DNB Markets - Nexam Chemical: Q3 is history, opportunities ahead
Q3 sales missed our forecast by 13%, driven mainly by vacation effects but also the general raw-material shortage globally, which may have pushed some sales into Q4e. However, this has not changed our view of Nexam Chemical, and we still believe the 2022 sales target of SEK275m–325m is within reach with its current platforms. Following the Q3 results and a change of analyst, we have lowered our estimates slightly but reiterate our fair value of SEK15–20. We estimate a strong end to 2021 and consider the company well-positioned to continue executing on its profitable growth journey. Additional breakthroughs in new platforms, such as recycling or polyethylene, could offer potential upside in the near to medium term, in our view.
Q3 review. Q3 sales were below our forecast, and LTM sales are now ~32% below the low end of the 2022 sales target range. EBITDA of SEK1m was below our SEK4.2m forecast, affected by lower-than-expected gross margins. We still expect earnings to be lumpy given Nexam Chemical is operating in a tight market, where large order volumes do not necessarily mean better prices, creating margins driven by the sales mix.
Quantifying the long-term potential. Nexam Chemical’s main focus right now is to develop and refine both its new and old platforms. We see potential opportunities in the recycling and polyethylene businesses, which we believe should drive growth in the coming years, alongside the well-functioning PET foam and Masterbatch businesses.
Estimate changes. We have lowered our 2021–2023e sales following the Q3 results and a change of analyst, and cut our EBITDA by 23–7% to reflect the current raw-material shortages as well as the investments in the organisation.
Fair value of SEK15–20 reiterated. Our fair value is based on a 10% premium to peers’ 2023e EV/sales of 3.6x, and our DCF, and reflects the prospect 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