Exel Composites: Demand picks up towards year’s end - Evli Research

Heady growth continued in H1’22, but H2’22 was slower

Exel’s Q4 revenue landed at EUR 31m vs the EUR 36m/35m Evli/cons. estimates. Destocking, after a period of high demand following the initial shock of the pandemic, has been an issue lately and is expected to continue in H1’23. Equipment and other industries, the third largest customer group, was particularly soft relative to our estimates but there seems to have been nothing special going on apart from the destocking issues as well as normal cyclicality. The soft top line left adj. EBIT at EUR 0.9m vs the EUR 2.4m/2.0m Evli/cons. estimates.

H1’23 will still be soft; guidance suggests better H2’23

Exel sees improvement from Q2 in orders as well as EBIT; top line is to remain flat this year, while EBIT has ground from which to gain. The Runcorn cuts should produce EUR 1.6m in annual savings. Inflation hasn’t been a big issue for Exel and raw materials are stabilizing. Wind power should again grow, according to Exel, at a 15% y/y pace from H2’23. Wind power was Exel’s largest customer in 2019-20 and continued to grow at a CAGR of 16.5% in FY ’20-21, however its revenue fell by EUR 5.3m last year and was overtaken by Buildings and infrastructure already in 2021. Exel got its challenges in the US sorted out last year, but the relative softness in the three largest customer groups left its adj. EBIT for the year at EUR 8.0m (we consider it a modest level). We note the four smaller industries together grew by 19% last year, although this was mostly attributable to Transportation as it enjoyed pent-up demand after the pandemic and received initial orders for a new aerospace application.

Valuation is not challenging if growth returns in H2’23

Exel is valued 9.5x EV/EBIT on our FY ’23 estimates, which we consider a neutral level. The multiple is not very low, however we estimate an EBIT margin of 6.3% for the year whereas the company should still be on track towards its long-term 10% target (it reached almost 9% in FY ’20). For FY ’24 we estimate 7% growth and 7.5% EBIT margin, which would translate to an EV/EBIT of 7.5x. Our new TP is EUR 5.8 (6.5); our rating is BUY.

Länk till analysen i sin helhet: https://www.evli.com/hubfs/ERP/Raportit/Exel%20Composites/Exel%20Composites%20230220%20Company%20update.pdf