Exel Composites - Still recovering from the lows
Exel’s Q3 figures disappointed due to the continued demand softness, however EBIT has plenty of potential next year.
Some investments projects have been further postponed
Exel’s EUR 24.6m Q3 revenue grew 20% y/y but declined 8% q/q due to seasonality, as well as continued soft demand, and was below the EUR 26.5m/26.0m Evli/cons. estimates. The revenue disappointment also left the EUR 0.7m adj. EBIT lower than the EUR 1.5m/1.0m Evli/cons. estimates. Q3 order intake declined 8% y/y, yet order backlog was still 7% higher y/y. Many investment decisions are being postponed, which seems at least to some extent be due to the POTUS election, but the low comparison period means it shouldn’t be too hard for Exel to achieve continued y/y growth in Q4. Exel thus continues to guide y/y higher FY’24 revenue even if the YTD’Q3 figure remained flat.
Some cuts to estimates, but growth likely to continue
We revise our Q4 y/y growth estimate down by 600bps due to the demand softness seen in Q3, yet we still estimate significant 16% growth. Exel FY’24 revenue would then grow a little over 3% y/y. We cut our Q4 EBIT estimate by EUR 0.9m, which would leave FY’24 adj. EBIT at a very modest level of EUR 2.4m. We also revise our FY’25 estimates down, but Exel should be able to grow at a high single-digit rate next year as the new Indian factory begins production in Q4’24. We expect Energy to be the only customer industry not able to grow this year, but it should have solid ground from which to expand next year thanks to wind power demand in India as well as China (where an offshore wind system order was recently signed). Meanwhile Transportation and Industrial are already improving; Exel has made progress with post-processing services and new customers in the US.
Significant earnings recovery should continue next year
We estimate 6% EBIT margin for FY’25, which would represent further significant earnings recovery driven by higher volumes. Exel is valued slightly below 9x EV/EBIT on our EUR 6.4m EBIT estimate for FY’25, which isn’t a very low multiple, but the earnings level would be quite moderate relative to historical performance and potential. We don’t hence view valuation challenging even if demand uncertainty persists. Our new TP is EUR 0.38 (0.40) as we retain BUY rating.