DNB Markets - Nexam Chemical: No wind in its sales

Q2 sales were down 25% YOY, driven by lower volumes due to inventory reductions and overall weaker demand. Sales in Performance Chemical were affected by lower volumes from the wind-power industry and, while we expect a recovery during H2, it will likely take longer than we had expected. We have lowered our 2023e sales to SEK191m following the Q2 results, and our fair value to SEK8–10 (10–14).

Q2 review. Group sales declined by 25% YOY, while adj. EBITDA was SEK-5.5m (we expected SEK2.3m). According to the company, the weak top line was due to lower volumes in various customer segments, in which most reduced their inventory levels. At the same time, overall demand seems to have been restrained due to a more uncertain macroeconomic outlook. Primarily, sales in Performance Chemical were hit by lower volumes, declining c31% YOY to cSEK15.5m. Sales in Performance Masterbatch were SEK26.2m (down c21% YOY). On a positive note, the gross margin was solid at c42.7% (versus 42.2% in Q1 2023 and 39.5% in Q2 2022).

Performance Chemical. The negative growth in sales in Performance Chemical was driven by lower volumes from the wind power industry. According to the company, c1/3 of the Performance Chemical sales (i.e. cSEK5m) came from the wind power industry. To compare, sales from DIAB alone amounted to cSEK10m in Q1 2023. The company sees indications that customers are at the end phase of inventory adjustments, so volumes from the wind-power industry should increase in H2. However, this recovery will likely take longer than we previously expected. Several projects and products in Reactive Recycling seem to be progressing, but we do not expect this to be a growth driver in 2023.

Financial position. Nexam's cash position is cSEK20.4m, and it says it does not plan on raising further capital, but we believe the risk of a rights issue has increased following the weak quarterly results.

Estimates cut, and fair value reduced to SEK8–10. While the company expects the wind-power industry to accelerate during the autumn, we believe this could take longer than we previously expected. As a result, we have cut our 2023e sales to SEK191m and, in turn, our adj. EBITDA for 2023 to SEK-9m. Consequently, we have lowered our fair value to SEK8–10.

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Hanna Lindbo | DNB Markets | Equity Research Sweden
Email: hanna.lindbo@dnb.se