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Exel Composites - Extended heady growth

Exel Q2 margins were close to what we expected, while the growth extension turns us overall more positive. In our view the company isn’t that far from 10% annual EBIT margins.

Q2 margins declined pretty much as expected

Sales mix (tilt to carbon fibers) as well as volumes continued to improve and Q2 top line grew by 23% y/y. The EUR 33.5m figure surpassed our EUR 30.4m estimate despite certain quarterly softness in Wind power, which in our view testifies to Exel’s extended wide positive development. Buildings and infrastructure, a highlight customer industry, was driven by the conductor core application and reached EUR 8.7m top line (vs our EUR 5.9m estimate). Q2 gross margin declined by almost 400bps y/y and 200bps q/q to 56.3%, which wasn’t a surprise per Exel’s comments in connection with the Q1 report. Higher raw materials costs and certain growth category products’ ramp-up had a negative margin impact, but Exel’s 7.3% adj. EBIT margin was in fact a bit above our 7.2% estimate. The resulting EUR 2.5m adj. EBIT topped our EUR 2.2m estimate thanks to the high revenue. Exel retained its previous FY ‘21 guidance.

Prolonged high growth further lifts profitability potential

Order intake didn’t show any signs of cooling and leaped by 90% y/y. The Q2 comparison figure was soft, but nevertheless the latest EUR 43.5m figure gained another 4% q/q and can be compared to the EUR 30m quarterly levels that used to be common. We now expect Exel to reach 15% growth this year. In our view H2 growth is bound to top 10% and thus we estimate H2 EBIT margins to increase by ca. 100bps y/y. We still expect Exel’s composites pricing to adjust for higher raw materials costs and see annual EBIT margin reach close to 10% already next year. It’s a bit early to say much about FY ’22, but the recent order intake levels suggest Exel might then grow another 10% or so. We therefore see EBIT gaining almost another EUR 3m.

We now estimate EUR 13.5m FY ’22 EBIT (prev. EUR 12.7m)

Exel’s valuation has turned, in our view, more attractive now that recent strong growth outlook has been extended. Exel is now valued ca. 9x EV/EBITDA and 14x EV/EBIT on our FY ‘21 estimates. These are still somewhat high in the historical context, but we expect them to contract to around 7.5x and 11x in one year’s time. Our TP is now EUR 11.5 (11.0), new rating BUY (HOLD).

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