices to offset aluminum cost increases. In recent years, LXFR has also experienced increased competition from new geographic areas, including Asia, where manufacturers can benefit from lower labor costs.

Competition with respect to less complex zirconium chemicals has been particularly intense, with Chinese suppliers providing low cost feedstock to specialist competitors, making it especially difficult to compete in commodity products such as paint dryers. Chinese magnesium also continues to be imported into Europe in large volumes, which may impact LXFR's competitive position in Europe regarding magnesium alloys.

LXFR is also impacted by a trend for Western-based competitors to relocate production to Asia to take advantage of the lower production costs.

PRIVATE EQUITY CONTROLLED

  • 73% owned by private equity firms pre-IPO

USE OF PROCEEDS
LXFR expects to net $73 million from its IPO from the sale of 6.4 milion ADSs. Shareholders intend to sell 1.6 million ADSs.

  • $47 million is allocated to repay debt, the balance is allocated for general corporate purposes.

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.

Source: IPO Preview: Luxfer Holdings