DNB Markets - Nexam Chemical: Part of the solution, not the pollution
Q4 sales were 9% below our forecast, largely reflecting lower growth in Performance Chemical than we expected (27% YOY versus our 50%). However, the more mature Performance Masterbatch again met our expectation, with 17% sales growth YOY. We have lowered our 2022–2023e sales by 8–7%, but still believe the 2022 run-rate sales target of SEK275m–325m is within reach. We have also lowered our fair value to SEK14–19 (15–20), but consider the company well-positioned to continue executing on its profitable growth journey. We see a solid plastics recycling business case and view Nexam Chemical as part of the solution, not the pollution, something we believe the market is overlooking.
O4 review. Q4 sales were 9% below our forecast, and full-year sales were ~25% below the low end of Nexam Chemical's 2022 sales target range. EBITDA of SEK1.2m was below our SEK5.8m forecast, affected by lower gross margins than expected. The market in which Nexam Chemical operates is still being affected by raw material shortages, where large order volumes do not necessarily translate into better prices, meaning margins are driven by the sales mix. Nonetheless, we find it encouraging that the company continued to grow steadily YOY, and report its strongest cash position since 2018, which could contribute to even further growth through investments or potential acquisitions.
Estimate changes. We have lowered our 2022–2023e sales by 8–7% following the Q4 results but cut 2022–2023e EBITDA by 46–12% to reflect a continuation of the raw-material shortages, as well as investments in the organisation.
Fair value lowered to SEK14–19. Although Nexam Chemical and its speciality polymer peer group have seen share prices drop sharply recently, Nexam Chemical is still trading at a 49% discount to our peer group. We base our fair value on a 10% premium to peers' 2024e EV/sales of 3x, and our DCF, and see prospects of a re-rating on improved ESG credentials.
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Best regards,
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Mattias Holmberg | DNB Markets | Equity Research | Capital Goods
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