Describing the trajectory of the industrial recycling company Befesa is complex. It is based in Luxembourg; its managers are in Ratingen (Germany); Its president, Javier Molina, is Spanish, and the top management is divided between Spanish and German executives. Its shares began trading in 1998 on the Bilbao Stock Exchange and are now traded only on the German Stock Exchange, after several changes in its shareholding.
Something simpler is your business. Befesa receives from steel companies and aluminum producers the dust that used to come out of its chimneys and after an energy-intensive industrial process it ends up obtaining zinc and aluminum that it then sells on the market. Some steel companies that use electric arc furnaces to melt metals, preferably galvanized scrap from the car that has a not inconsiderable amount of zinc. The latest data suggest that it recycles 1.3 million tons of this dust per year and with them obtains 600,000 tons of new materials: the rest is harmless and can be sent to a landfill or used for other applications.
Befesa charges steel companies a fee for recycling their steel dust, which represents between 5% and 10% of revenues, and then sells the zinc on the market (for example, to Asturiana del Zinc) or aluminum , which represent between 90% and 95% of the turnover, which until September of this year amounted to 574 million euros, with a growth of 28% compared to 2020. This year is being of strong growth for the company of industrial recycling with a net profit of 61.5 million until September, which is almost double the figure for the same period of the previous year (31.4 million).
A constant of the company has been its international expansion. Since its beginnings in the eighties as the German firm BUS, it has been present in this market and also in Sweden, Spain, France, the United Kingdom, Turkey and South Korea. The big bet this year has been the United States with the purchase of the American Zinc Recycling (AZR) and the start of production of two plants in the Chinese provinces of Jiangsu and Henan, the first is already carrying out its first tests.
As Rafael Pérez Gómez, Befesa’s director of strategy and investor relations, explains, the implementation of the company is closely linked to changes in the environmental legislation of the countries where it is installed, when they force to recycle this slag from steel mills and aluminum signatures. “This business has strong entry barriers because, if you set up next to a steel mill, no one else is going to set up. This was what led us last June to buy the AZR firm in the United States, in an operation of 450 million dollars [395 millones de euros], which made us world leaders in steel dust and will increase our recycling figures by 40%, ”he explains. An acquisition that has also increased its workforce to 1,600 employees.
The purchase of AZR was carried out through a capital increase aimed at large investors, so its levels of leverage did not suffer excessively. “Our debt amounts to 482 million euros, that is, 2.3 times the ebitda. We have a great generation of cash flow with a comfortable structure of debt maturities until 2027. In addition, we have a liquidity of 200 million euros plus 75 million in credit lines, ”says Pérez.
The other pillar of growth is China and its two plants in Jiangsu and Henan. Although, in the words of its chief strategy officer, it is only the beginning. China produces 50% of the steel in the world and only 20% comes from scrap recycling. A current form of production through blast furnaces that is up to seven times more polluting than with the use of the electric arc. “China changed its environmental regulation three years ago and from there Befesa began the construction of two recycling plants. With these productions and the shift towards a less polluting model, China offers brutal potential for our business. And there are also large countries that still have to modify their laws, such as Brazil, India or Russia, “he says.
Perhaps the Spanish firm Abengoa, now desperately seeking a public bailout, will regret having sold Befesa to the German industrial fund Triton Partners in 2013. Befesa was created as the environmental division of the Sevillian conglomerate and in 2006 it acquired the German BUS for 330 million euros, dedicated to the recycling of industrial slag. But in 2013 Abengoa sold the entire company to Triton Partners for 1,100 million euros. Four years later, the German industrial fund placed 50% of Befesa on the German Stock Exchange, giving it a total price of 2,000 million euros and currently has a market value (capitalization) of 2,410 million euros, at 60 euros per share. .
At present, Triton Partners is no longer part of Befesa’s shareholders –after successive sales on the Stock Exchange–, which has a free-float (percentage of capital in the Stock Market) of 100%. The company’s director of strategy and investor relations explains that the main shareholders are Allianz Global Investors, which owns 10%, followed by Corporación Alba (Grupo March) and by the Mayoral family, both with another 5%. approximately. “Norges and Banco Santander also have positions close to that percentage,” he says.
The analysts’ view is optimistic about Befesa. A report published a few weeks ago by Goldman Sachs includes a positive recommendation on the stock. This advice is based on its “significant growth potential” inorganic through the integration of AZR in the US and organic through the advantage of being the first to move into the untapped Chinese market; “market leadership” in a rapidly growing niche of the circular economy, supported by the regulation and decarbonisation of steel, and a “strong context” of commodity prices that supports attractive business fundamentals. “
For his part, Jon Wallace, fund manager at Jupiter AM, explains the rise in energy prices as a risk for Befesa, which should be offset by the increase in metal prices, which indirectly benefits the business. “Our long-term vision is focused on China, where we expect the steel sector to quickly catch up with other markets in the use of electric arc furnaces instead of blast furnaces. Befesa will contribute to making this transition possible and with the start-up of its first plant in the province of Jiangsu we hope that 2022 will be a crucial year in increasing its activities and a springboard for a series of recycling plants in the area ”, Wallace concludes.
The green, sustainability, circular economy label is fashionable in the markets and is becoming a trend. Befesa has benefited from this situation and, as manager Rafael Pérez explains, “in the last year and a half there has been a massive influx of sustainable funds into our shareholders”. In addition, the company is part of the Global Challenges Index (GCX), made up of firms that improve the environment, he explains.