DNB Markets - Nexam Chemical: A return to impressive growth

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We find the Q3 report encouraging as the company has returned to impressive growth with 89% YOY sales growth in Performance Chemical providing confidence that the company can deliver on its 2022 sales target. EBITDA was positive for the third consecutive quarter, signalling that the company has now reached break-even volumes and we expect the gross margin contribution to drive margins higher into 2022. On its 2022 financial target, we have raised our fair value to SEK10–14 and we note that the stock is trading at 2022e EV/sales of 2.0x, 31% below peers.

Q3 highlights. Sales of SEK41m were 1% above our forecast and EBITDA at SEK1.8m (+5% versus our estimate) was in positive territory for the third consecutive quarter. These results, combined with Sales growth in Performance Chemicals at 89% YOY, support our view that the company can execute on its cSEK300m sales target by 2022 while also keeping earnings in the black. The gross margin of 43%, up 583bp YOY, was in our view driven by a higher share of sales from Performance Chemicals, now 48% of total sales and lends support to our thesis that a gross margin contribution of 5% up until 2022e could yield a 2022e adj. EBIT margin of 10%.

Gaining confidence in >30% sales CAGR and margin gains. We believe the agreement with PET-foam manufacturer DIAB accounted for c15% of sales in Q3, corresponding to cSEK6.1m. Excluding DIAB from the quarter still indicates that the remaining business in Performance Chemicals was growing 30% in Q3, to us also signalling healthy growth within other verticals.

Estimate changes. We have lifted our 2020–2022e sales by 1% following the Q3 report and have lifted our EBITDA forecasts by 3% on average.

Fair value raised to SEK10–14/share (8–12). We note that the stock is trading at a 2022e EV/sales of 2.0x. As Performance Chemicals continues to outgrow Masterbatch, group sales growth should accelerate. The stock is trading 31% below our specialty polymer peer group, while on our forecast having a 10%-point higher gross margin.

Best regards,

Viktor Trollsten | DNB Markets | Equity Research

DNB Bank ASA, Filial Sverige


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