DNB Markets - Nexam Chemical: Waiting for the wind to turn

We have lowered our 2022e group sales by 9%, following a weaker-than-expected quarter for PET foam, as the wind-power industry has been struggling. However, we have raised our 2022e sales for Performance Masterbatch by 3% on the strong Q2 performance. The recycling business seems to be on track, and we find the division’s potential value added promising. We have reduced our fair value to SEK13–17 (14–19) on the back of the Q2 report.

Q2 review. Net sales declined by 7% YOY in Q2 and were 13% below our estimate. The decline was due to lower-than-expected growth in the Performance Chemicals division, driven by a slowdown in the wind-power industry, which hurt Nexam Chemical's PET foam business. With this exception, we believe Q2 showed strength, as the gross margin was stable QOQ at c40% (implying cost inflation was well managed), while Performance Masterbatch grew by 23% YOY (driven mainly by volumes), which we believe signals that the division is gaining market share (market grows c4–5% annually, according to the company).
Reactive Recycling. While Reactive Recycling sales have not fully taken off (we estimate SEK3–4m in 2022), Nexam Chemical says it has c25 clients evaluating its recycling solutions. We believe the high number of potential customers is promising, as it could signal strong demand within Reactive Recycling.
Outlook. We expect the PET-foam business to continue to face challenges throughout 2022 due to a slowdown in the wind-power industry. However, we believe the strong momentum in Performance Masterbatch should continue in 2022 and to some extent offset the weaker H2e for Performance Chemicals. In the long term, we view Nexam Chemical as well positioned for certain trends, such as renewables gaining a greater share of the global energy mix and increased governmental regulations targeting reductions in plastic waste.
Fair value reduced to SEK13–17. We have lowered our 2022e group sales by 9% to reflect the Q2 report and the challenging market for wind power in H2e. We have raised our 2022e sales for Performance Masterbatch by 3% following the strong quarter.

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Hanna Lindbo | DNB Markets | Equity Research | Capital Goods
 
DNB Bank ASA, Filial Sverige
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