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Exel Composites - Positioning for volume recovery

Exel’s Q1 results remained quite weak, although q/q improvement continued. Exel has been finding efficiency gains and positioning itself for a recovery in volumes. We expect EBIT to climb back to black soon, but more significant gains may not arrive before H2.

Demand likely to have bottomed out, H2 to see gains

Exel Q1 revenue fell 19% y/y to EUR 23.4m, compared to our EUR 24.9m estimate, as Europe declined by 29%. Declines were seen quite evenly across Exel’s customer industries. Certain issues like the political strikes in Finland as well as the Red Sea crisis caused some logistical challenges while order intake continued to increase y/y and q/q. We believe the worst is over as many indicators suggest different types of industrial demand have bottomed out, however Q2 may still be a bit soft and we estimate its revenue to decrease by another 3% y/y yet see EBIT improve slightly y/y to EUR 0.3m. H2 comparison figures are low enough so that Exel could achieve some 25-30% revenue recovery then, which would bring annual growth to 6%.

Rights offering to accelerate strategy implementation

Energy and Transportation have many secular growth drivers thanks to investments in green transition, electrification, and public transportation, while Buildings and infrastructure also has additional prospects. Exel disclosed its plans to raise EUR 23m in equity through a rights offering. The proceeds’ use is less driven by deleveraging needs than we would have expected as only EUR 6.5m is to be used for debt repayments; the remaining portion is to be split roughly equally between growth investments (a factory in India), factory network optimization and working capital needs.

Volume recovery and efficiency gains to bring EUR 8m EBIT

We estimate FY ’24 EBIT at EUR 2.9m, still low due to a soft H1. We estimate H2 recovery to lift EBIT margin close to 7% by the year’s end and so further high single-digit growth next year could help FY ’25 EBIT close to EUR 8m, which would be in line with historical averages while Exel has already achieved production efficiency gains. Current valuation plus the money raised through the issue mean EBIT recovery is expected, and we estimate the new capitalization implies ca. 8x EV/EBIT on our FY ’25 estimates. Our new TP is EUR 1.8 (2.2) as we retain our HOLD rating.

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