DNB Markets - Nexam Chemical: Still waiting for wind of change
For yet another quarter, Nexam was hurt by slow demand in the wind power industry. However, sales for other parts of the Performance Chemicals segment seemed to expand, and the company’s Reactive Recycling business appears to be on track. We have lowered our 2023e sales to SEK257m on a changed view on the near-term outlook for PET foam, and have reduced our fair-value range to SEK10–14 (13–17).
Q4 review. Q4 sales declined by c2% YOY, bringing 2022 net sales to cSEK222m (corresponding to an increase of 1% YOY). Adj. EBITDA was SEK-659k, lower than our estimate of cSEK1m. Nexam announced that it had initiated a cost-savings programme of SEK5m annually. We believe the weak results could give rise to speculation about whether it would need to do a rights issue. In our view, Nexam should be able to raise money through debt financing if it reaches a critical point (since it has low financial leverage). However, we believe the key for this is that it starts to show positive operating results (and we believe profitability will improve with the new production line and the cost-savings programme). But we do not rule out that the company may need to raise capital through a rights issue down the road if it does not reach profitability in 2023.
Reactive Recycling. Nexam recently announced a SEK2m order from a South Korean company to be delivered over three months (with potential annual sales of cSEK14m, we believe). In addition, Nexam is in advanced talks with a central European packaging manufacturer that has the potential to lead to annual sales of cSEK40m (and we expect Nexam to announce a first order from this customer during 2023). It has also highlighted that it has c25 potential customers that have moved past the first phase of sample testing and have the potential to generate orders of commercial size. We believe that Reactive Recycling could be a swing factor for Performance Chemicals' sales this year.
Fair value reduced to SEK10–14. While we believe the market for wind power will improve in 2023 YOY, we still expect it to be a challenging year for Nexam's PET-foam business (e.g. in light of Vestas' profit warning). We do not expect any sequential improvement within PET foam for Q1. We have lowered our 2023e sales to SEK257m as we believe Nexam's PET-foam business will continue to face slow demand in H1, which has led us to reduce our fair value estimate.
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Hanna Lindbo | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: hanna.lindbo@dnb.se | www.dnb.no