Soda ash is not as eye-catching as microchip architecture. But it has been critical to human industry for a lot longer. Besides, a deal-famished London market cannot afford to be picky.
Turkey’s WE Soda plans to list in London. This is good news for the embattled market. The float would underpin London’s core commodity franchise. A mooted valuation of $7.5bn would be big enough to make a difference to a bourse that has been losing important companies.
Soda ash is a low-value bulk commodity widely used in glassmaking and products such as washing detergents. Turkey, where WE is based, has competitive advantages for production. The country has large reserves of trona ore. Soda ash can be made from this mineral with half the energy required for synthetic production.
WE’s facilities sit at the bottom of the global production cost curve, supporting a premium price for the shares.
Turkish industrialist Turgay Ciner owns WE. He plans to sell a tenth of WE’s equity. His timing is opportune. Company earnings have benefited from a boom in soda ash prices. This reflects soaring energy prices and pent up post-pandemic demand. Ebitda doubled last year to $838mn.
The surge may be ending though. Construction demand is weakening and Inner Mongolia is adding to global supplies, according to Sebastian Bray of Berenberg. Chinese soda ash futures have fallen by two-fifths from a peak at the start of this year.
Even assuming WE’s ebitda can hit a billion dollars this year, the suggested multiple of 7.5 times is still a substantial premium to peers. Belgium’s Solvay trades at just under five times.
Growth potential and high margins help justify the gap. WE plans to double output by 2030 by adding US capacity. A promised dividend yield of almost 7 per cent this year is another plus factor.
Investors should, however, challenge WE’s claims to be a marginal supplier that can control the market. It is a point that will be worth making in pricing negotiations. A decent debut for the shares would earn credit for both sides and encourage more foreign businesses to list.
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