Deutsche Bank Sees Upside In Rockwood Holdings

Meetings with Rockwood's ROC CEO increased Deutsche Bank's confidence that ROC's discount vs specialty peers will no longer be justified if, over the next 12 months, ROC further delevers towards 2x net debt/EBITDA, refinances its above market term loan, delivers 10% EBITDA & 20% EPS growth in '11, maintains industry leading EBITDA margins and remains well positioned to benefit from growth in lithium powered electric cars. Rockwood's key US and European auto and general industrial end markets remain strong. The only end market that remains weak is US construction. Rockwood does not expect this business to improve in ‘11. Rockwood's focus is on investing in organic growth, reducing debt and positioning its lithium business such that when the inflection point in demand occurs, Once it has reached this target range, Rockwood would consider paying a dividend. Rockwood's European-based TiO2 business is sold out. With 50% of the business commodity and 50% specialty, Rockwood is focused on growing its higher margin specialty sales. An industry-wide January 1 price increase for April 1 implementation remains under discussion. Rockwood believes TiO2 pricing will be up at least 15% in ‘11, though it is not a market leader. Deutsche Bank has a $50 PT and Buy rating on ROC ROC closed Wednesday at $39.60