Exel Composites |

A global composites profiles manufacturer

| Finland

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Financial overview


Exel Composites - Profitability outshines uncertainties

22.07.2020 | Company update

Exel’s Q2 volumes developed as expected while profitability was a big positive surprise. We weigh the strong performance against valuation prudence; caution is warranted since volumes are sensitive even in benign business climates. However, we view the current valuation simply too low. Our TP is EUR 6.25 (5.50), rating BUY.

Top line as expected, profitability a major positive surprise

Exel’s Q2 was as expected in terms of group-level revenue. The figure was EUR 27.2m i.e. in line with the EUR 27.9m/27.2m Evli/cons. estimates and up 3% y/y. Wind power grew by 52% y/y, and the EUR 7.9m figure was clearly above our EUR 6.6m estimate. The increase was driven by Asia-Pacific. All in all, it seems the pandemic has had only a limited impact on Exel’s business so far. Revenues have rolled in as expected and Q2 order intake only fell by 4% y/y, which in our view is a remarkable result considering the business and the current macro context. In this sense the Q2 update was a bit unsurprising relative to the Q1 release. The surge in profitability, however, was unforeseen. Exel achieved EUR 2.9m in adj. EBIT, compared to the EUR 2.0m/2.0m Evli/cons. estimates. The US unit fueled the positive surprise.

Profitability outperformance has been extended

Guidance wasn’t reinstated (Exel guided increased revenue and adj. EBIT earlier this year). In our view the reluctance to issue guidance for now reflects order uncertainties. Deliveries could be hit should the environment rapidly worsen, which is a relevant possibility. Yet in our view Exel is on a clear track to achieve higher earnings, considering the EUR 5.0m in H1’20 adj. EBIT vs the EUR 4.2m in H1’19. The company has topped the expectations we had prior to the pandemic. The earnings report changes our top line estimates very little, but we upgrade our profitability estimates. We previously expected EUR 3.7m in H2’20 adj. EBIT, and now see the figure at EUR 5.1m. For FY ’21 we now estimate the figure at EUR 11.1m (previously EUR 9.5m).

Valuation is undemanding especially compared to peers

Exel has continued to outperform our expectations while the macroeconomic situation does justify some valuation caution. We nevertheless see clear upside to current multiples. Our new TP of EUR 6.25 (5.50) implies ca. 6.5x EV/EBITDA and 10.5x EV/EBIT on our estimates for this year. Our rating remains BUY.

Exel Composites - Excellent results

21.07.2020 | Earnings Flash

Exel Composites reported Q2 revenue in line with expectations while profitability was clearly higher than expected. Higher profitability was mainly due to the US unit’s improved performance. Overall Exel’s performance seems very solid despite the pandemic, however the company does not yet reissue guidance.

  • Q2 revenue amounted to EUR 27.2m, compared to the EUR 27.9m/27.2m Evli/consensus estimates.
  • With respect to customer industries, Wind power revenue stood at EUR 7.9m in Q2 i.e. some EUR 1.3m higher than we expected.
  • Adjusted operating profit was EUR 2.9m vs EUR 2.0m/2.0m Evli/consensus estimates. Adjusted operating margin was thus an excellent 10.6%. The profitability improvement was primarily driven by the US unit.
  • Q2 order intake declined by 3.8% y/y to EUR 22.9m, which in our view is more than a decent figure considering the extraordinary circumstances that prevailed during the quarter. One large order, attributable to Buildings and infrastructure (worth some EUR 3.5m), helped but overall the order book situation looks rather good for now.
  • Exel withdrew guidance for FY ’20 in connection with the Q1 earnings release. The company says it will reinstate guidance later this year.

Exel Composites - The story is not derailed

07.05.2020 | Company update

Exel’s Q1 met expectations. The pandemic has so far had a limited impact on operations. Short-term demand outlook is uncertain, but we don’t see long-term fundamentals impaired. Our TP is now EUR 5.50 (6.75), rating still BUY.

Strong development continued during Q1

Exel’s EUR 27.8m Q1 revenue grew by 3% y/y and matched EUR 27.9m/27.2m Evli/cons estimates. The company updated its reporting structure, now disclosing revenue for seven customer industries instead of the previous three broad segments. Buildings & infrastructure and Wind power, which previously made up the Construction & Infrastructure segment, reported a combined EUR 12.0m in revenue, which was in line with our estimate (Wind power only grew by 1% y/y due to timing issues). Machinery & electrical, Transportation and Telecommunications, i.e. the former parts of Industrial Applications, reported a combined EUR 8.4m. This was less than we expected but Equipment & other industries and Defense made up with a total of EUR 7.4m. Adjusted EBIT, at EUR 2.1m, also met EUR 2.2m/2.0m Evli/cons estimates. ROCE increased to 12% from 3% a year ago and the US unit reached profitability. Order intake growth accelerated to 23% y/y pace and the EUR 34.5m in new orders meant order backlog stood at EUR 37.1m, up 50% y/y. A big US order is scheduled to be delivered through FY ’20.

We now expect adjusted EBIT to increase to EUR 7.8m

Although strong development continued Exel is not immune to macro uncertainty and thus the company withdrew guidance. We revise our estimates down. We previously expected 6% top line growth for this year, and we have revised the figure down to 3%. We cut our FY ’20 EBIT estimate down by EUR 0.9m to reflect potential operational challenges. In our opinion the long-term case remains intact. Exel also has a good liquidity situation. The EUR 10m overdraft facility was extended by two years.

We cut our TP due to significantly higher uncertainty

In our view higher multiples are justified by the fact that Exel has continued to perform according to expectations. Meanwhile the pandemic raises uncertainty even if development has remained good. We update our TP to EUR 5.50 (6.75) due to lowered estimates and higher uncertainty; yet in our view Exel still trades at relatively low multiples and we thus retain our BUY rating.

Exel Composites - Q1 as expected but guidance is off

06.05.2020 | Earnings Flash

Exel Composites’ Q1 results met expectations. The company nevertheless had to withdraw FY ’20 guidance. The pandemic has so far had only a limited impact on business.

  • Q1 revenue was EUR 27.8m vs EUR 27.9m/27.2m Evli/consensus estimates, thus increasing by 3% y/y. The pandemic impacted business only in China during Q1, where production has resumed to full capacity. The UK unit has been running at reduced capacity since April.
  • Exel Composites updated its reporting structure. The company previously reported revenue for three broad segments and now discloses figures for seven customer industries. In Q1 most of the customer industry revenues grew y/y, excluding Transportation and Telecommunications. 
  • Exel Q1 adjusted operating profit stood at EUR 2.1m compared to EUR 2.2m/2.0m Evli/consensus estimates.
  • Order intake increased by 23% y/y to EUR 34.5m. Order backlog was thus 50% higher than a year ago.
  • Exel Composites issued an outlook on Feb 18 according to which revenue and adjusted operating profit are expected to increase in 2020 compared to 2019. The company now withdraws the guidance due to poor short-term visibility.

Exel Composites - Improvement potential still exists

19.02.2020 | Company update

Exel’s Q4 EBIT failed our estimate due to one-off items. We believe the company remains on an improvement track. Our TP is now EUR 6.75 (6.00), new rating BUY (HOLD).

We continue to expect top line to grow at high single digits

Q4 top line, at EUR 26.6m, was flat y/y and a little soft compared to our EUR 27.8m estimate. This was due to Construction & Infrastructure, where Q4 revenue declined by 2% y/y to EUR 12.6m, while we expected EUR 14.3m. Q4 was thus a relatively slow quarter for the segment, as y/y revenue growth had amounted to 12% in Q3. Exel says there have been no changes to e.g. wind energy demand; there can be wide variations in quarterly figures. Industrial Applications’ Q4 revenue declined by 1% y/y to EUR 8.5m and so the figure was above our EUR 8.0m estimate. Other Applications’ Q4 revenue was in line with our EUR 5.5m estimate. Although Exel’s Q4 top line fell short of our estimate only slightly, adj. EBIT was only EUR 1.3m vs our EUR 2.3m estimate. The gap was due to other operating expenses, which were high at EUR 6.4m (had averaged EUR 5.4m in the last few quarters). Exel says the high expenses were due to items like temporary production plant overlap in China as well as certain production-related one-offs. We find no other surprises on the cost side as gross margin remained at a 60% level and employee expense share continued to decline (down by 200bps y/y to 28%). Order intake continued to increase by 9% y/y.

Exel guides increasing revenue as well as adj. EBIT for ‘20

Exel will likely record some EUR 15m capex in ’20 due to the production plant investment in Austria and residual payments related to a past Chinese acquisition. Overall, we continue to view Exel’s volume outlook favorable. We expect wind energy to provide further strong uplift this year. Exel highlights good volume potential in applications such as cable cores and certain defense-related equipment. With regards to profitability, cost savings measures by themselves should contribute another EUR 1m this year, following the EUR 2m achieved last year.

We see more upside as volume outlook remains good

Exel’s valuation (ca. 8x EV/EBITDA and 13x EV/EBIT ‘20e) is still more than 20% below peer multiples. Although we believe some discount is warranted, we see upside from current levels. Our updated TP is EUR 6.75 (6.00), rating now BUY (HOLD).

Exel Composites - EBIT miss driven by elevated costs

18.02.2020 | Earnings Flash

Exel Composites reported Q4 revenue slightly below our expectations, while adjusted operating profit fell short of our estimate more dramatically, by about EUR 1.0m, as other operating expenses were higher than we had estimated.

  • Q4 revenue amounted to EUR 26.6m, compared to EUR 27.8m/27.7m Evli/consensus estimates.
  • Construction & Infrastructure top line was EUR 12.6m (EUR 12.9m a year ago) vs our EUR 14.3m estimate.
  • Industrial Applications generated EUR 8.5m (EUR 8.6m) sales, whereas we expected EUR 8.0m.
  • Other Applications top line amounted to EUR 5.5m (EUR 5.2m), in line with our EUR 5.5m expectation.
  • Q4 adjusted EBIT was EUR 1.3m, compared to EUR 2.3m/2.2m Evli/consensus estimates. The figure missed our expectation as other operating expenses were about EUR 1.0m higher than we had estimated.
  • The BoD proposes EUR 0.18 (0.18) dividend per share be distributed, while we had expected EUR 0.20.
  • Exel Composites guides revenue and adjusted operating profit to increase in 2020 compared to 2019, which is as we expected. The company says the coronavirus will have an impact on its Chinese production volumes in Q1 yet is not ready to estimate the impact in more detail.

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 Composites Q220 interview with CEO Riku Kytömäki

Exel Composites - Q2'20 video interview with CEO Riku Kytömäki

Exel Composites Q120 video interview with CEO Riku Kytömäki

Exel Composites - Q1'20 video interview with CEO Riku Kytömäki

Exel Osavuosikatsaus Q4

Exel Composites - Q4/19 video interview with CEO Riku Kytömäki

Exel company presentation 19082019

Exel Composites - Company presentation

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Exel company presentation 19082019

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Company Facts

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 80%

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