Exel Composites |

A global composites profiles manufacturer

| Finland

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Financial overview

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Exel Composites - Turnaround progressing well

22.11.2019 | Company update

Exel Composites updated its guidance for FY ‘19. The update wasn’t big news as progress has been good this year. We make small revisions to our profitability estimates, and our new TP is EUR 6.00 (5.50), rating now HOLD (BUY).

EBIT has improved considerably this year

Exel Composites updated its FY ’19 guidance. The company had previously guided improving revenue and adjusted EBIT compared to previous year. The updated outlook guides increase in revenue (as before) and significant increase in adjusted EBIT. The positive guidance update didn’t come as a major surprise as Exel had already accumulated EUR 5.9m in adjusted EBIT during the first nine months of the year, compared to the EUR 5.0m for FY ’18. Exel says there have been no material changes to order activity since the release of Q3 figures. We thus continue to expect further extension to the recent segmental performance trends. We see Construction & Infrastructure growing at a 10% annual rate, whereas we expect more muted 3-5% CAGR development for Industrial Applications and Other Applications.

Good volumes and cost savings program have helped EBIT

We see no reason to make changes to our top line estimates, i.e. we still estimate Exel’s revenue to grow at a 7% annual rate during the next few years. Exel expects to fully realize the annual savings target of EUR 3m during 2020. Although visibility is limited, we make small upward revisions to our profitability estimates. We now expect EUR 2.3m in Q4 EBIT (previously EUR 2.1m). For FY ’20 we now estimate the figure at EUR 9.2m (previously EUR 8.6m). In other words, we see Exel achieving operating margins at above 8% going forward. Such a level still falls short of the company’s long-term target (Exel targets long-term adjusted operating margin at above 10%).

Long-term upside remains due to operating leverage

In our view more positive development can be expected; higher revenues will further lift operating margin. There’s still long-term upside potential in Exel, however we see certain caution is in order due to limited visibility. We regard EV/EBITDA and EV/EBIT multiples of some 7-8x and 11-12x for this year and next as reasonable (roughly 30% below peer medians). We update our TP to EUR 6.00 (5.50); our new rating is therefore HOLD (BUY).

Exel Composites - More uplift to be expected

31.10.2019 | Company update

Exel Composites posted Q3 results basically in line with our estimates. Wind energy continued to support volumes. Exel left FY ’19 guidance unchanged, expecting revenue and adjusted operating profit to increase. We update our TP to EUR 5.5 (5.0) as we see further improvement in the cards. Our rating is still BUY.

No major surprises in terms of segmental performance

Exel Composites posted EUR 23.6m in Q3 revenue, a figure slightly below our EUR 24.7m estimate. Industrial Applications, a segment which includes telecommunications customers, continued soft as revenue declined by 10% y/y. We expected flat development. Other Applications reported EUR 4.8m Q3 revenue, a decent improvement y/y but not quite meeting our EUR 5.0m estimate. Construction & Infrastructure, driven by wind energy, improved by 11% y/y to EUR 10.9m and thus was basically in line with our expectations. The adjusted operating profit of EUR 1.7m was also in line with our expectations. Overall, the Q3 report didn’t provide major surprises as key customer industries such as wind energy continued to support volumes.

We make relatively minor estimate changes

We make only minor updates to our revenue and profitability estimates. We have revised our Q4 revenue estimate slightly upwards due to the strong 10% increase in order intake. We continue to expect Exel to manage around 7.5% adjusted operating margins going forward. Exel says it expects to fully reach the targeted EUR 3m in annual cost savings in 2020.

We see further upside in the light of recent performance

We continue to expect Exel to post positive volume and profitability development going forward. Although we do not make major changes to our estimates, in the light of recent good performance we argue slightly higher valuation multiples are warranted. Our updated TP is EUR 5.5 (5.0), which would imply roughly 8x EV/EBITDA and 12x EV/EBIT (adj.) on our ‘19e estimates. On our ‘20e estimates the multiples would amount to some 6x EV/EBITDA and 10x EV/EBIT. Such valuation is still significantly below peer group median. Our rating remains BUY.

Exel Composites - Proceeding according to plan

30.10.2019 | Earnings Flash

Exel Composites reported Q3 figures very much in line with our estimates. Revenue didn’t quite meet our estimate for the quarter, however operating margin came in a bit above our estimate.

  • Q3 revenue was EUR 23.6m vs our EUR 24.7m estimate. Wind energy continued to support growth in the Construction & Infrastructure segment.
  • Exel Composites posted EUR 1.7m in Q3 EBIT i.e. in line with our expectation.
  • Operating margin, at 7.0%, was slightly above our 6.8% estimate.
  • Exel says Q3 order intake remained on a good level and grew 9.7% y/y.
  • The company says the cost savings program is proceeding according to plan, and the targeted EUR 3m in annual savings will be fully reached in 2020.
  • Exel reiterates FY ’19 outlook, expecting revenue and adjusted operating profit to increase compared to previous year.

Exel Composites - Improvement amid breezy conditions

24.07.2019 | Company update

Exel Composites achieved an 8.5% adjusted operating margin in Q2, a profitability level some 200bps above our and consensus expectations. Exel’s recent decision to retain its ambitious long-term financial targets also speaks volumes about the company’s conviction on wind energy growth potential. So far development in 2019 has been encouraging, although the targets represent a gap which will not be closed for a while yet. We retain our BUY rating; our target price still stands at EUR 5 per share.

Wind energy sector continued to support volumes

Muted development extended within the Industrial Applications segment and Asia-Pacific region as telecommunications sector volumes remained weak. The Rest of the World region more than doubled its H1’19 revenues y/y due to the DSC acquisition; the transaction also boosted the Construction & Infrastructure segment thanks to the U.S. unit’s wind energy exposure. DSC remained unprofitable in Q2 (cost measures’ fruits should be visible already during Q3).

Financial targets remain stiff compared to current figures

Exel lately confirmed its long-term financial targets for 2019-22, continuing to target adjusted operating margin at a level above 10% while aiming for ROCE north of 20%. Exel’s Q2 recorded the respective figures at 8.5% and 14.1%. Q2 gross margin was strong at 63% i.e. somewhat above the typical level. We continue to expect the company’s ongoing volume shift to wind energy applications will put slight pressure on gross margin; hence the realization of profit-based targets depends on continued strong volume growth. Exel also introduced a net gearing target (at or below 60%), according to which the company should more than halve its indebtedness from the current 123% level. Exel retained its guidance for FY 2019 (expects higher revenue and adj. EBIT).

Current valuation level means there’s room for upside

We leave our revenue estimates largely intact but revise our operating margin estimates slightly upwards. Exel currently trades below 7x EV/EBITDA ‘19e (on our estimates) vs the historical 8-9x levels. Our rating remains BUY, our TP at EUR 5.

Exel Composites - Positive development continued

23.07.2019 | Earnings Flash

Exel Composites reported Q2 revenue at EUR 26.5m, in line with our expectations. Adjusted operating profit, at EUR 2.2m, was above our estimate. The company’s cost savings program is delivering good results.

  • Q2 revenue amounted to EUR 26.5m vs our EUR 26.7m estimate (consensus at EUR 27.4m).
  • Q2 adjusted operating profit stood at EUR 2.2m vs our EUR 1.7m expectation (consensus at EUR 1.8m). The 8.5% adjusted operating margin was clearly above our 6.3% estimate, as well as the consensus.
  • The 4.8% increase in revenue y/y was mainly attributable to the acquisition of DSC (completed in May 2018). The wind energy industry continued to support volumes. The telecommunications sector remained weak.
  • The acquisition of DSC was reflected in the increase in revenue within the Rest of the World region. Asia- Pacific revenues declined due to telecommunications volumes. European revenue remained flat y/y.
  • The cost savings program is proceeding according to plan. The company expects to fully realize the EUR 3m annual savings target in 2020. DSC remained in the red during Q2.
  • Guidance for full year 2019 remains unchanged as the company expects revenue and adjusted operating profit to increase compared to previous year.

Exel Composites - Q1 tailwinds

06.05.2019 | Company update

Exel Composites recorded Q1 sales and EBIT above our estimates as organic growth came in higher than we expected, while DSC also contributed more than we had projected. We make minor adjustments to our estimates. We retain our target price of EUR 5 per share. Our rating remains BUY. Exel is valued at ca. 7x EV/EBITDA ‘19e.

Q1 topped our estimates due to high wind energy volumes

Exel recorded an 8% organic growth in Q1. DSC (a U.S. company acquired in Apr 2018) contributed another 18%, bringing the total top line increase to 26% y/y. Construction & Infrastructure revenues doubled due to the DSC contribution (the unit has a high wind energy exposure) and strong organic wind energy growth. European sales were stable; the growth was attributable to Rest of the World and APAC geographies. Industrial Applications revenues declined by 18% y/y as the telecommunications market continued challenging.

Cost program helped to lift EBIT from the recent lows

Exel recorded Q1 adj. operating margin at 7.2% (vs. 8.3% a year ago). The margin averaged 2.5% in H2’18 as the DSC acquisition diluted profitability. Exel says it managed cost savings according to its own plans, expecting DSC to reach break-even profitability during 2019. In addition to improving DSC’s performance, Exel has implemented cost savings throughout the group e.g. by closing the German plant in April. Exel expects further synergy savings between the company’s two Chinese production plants, both located in the city of Nanjing. The group-wide cost savings program targets EUR 3m in annual savings and the measures are expected to be fully effective in 2020.

We make minor revisions, reiterate BUY rating and TP

Our growth and profitability estimates do not change materially. We continue to expect Exel to achieve an organic top line growth of around 7% in the coming years, and therefore gradual improvement in operating margins. Our rating remains BUY, our target price being EUR 5 per share.

Exel Composites - Wind energy pushed top line

03.05.2019 | Earnings Flash

Exel Composites’ Q1 exceeded our expectations. Actual revenues topped our estimate by 12%, and the company also surprised in terms of EBIT margin.

  • Net sales totaled EUR 27.1m vs. our projected EUR 24.3m. Revenue grew by 26% y/y thanks to the Construction & Infrastructure segment, which was driven by wind energy. Organic growth was recorded at 8.3%.
  • Growth in Construction & Infrastructure as well as Other Applications made up for the decline in Industrial Applications. The telecommunications market continued to be challenging.
  • The wind energy growth and the consolidation of DSC contributed to higher Rest of the World and Asia- Pacific revenues. European sales remained roughly flat.
  • EBIT amounted to EUR 2.0m, beating our EUR 1.4m estimate. EBIT margin was 7.2% vs. our 5.9% expectation. The improvement was due to operational leverage, but also owed to improved efficiency achieved with the help of the cost savings program.

Exel Composites - Initiating coverage with BUY

12.04.2019 | Company report

Exel Composites has grown mainly through acquisitions in recent years. Organic growth has been weak due to challenges in telecommunications and infrastructure markets. Moreover, the company’s EBIT margin, at ca. 5% last year, has declined to way below the desired level. A recent acquisition further cut profitability. Volume visibility is limited, yet we take a constructive view based on Exel’s repositioning towards the wind energy sector, where longterm fundamentals are strong and carbon fiber reinforcements are gaining further market share.

The wind energy sector is now Exel’s top customer industry

The wind energy sector recently claimed the position as Exel’s most important customer industry. Exel has selected wind turbine blade reinforcements as the main application to drive order volumes. We estimate this market to grow at low double-digit rates in the coming years, and thus expect Exel to be able to add EUR 3-5m in sales p.a. within the segment. According to our analysis, operational leverage should help Exel to achieve a 7% EBIT margin in 2021 (up from adjusted 2018 operating margin of 5.2%) despite a 100bps gross margin decline due to the increased share of lower margin wind energy sector deliveries.

Execution is key, the company needs to win large accounts

In our view Exel is to gain from volume tailwinds within select customer industries and thus set to grow especially within the Construction and Infrastructure segment. While efficiency measures such as the cost reduction program targeting EUR 3m in annual savings by 2020 are important for improving the operating margin, we recognize higher volumes as the main value driver. To move the needle, Exel should add such new customers that could generate annual revenues in the EUR 5m ballpark.

Our rating is BUY, target price EUR 5 per share

We initiate coverage with BUY based on our multiple and DCF analysis. Our target price implies a 2019E EV/EBITDA multiple of 8x vs. historic average of almost 9x and the peer group currently trading at around 9-10x.

Exel company presentation 19082019

Exel Composites - Company presentation

19.08.2019
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Exel company presentation 19082019

Video presentation

Company Facts

Guidance

Exel Composites expects revenue to increase and adjusted operating profit to increase significantly in 2019 compared to 2018

Financial targets

For 2019-2022: revenue growth at twice the market rate, an above 10% adjusted operating margin and above 20% ROCE, and net gearing at below 60%

Share price (EUR)


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