Exel Composites - Building up for volume growth

Some EUR 13.6m of net proceeds used for capex and opex

Exel disclosed the terms for its EUR 21.8m rights offering, which the company decided on to repay EUR 6.5m in debt but also to ensure sufficient working capital and accelerate growth plans (e.g. a factory in India). Institutions representing some 8% of the shares have undertaken to subscribe, and although this doesn’t yet guarantee the offering’s success it’s more likely than not to be completed. There will be up to 94.8m new shares as each right entitles to subscribe for 8 at a price of EUR 0.23 per share. Net proceeds of at least EUR 20m would confirm a bank loan refinancing of EUR 52.4m. The rights can be traded until the first week of June, when the subscription period also ends.

No changes to our operative earnings estimates for now

We believe Q2 will remain soft, but H2 should see more meaningful gains as volumes recover after the recent downturn. H2 comparison figures are so soft that there’s bound to be improvement. Growth in large-volume industries like wind power (especially in India), transportation as well as buildings and infrastructure should be the most important earnings driver in the coming years; margins have never been a problem for Exel, so earnings are to follow volumes also in the future. We estimate 25-30% y/y top line growth for H2’24, which seems realistic considering the latest trends in orders; revenue would then be roughly at the same level as in H1’23 (already a soft period).

FY ’24 multiples high as earnings are only now recovering

Exel is valued slightly above 8x EV/EBIT on our FY ’25 estimates, which isn’t too high a multiple particularly in the light of long-term potential, however valuation doesn’t leave that much upside in the short-term as the 23x multiple (on our FY ’24 estimates) already reflects expectations of significant earnings recovery in H2’24 after a still challenging H1. We estimate 7% EBIT margin for next year, which would be in line with the average seen in 2019-22 (and after Exel’s recent cost measures) while still well short of the above 10% long-term target. We hence view valuation neutral. Our updated TP is EUR 0.40; we retain HOLD rating.