Nexam Chemical: Progress in line with expectations - ABG

- Q2 sales SEK 54m, EBIT SEK -1.0m, vs. ABGSCe 52m and -1.0m
- Strong y-o-y result vs. easy comps, but also good on q-o-q basis
- Solid financial position, management positive on H2 volumes

Q2: Incremental improvements in line with expectations
The Q2 numbers came in much as expected. Sales amounted to SEK 54m (42m), compared to our estimate of 52m, while EBIT adj. was SEK -1.0m (-9.1m), in line with our estimate of -1.0m. The results marked a significant y-o-y improvement across the board, albeit vs. easy Q2 comps. More importantly, the company also showed small incremental q-o-q improvements. On the segment level, Masterbatch performed a bit better and Chemicals a bit worse than expected. Seeing as the Chemicals segment has the greater long-term potential, growth there would have been preferred, but the deviation is small enough that we do not find this worrisome. Cash flow was good in the quarter, with lease adj. FCF at SEK 2.4m, vs. our estimate of 1.6m, and with a cash balance of SEK 11m, and unused credit of SEK 20m, the company is now in a solid financial position.

Management remains positive on growth, we raise margins
With yet another quarter of good cost control under its belt, and clearer messaging on the limited need for investments to increase volume, we raise our '25e-'26e margin expectations by 1-2pp. With plenty of spare capacity, all that is needed to move into profitable territory is increased sales volumes. We believe there is good reason to think that these increased volumes will materialise, as new customer contracts move into the volume production phase, and end-markets start improving. Management continues to sound positive in this regard as well, especially looking forward to Q4, with Q3 being seasonally weaker.

Trading at 1.7-1.2x EV/Sales
The share has returned 40% L3M (vs. peers -5%, OMXSSMAC +5%) and is currently trading at 1.7-1.2x '24e-'26e EV/Sales, vs. peers at 1.3-0.8x. We raise our fair value range to SEK 3.5-5.0 (3.0-4.0), driven by the higher margin estimates.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/nexam-chemical/Equity-research/2024/7/nexam-chemical---progress-in-line-with-expectations/