Buy, target price: EUR 97.3

Chart comment:

The stock has clearly broken the long-term downtrend, has also broken the 200d moving average and is about to generate a Golden Cross. In summary, the technical picture looks absolutely positive.

Fundamental arguments:

- Leading global manufacturer (in terms of quality and quantity) of man-made cellulosic fiber (MMCF); MMCF (made out of wood) is a niche application (6% of global fiber market) that either substitutes for cotton or is used as a complementary fiber together with cotton.

- Due to environmental constraints (lack of arable land; lack of water supply), the global cotton supply is stagnant; it is thus not possible to satisfy future rising global cellulosic fiber demand with cotton. MMCF is the only fiber type that is able to fill this ’Cellulosic Gap’ and the global market for MMCF is therefore expected to rise fourfold by 2030.

- Due to Lenzing’s strong competitive position, we believe that (1) Lenzing will capture a significant share of this growth; and (2) that this growth will be value-enhancing for Lenzing shareholders. Lenzing delivered an average ROCE of 13% throughout the last decade.

- Thanks to capacity increases, Lenzing’s fiber sales are expected to increase volume-wise by 14% y/y in 2013 (920 kt); by 2015, Lenzing’s fiber capacity will increase another 31% to 1,165 kt.

- Additonally, Lenzing’s growth story is underpinned by the continuous expansion of the application of specialty fibers into new areas; e.g. energy storage devices, green packaging or medical applications. This expansion furthermore lowers Lenzing’s exposure to the textile industry and consequently lowers direct exposure to the cotton price.

- Due to an expected record cotton inventory level (expected stock to flow ratio of 71% by YE 2012/13), the ICAC forecasts that global cotton production will shrink by 11% in 2013/14 and should thus support the cotton price going forward. Recently, cotton prices already developed quite favorably, lifted by expectations of rising demand. This trend should also act as a support for Lenzing’s operating performance in 2013.

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