We have lowered our 2022e sales by 9% following a weaker short-term outlook for wind power. We find the company's implicit 2022 sales target of SEK275m-325m challenging, but still consider it well positioned to reach its targeted 25% sales growth annually, with stable profitability over a cycle. Following the Q1 results and a change of analyst, we keep our fair value of SEK14-19.

Q1 review. Sales were 4% below our forecast, primarily driven by negative growth in Performance Chemicals due to a decline in demand for wind power. Performance Masterbatch, on the other hand, saw strong growth, reflected by higher volumes as well as price increases. Despite supply chain issues and cost inflation, the gross margin improved QOQ to 40% (36% in Q4 2021).

Outlook for 2022. We expect Q2 sales in Performance Chemicals to remain affected by weak demand for wind power, but forecast a strong recovery within the market in H2. For Performance Masterbatch, we see continued strong growth throughout the year, driven by increased volumes and higher prices. We believe the gross margin should gradually improve on a quarterly basis, with price increases offsetting higher costs.

Long-term case intact. Although Q1 sales were hit by lower demand for wind power as well as shutdowns in China, we believe these to be short-term issues. We expect structural trends involving renewables gaining a greater share of the global energy mix as well as increased regulation targeting plastics recycling to benefit Nexam Chemical. In addition, we believe the desire shown by various countries to reduce their reliance on Russian energy supply will accelerate the shift towards renewables, along with higher energy prices increasing the incentive to recycle. Hence, we consider Nexam Chemical well positioned for future growth, with its products set to meet greater demand.

Estimate changes. We have lowered our 2022e sales by 9% following the Q1 results and cut our 2022e EBITDA by 7%, with lower sales somewhat offset by a stronger gross margin for the remainder of the year.

Fair value of SEK14-19 reiterated. Our fair value is based on our peer group's 2023e EV/sales, and our DCF, and reflects prospects of improved ESG credentials.

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Hanna Lindbo | DNB Markets | Equity Research | Capital Goods
 
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: hanna.lindbo@dnb.se | www.dnb.no

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