Nexam Chemical - More focus on Reactive Recycling - ABG

Q1'23 results
Nexam had Q1 sales of SEK 52m (ABGSCe SEK 59m), whereof sales to Diab were SEK ~10m. Performance Chemicals had sales of SEK 22m, -7% y-o-y, well below our forecast of 27m. Performance Masterbatch had sales of SEK 30m, 0% y-o-y, also below our forecast of SEK 32m This resulted in group EBITDA of SEK 0m and a net profit of SEK -4m. Morover, the company has an unused credit facility of SEK 20m (SEK 11.5m previously) in addition to a cash position of SEK 28m (SEK 23m in Q4'22).

We lower our '23e sales by 5%
We lower sales '23e-'25e by 5-10%, as we expect less sales contribution from the company's PET-foam additives. We also lower our sales estimates for Performance Masterbatch. We continue to believe that Reactive Recycling will be Nexam's main sales key driver in the long term. The company currently has >5 Reactive Recycling projects that are in a commercialisation stage at its customers (~70 prospects testing Reactive Recycling products and ~30 projects are beyond first level of sample testing). Based on Q1'23 communciated projects the average potential per project is SEK ~20m/year. We expect it to take some time before orders increase in size, and therefor foresee orders worth SEK ~15m in '23e. However, in '24e we foresee orders worth SEK ~40m in '24e and SEK ~75m in '25e, as we expect orders to increase in size.

The share is trading at 18x EV/EBITDA on '24e
We find strong underlying demand for Nexam's Reactive Recycling products, but we expect it will take some time before orders ramp up, as Nexam's customers first have to sell its products to their own customers. The share is down 14% YTD and its trading at 18-15x EV/EBITDA on '24e-'25e. We reiterate our fair value range of SEK 5-10 per share.

Länk till analysen i sin helhet: https://cr.abgsc.com/contentassets/2348e08765b4483f9a0b17c1277a2716/pdf/more-focus-on-reactive-recycling.pdf