Exel Composites - Sharp appreciation is justified

Broad positive development continued

Exel recorded EUR 27.5m in Q4 revenue, up 4% y/y. The figure was a bit above the EUR 27.2m/26.5m Evli/cons. estimates. Wind power’s order timings meant the segment’s EUR 6.6m top line, down 6% y/y, didn’t meet our EUR 8.9m estimate. Relative strength in other segments nevertheless helped to make up. Buildings and infrastructure developed especially strong and Exel continues to see potential in the segment due to e.g. cable core rods. The segment’s EUR 7.0m Q4 revenue (up 22% y/y) was way above our EUR 5.1m estimate. Favorable mix and further efficiency gains helped Exel to EUR 2.7m EBIT in Q4 vs the EUR 2.2m/1.8m Evli/cons. estimates. Operating margin was thus again in line with the above 10% long-term target. Order intake also grew by 6% y/y, which indicates brisk start for the year and is notable considering the high comparison figure.

We estimate EBIT at EUR 10.7m this year

Exel is positioned for 5-6% top line growth in the coming years. There are now other segments rising with Wind power. Wind however remains important and we see no reason why it wouldn’t contribute growth also this year. Global wind capacity grows by big numbers and we expect the Exel segment to post double-digit growth also in FY ’21 (up 19% in FY ’20). The Austrian plant is up and ready to serve European accounts across many segments, perhaps with a tilt towards Machinery and electrical, a segment we understand has relatively high gross margins. Exel already achieved high operating margin last year, and we estimate good potential for further gains. Since the EUR 8.5m Austrian investment has now been completed we see a solid organic growth outlook with relatively low EUR 5m annual capex levels. We make only small adjustments to our estimates.

Valuation is still not demanding all things considered

Exel is valued at ca. 8x EV/EBITDA and 12x EV/EBIT on our FY ’21 estimates. In our opinion Exel is making solid progress towards long-term targets; we see the company reaching an annual 10% EBIT margin already in FY ‘22. This achievement would help the respective earnings multiples to decrease to around 7x and 10x levels next year. Our TP is now EUR 10.0 (7.25), retain BUY rating.