Exel Composites - A lot of room to improve
Q4 results were poor, but demand appears to have bottomed
Exel’s Q4 revenue fell 29% y/y to EUR 22.1m vs our EUR 26.8m estimate. Wind power continued weak relative to our estimate, while all other customer industries except Transportation still declined by double-digit rates. The declines occurred through all the major geographic regions. The EUR -1.3m adj. EBIT was clearly below our EUR 0.7m estimate, however cash flow remained positive. Exel’s positive FY ‘24 guidance wasn’t any surprise given the very low comparison figures and so the only question remains just how steeply both top line and earnings recover this year. We believe Q1’24 earnings will already gain a bit although revenue is likely to remain rather subdued. In any case Exel is unlikely to see adequate levels of EBIT before H2 unless customer activity picks up faster than expected during the spring months.
New operating model and strategy measures to deliver
January order intake was encouraging, but Q1 is unlikely to be a great quarter as customer activity appears to be only bottoming out. We therefore believe it will take until H2’24 before Exel can achieve a quarterly EBIT of some EUR 1.5m, which would still be a rather modest level in the company’s context. Wind power recovery pace remains a bit uncertain for now, while Transportation grows due to demand attributable to electric busses and trains. Defense has scope to grow, whereas Buildings and infrastructure may be starting to recover (albeit from a low level). Exel starts to break figures according to its new structure from Q1 onwards: the volume-focused Industrial Solutions BU, driven by wind power orders, is to grow faster than the other unit which focuses on tailored solutions in multiple industries.
Multiples reflect some expectations of improvement
Exel is valued 10.5x EV/EBIT on our FY ’24 estimates, which is not a particularly low level. We estimate EUR 5.1m FY ‘24 EBIT, a level still very modest relative to potential. The multiple would decrease to around 6x assuming a quarterly EBIT of around EUR 2m, in other words a normal historical level. Our new TP is EUR 2.2 (2.7) as we retain our HOLD rating.