OrganoClick: Margins improve, but NWT sales still lag - ABG

Q1 marked a return to normal gross margins
NWT ramp-up lagging expectations, sales down 7-3%
15-10x ’23e-’24e EV/EBITDA

Q1 a mixed bag of improved margins but lagging NWT sales
OrganoClick reported Q1 sales of SEK 32.6m (-5% vs. ABGSCe 34.5m), up 10% y-o-y. The gross profit amounted to SEK 8.2m (+3% vs. ABGSCe 8.0m) at a margin of 25.2% (ABGSCe 23.2%). The gross margin is now back to more normal levels, as we had expected, following price increases to customers in Functional Wood at the end of 2021. In Non-woven & Technical Textiles (NWT), a delivery to Duni scheduled for March was delayed, and as a result Q1 sales were disappointing (SEK 0.2m, SEK 0.8m in Q4’21). According to management, this delivery has since been completed, adding that the segment would have seen q-o-q growth had the delivery been included in the Q1 figures. Green Coatings & Maintenance growth continues to be driven by higher OrganoTex sales, which is also margin-accretive. The opex base was a bit leaner than expected, resulting in EBIT of SEK -4.2m (ABGSCe -5.1m). Finally, the company continues to hold more working capital than usual, which it says will reverse in the coming quarters.
NWT ramp-up is taking time, some sales pushed back While OrganoClick has demonstrated its ability to win NWT contracts (Duni and Ahlstrom-Munksjö) the timeline for ramping up sales has taken longer than expected. We lower sales by 7-3% for ’22e-’24e, and our current estimates include one more NWT contract being signed mid-’22e and one at some point during ’23e.
Capacity scaled up in NWT, now we wait for more contracts The company has scaled up its production capacity in NWT, now being able to take on a few more contracts (assuming roughly Duni size at ~SEK 30m sales per annum). Now the key to success will be to win new contracts with non-woven producers to increase capacity utilisation and realise economies of scale. On current estimates, the share is now trading at 15-10x ’23e-’24e EV/EBITDA.
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