A global composites profiles manufacturer
Exel’s Q1 was expected to be soft but it turned out quite weak. This year will continue to see rather modest profitability while long-term potential still exists.
Weakness largely attributable to low Wind power volumes
Exel’s Q1 revenue fell 16% y/y to EUR 28.8m vs the EUR 32.2m/33.6m Evli/cons. estimates. H1 was seen soft due to lacking Wind power orders however such volumes came in at EUR 1.5m in Q1 vs our EUR 5.9m estimate. The figure was lower than Exel expected, in addition to which there was softness in Equipment and other industries. Transportation still saw strong development, yet small and mid-sized customers continued to reduce inventories as seen already in H2’22. Exel has already taken some cost actions and although there weren’t any notable cost-related surprises the demand softness led to an adj. EBIT of EUR 0.0m, compared to the EUR 1.2m/1.4m Evli/cons. estimates. Exel consequently downgraded its guidance as any significant demand recovery is unlikely to begin before H2’23, while the company will also incur some EUR 1m in additional expenses this year as it seeks to ensure its competitiveness within Wind power.
We also cut our FY ’24 EBIT estimate by more than 20%
Wind power’s development program is unlikely to change the company’s focus on turbine blade reinforcement elements; rather it should enhance Exel’s ability to deliver the needed volumes. Wind power may see some volume improvement already later this year, but the next couple of quarters are likely to remain soft before high growth again really begins to come through next year. Wind power aside, Exel looks to better capture sustained growth by focusing more on larger accounts. Exel’s strategy worked well in the past few years as it achieved a CAGR of 12% in FY ’19-21 however now seems to be a time for enhancing commercial focus. Such strategy themes (focus on high-volume accounts) aren’t very surprising in the light of Exel’s business model, in which a relatively high amount of customer account concentration tends to optimize profitability.
Valuation not particularly cheap in the short-term
Exel has a lot more potential thanks to its existing applications and their further scaling over the coming years, yet the 13x and 8x EV/EBIT multiples appear neutral on our estimates for FY ’23-24. Our new TP is EUR 4.3 (5.8); our rating is now HOLD (BUY).
Exel’s Q1 results came in clearly below our and consensus estimates. At least Q2 is also to remain weak, however H2’23 should see some improvement. Exel nevertheless downgraded its guidance due to weaker-than-expected short-term development and EUR 1m in additional costs related to a Wind power development program.
Exel’s Q4 figures missed estimates as demand was still softer than expected. H1’23 results are likely to remain modest relative to the high comparison period, but guidance indicates at least some improvement for H2’23.
Heady growth continued in H1’22, but H2’22 was slower
Exel’s Q4 revenue landed at EUR 31m vs the EUR 36m/35m Evli/cons. estimates. Destocking, after a period of high demand following the initial shock of the pandemic, has been an issue lately and is expected to continue in H1’23. Equipment and other industries, the third largest customer group, was particularly soft relative to our estimates but there seems to have been nothing special going on apart from the destocking issues as well as normal cyclicality. The soft top line left adj. EBIT at EUR 0.9m vs the EUR 2.4m/2.0m Evli/cons. estimates.
H1’23 will still be soft; guidance suggests better H2’23
Exel sees improvement from Q2 in orders as well as EBIT; top line is to remain flat this year, while EBIT has ground from which to gain. The Runcorn cuts should produce EUR 1.6m in annual savings. Inflation hasn’t been a big issue for Exel and raw materials are stabilizing. Wind power should again grow, according to Exel, at a 15% y/y pace from H2’23. Wind power was Exel’s largest customer in 2019-20 and continued to grow at a CAGR of 16.5% in FY ’20-21, however its revenue fell by EUR 5.3m last year and was overtaken by Buildings and infrastructure already in 2021. Exel got its challenges in the US sorted out last year, but the relative softness in the three largest customer groups left its adj. EBIT for the year at EUR 8.0m (we consider it a modest level). We note the four smaller industries together grew by 19% last year, although this was mostly attributable to Transportation as it enjoyed pent-up demand after the pandemic and received initial orders for a new aerospace application.
Valuation is not challenging if growth returns in H2’23
Exel is valued 9.5x EV/EBIT on our FY ’23 estimates, which we consider a neutral level. The multiple is not very low, however we estimate an EBIT margin of 6.3% for the year whereas the company should still be on track towards its long-term 10% target (it reached almost 9% in FY ’20). For FY ’24 we estimate 7% growth and 7.5% EBIT margin, which would translate to an EV/EBIT of 7.5x. Our new TP is EUR 5.8 (6.5); our rating is BUY.
Exel’s Q4 figures missed our and consensus estimates. Top line declined as there was temporary softness in e.g. wind power orders. Cost management helped profitability remain flat y/y. Exel guides flat revenue for the year and expects adjusted EBIT to increase.
Exel’s Q3 results didn’t meet our estimates, but long-term EBIT potential remains significant even if it materializes somewhat slower than we previously estimated.
Top and bottom line a bit shy but no major issues
Exel’s Q3 revenue was EUR 33.8m vs our EUR 37.5m estimate. The two largest regions, Europe and North America, continued to grow at a rate of some 5% y/y while Asia-Pacific declined by 6%. The largest customer segments landed close to our estimates, while relative softness within the smaller segments added up and hence Exel’s volumes were not quite as high as we expected. The relative lack in volumes also left the EUR 1.8m adj. EBIT muted vs our EUR 2.7m estimate. The summer months were quiet in terms of new orders however the levels have begun to improve over the autumn. Exel left its guidance unchanged; in our view Q4 EBIT is set to improve y/y as the comparison figure is low, while there should be potential for at least some improvement q/q.
Long-term CAGR should remain around 5-10%
Exel’s long-term drivers are in place as before and we believe the company has been able to find the right types of customer accounts. The 6.7% adj. EBIT margin seen this year is not too bad, yet there should be plenty of upside left beyond that level. The consolidation of the two Chinese plants yields annual cost savings of EUR 0.7m, while wind power is likely to remain an important driver next year. The Indian JV may prove useful in this respect. The 24% growth seen last year was a rate very difficult to sustain for long, and Exel’s top line may not grow much this year, but in our view Exel’s accounts should still support long-term CAGR of some 5-10%. Such rates, combined with further margin upside, mean there’s still meaningful EBIT potential left.
Valuation not demanding even if growth slows a bit
Exel is valued at slightly above 8x EV/EBIT on our FY ’23 estimates, which is not a particularly high level considering our respective 7.5% EBIT margin estimate is well below the long-term benchmark level of 10% the company has been able to touch on a few occasions with significantly lower top line. In our view Exel’s key customer accounts could help the company grow even in a more challenging macro environment, however short order visibility is one factor limiting earnings multiples potential. We update our TP to EUR 6.5 (8.5) and retain our BUY rating.
Exel’s Q3 results came in soft relative to our estimates. There appears to be nothing particularly dramatic, but both top and bottom line landed relatively low after the strong Q2 report.
Exel’s Q2 results topped estimates and confirmed the company is advancing again after the recent profitability issues in the US.
Absolute profitability topped the previous record
Exel’s top line grew 13.5% y/y to EUR 38.1m vs the EUR 36.8m/35.7m Evli/cons. estimates. Wind power customers developed soft relative to our estimate due to China and the local policies, but the shortfall was more than made up by Transportation where revenue grew by EUR 4.4m y/y to EUR 7.2m thanks to released pent up demand after the pandemic. The orders were attributable to old applications like train panels as well as a new aerospace application in North America, on the details of which Exel will elaborate later this year. Exel can already produce the application profitably even though it is only in the initial phases of its lifecycle. Q2 adj. EBIT reached EUR 3.1m, compared to the EUR 2.4m/2.2m Evli/cons. estimates. The 8.2% adj. EBIT margin was not bad, but Exel is still able to do better than that in the long-term assuming growth continues and the US unit keeps improving.
Progress is set to continue
The US unit has already improved a lot in recent quarters yet still has EBIT upside potential. This is also reflected by the EUR 37.0m order intake, which developed flat q/q but declined by 15% y/y as there were certain US Wind power orders last year which were later cancelled due to production challenges. The Q2 report confirmed Exel’s continued progress on its long-term track especially in that the company can find suitable high-volume customers and is not overly reliant on any one industry or application. The inflationary environment is not a major challenge given Exel’s niche position in the value chain. Exel left its guidance unchanged for now due to the well-known global uncertainties, however an upgrade seems likely in the months ahead.
Valuation is unchallenging as potential materializes
We make only very marginal updates to our estimates. We expect 10% growth for this year while we estimate a 7.4% adj. EBIT margin. The EUR 11m adj. EBIT translates to a valuation multiple of 10x, which would continue to decrease to 8x EV/EBIT on our FY ’23 estimates. We retain our EUR 8.5 TP and BUY rating.
Exel’s Q2 report didn’t disappoint as both revenue and profitability clearly topped estimates. Growth was driven by a new aerospace application within the Transportation customer industry. Exel leaves guidance unchanged, which now appears cautious, but the company seems set to advance on its improving track.
Exel’s EBIT appears bound to improve more from the recent lows. We make only minor revisions to our estimates.
Margins seem set to improve further during this year
Exel’s Q1 revenue grew 10% y/y to EUR 34.2m, compared to the EUR 37.1m/33.9m Evli/cons. estimates. All industries continued to grow except Wind power and Defense, where timing issues led to 8% y/y top line declines but for which long-term outlook has clearly improved in the past few months. The latter remains relatively small but has a lot more potential in markets such as India, while we believe China’s weakness also contributed to the decline of the former. Adj. EBIT amounted to EUR 2.2m vs the EUR 1.7m/1.4m Evli/cons. estimates. Product mix and variable cost inflation had a negative impact on profitability, masking some of the underlying positive development as Exel’s pricing adjusts with a lag of few months. Energy costs are also up, but Exel should be able to pass them on as well; we note Exel can also adjust already signed orders’ prices.
Guidance upgrade is much possible later this year
The US unit has now reached a break-even result; we estimate Exel’s EBIT margin continues to improve towards 7% and beyond during this year. We estimate 7.5% margin for H2’22, a level previously seen in H1’21 but with the difference that this year top line will be 15% higher. The Chinese restructuring will also produce EUR 0.7m in annual cost synergies. China’s virus situation pushed the Asia-Pacific region down 22% y/y in Q1; we believe there’s a good chance Exel will revise guidance upwards later this year, especially if Chinese demand normalizes and productivity further progresses in the US.
Valuation appears very conservative
We estimate EUR 10.2m adj. EBIT for this year, on which Exel is valued about 11x. Exel has additional profitability potential beyond that and is valued 8x EV/EBIT on our FY ’23 estimates. An 8.5% EBIT margin estimate doesn’t seem to be too high for next year, considering Exel reached a higher margin in FY ’20 while revenue will soon have grown by some 40% since then. There are no particularly relevant peers for Exel and hence valuation is a matter of judgment, but in our view Exel’s earnings-based multiples appear very undemanding in the short and long-term perspective. Our new TP is EUR 8.5 (9); we retain our BUY rating.
Exel’s Q1 report showed the company is making progress in the US as the unit was back to black. Exel’s adjusted operating margin was considerably above our estimate even though there were certain other factors, namely product mix and higher variable costs, which negatively affected profit.
Exel’s Q4 EBIT was soft relative to estimates, yet demand doesn’t seem to abate and in our view the US unit should, sooner or later, again reach the required performance level. Long-term earnings potential therefore remains significant.
The EUR 1.0m Q4 adj. EBIT was soft relative to estimates
Q4 revenue grew 33% y/y to EUR 36.5m vs the EUR 32.0m/31.8m Evli/cons. estimates. Buildings and infrastructure grew to be the largest industry and the fact highlights how there are many industries besides Wind power driving growth. Order intake was moderated due to the difficulties in the US and inflation had some negative impact on Q4 EBIT, but Exel continues to lift its own pricing and hence raw material price increases are not a major issue, at least not in the long-term perspective. We gather Exel’s raw material inflation pace slowed down somewhat late last year, which is not surprising considering the rate seen earlier during the year. That said, raw material prices don’t seem to be declining either and so the environment can still cause some short-term drag on EBIT. We estimate most of the EUR 0.9m q/q profitability improvement was attributable to the US unit.
We still estimate meaningful growth for this year
The US labor situation remains extraordinarily challenging and thus it will take at least some additional quarters before Exel again reaches the high single-digit EBIT margins it used to enjoy before the problems in the US materialized. Exel is doing the best they can to hire and retain local employees. Meanwhile demand appears to remain very strong across basically all geographies and customer industries. We revise our FY ’22 revenue estimate to EUR 150.7m (prev. EUR 146.8m), while our new EBIT estimate for this year is EUR 10.6m (prev. EUR 12.0m).
Long-term earnings potential continues to stand out
We believe Exel should have no trouble hitting EUR 150m top line especially when the US unit continues to progress. Exel has previously been able to reach 10% EBIT on a quarterly level (long-term target is above 10%). We expect FY ’22 results to still fall a lot short of the implied EUR 15m mark, and hence long-term upside remains significant. Exel is valued around 5.5-7.0x EV/EBITDA and 8.0-11.0x EV/EBIT on our FY ’22-23 estimates. Uncertainty around the US limits upside in the short-term and we thus revise our TP to EUR 9 (10). We retain our BUY rating.
Exel’s Q4 results extended recent earnings reports trends to a certain degree. Top line continued to grow a lot faster than was expected, but profitability was still a bit soft relative to estimates. Exel made some progress with the challenges in the US, but it remains unclear just how quick earnings will improve this year.
Exel’s Q3 EBIT fell way more than estimated, but guidance implies improvement is already happening and we expect Exel to be back on its earlier EBIT track soon enough.
Q3 EBIT was weak but Q4 will already be a lot better
Q3 revenue grew 28% y/y to EUR 33.4m vs the EUR 30.4m/30.6m Evli/cons. estimates. Buildings and infrastructure, the most significant contributor, grew 64% but positive top line development was broad; Exel also sees stabilization in Transportation, where the pandemic hit demand. Inflation had only a limited impact as Exel was able to transfer the effect of higher raw material prices forward, and Exel’s pricing continues to advance. Profitable growth thus continued excluding the US unit, where a high-volume Wind power product’s ramp-up costs ate all other EBIT. Exel’s Q3 adj. EBIT was EUR 0.1m vs the EUR 1.9m/1.7m Evli/cons. estimates. The US labor market challenges exacerbated the production problem. The US unit’s performance is expected to improve already in Q4, but in our view it will not perform according to requirements at least before Q2’22.
We make relatively small revisions to our FY ’22 estimates
Exel announced its long-planned Indian expansion. We view the Indian JV a practical step to serve existing global customers in a new growth geography and a chance to sign new accounts. We reckon the Indian plant (which we expect to be driven by Wind power but not entirely) has an output smaller than that of Exel’s existing assets. We expect the JV to add ca. EUR 5m in annual revenue starting next year, considering Exel owns 55% of the entity, and we believe valuation is below 1x EV/S. Exel’s FY ’21 adj. EBIT margin is to remain a modest 5%, but profitability should already improve by 400bps q/q in Q4. We raise our FY ’22 revenue estimate to EUR 147m (prev. EUR 139m) due to the continued strong outlook as well as the Indian contribution.
In our view annual EBIT is to rebound above EUR 10m soon
FY ’21 EBIT isn’t meaningful since Exel has managed above EUR 2.5m quarterly EBIT many times with a significantly lower top line than what will be seen next year. In our view Exel is unlikely to reach the 10% target margin in FY ’22 as the US unit probably doesn’t fully perform in the early part of the year. We don’t view Exel’s 7x EV/EBITDA and 10x EV/EBIT multiples (on our FY ’22 estimates) challenging. We retain our EUR 10 TP and BUY rating.
Exel’s top line continued to grow very fast in Q3, while the ramp-up of a Wind power product in the US impacted profitability more than estimated. Exel expects profitability improvement already for Q4 and specifies guidance.
Exel’s margins take a hit this year, but we see Exel’s favorable positioning will remain intact and next year’s results should more than make up for the interim dip.
The negative factors have been discussed earlier
Exel issued a negative profit warning yesterday. The company’s earlier outlook guided revenue as well as adj. EBIT to increase, whereas the updated guidance says revenue is to increase significantly while adj. EBIT is to decrease. We don’t view the revenue update a major surprise but the FY ‘21 profitability downgrade is negative news. According to Exel raw material availability has weakened, and both material as well as logistics costs have increased. Exel also says certain high volume carbon fiber Wind power customer applications have generated low margins during their ramp-up phase. These negative factors were discussed already over the spring and summer, but we expected margin improvement in H2 after some softness seen in Q2.
We expect profitability back to high levels in FY ‘22
We already expected strong top line growth for this year and thus we revise our estimate only a bit, from EUR 124.9m to EUR 125.8m. Our previous adj. EBIT estimate for FY ’21 was EUR 10.8m, which we now revise down to EUR 8.9m. We estimate 17% y/y revenue growth for Q3 (Exel grew 23% y/y in Q2). We now expect EUR 1.9m in Q3 adj. EBIT (prev. EUR 2.7m), a bit below the EUR 2.0m comparison figure. We therefore estimate Q3 EBIT margin to have softened to 6.3%. We now expect 6.8% margin for Q4, in other words EUR 2.1m EBIT (prev. EUR 3.2m). In our view Exel’s composites pricing will adjust to higher raw materials prices going forward and hence the company should be able to make up for the interim profitability drop next year when the raw materials and logistics markets have normalized.
We still consider valuation not very demanding
Our FY ’22 revenue estimate is EUR 139.0m (prev. EUR 137.4m), while we revise our EBIT estimate down to EUR 12.4m (prev. EUR 13.5m). The 8.9% EBIT margin estimate is in line with the figure seen last year while our corresponding top line estimate is 28% above the EUR 108.6m in FY ’20 revenue. Exel is valued 9x EV/EBITDA and 15x EV/EBIT on our FY ’21 estimates. These levels are not that low but turn attractive at ca. 7x and 10x on our FY ‘22 estimates. Our new TP is EUR 10.0 (11.5); retain BUY rating.
Exel Q2 margins were close to what we expected, while the growth extension turns us overall more positive. In our view the company isn’t that far from 10% annual EBIT margins.
Q2 margins declined pretty much as expected
Sales mix (tilt to carbon fibers) as well as volumes continued to improve and Q2 top line grew by 23% y/y. The EUR 33.5m figure surpassed our EUR 30.4m estimate despite certain quarterly softness in Wind power, which in our view testifies to Exel’s extended wide positive development. Buildings and infrastructure, a highlight customer industry, was driven by the conductor core application and reached EUR 8.7m top line (vs our EUR 5.9m estimate). Q2 gross margin declined by almost 400bps y/y and 200bps q/q to 56.3%, which wasn’t a surprise per Exel’s comments in connection with the Q1 report. Higher raw materials costs and certain growth category products’ ramp-up had a negative margin impact, but Exel’s 7.3% adj. EBIT margin was in fact a bit above our 7.2% estimate. The resulting EUR 2.5m adj. EBIT topped our EUR 2.2m estimate thanks to the high revenue. Exel retained its previous FY ‘21 guidance.
Prolonged high growth further lifts profitability potential
Order intake didn’t show any signs of cooling and leaped by 90% y/y. The Q2 comparison figure was soft, but nevertheless the latest EUR 43.5m figure gained another 4% q/q and can be compared to the EUR 30m quarterly levels that used to be common. We now expect Exel to reach 15% growth this year. In our view H2 growth is bound to top 10% and thus we estimate H2 EBIT margins to increase by ca. 100bps y/y. We still expect Exel’s composites pricing to adjust for higher raw materials costs and see annual EBIT margin reach close to 10% already next year. It’s a bit early to say much about FY ’22, but the recent order intake levels suggest Exel might then grow another 10% or so. We therefore see EBIT gaining almost another EUR 3m.
We now estimate EUR 13.5m FY ’22 EBIT (prev. EUR 12.7m)
Exel’s valuation has turned, in our view, more attractive now that recent strong growth outlook has been extended. Exel is now valued ca. 9x EV/EBITDA and 14x EV/EBIT on our FY ‘21 estimates. These are still somewhat high in the historical context, but we expect them to contract to around 7.5x and 11x in one year’s time. Our TP is now EUR 11.5 (11.0), new rating BUY (HOLD).
Exel Composites’ Q2 report was throughout better than we expected. Absolute profitability remained higher than we estimated as top line development was once again very strong. Relative profitability was close to what we expected, while order intake reached a new high.
Exel’s record Q1 orders surprised. In our view the next quarters’ orders determine how much forward-look the multiples warrant. Our TP is EUR 11, now rate HOLD (BUY).
The EUR 42m order intake sets a new benchmark level
Exel’s Q1 revenue grew 11% y/y to EUR 31m and was a bit above our EUR 30m estimate. Customer industries performed close to our expectations while Asia-Pacific contributed most of the growth. Adj. EBIT was EUR 2.5m vs our EUR 2.4m estimate. Strong demand was to be expected, yet the EUR 42m order intake (up 22% y/y from a high comparison figure) is a record and can be compared to the EUR 30m level Exel has averaged in the recent past. The orders stemmed from many industries and no large orders drove the intake. Operations ran almost as usual despite the pandemic, raw materials, and logistics issues. Exel managed to balance its raw material pool across the eight plants.
Organic CAGR outlook now closer to 10% than 5%
Exel already saw some raw materials inflation affecting Q1 margins. We expect a more pronounced negative effect in Q2 (we now estimate 7.2% Q2 EBIT vs our prev. 10.4% estimate), but also see EBIT margins bounce back to ca. 9-10% levels in H2. Exel has been able to pass raw materials inflation forward before and this is to be expected again considering the value chain position. Profitability slope remains attractive especially if the Q1 order levels continue to persist over the summer. We don’t consider the EUR 42m figure just a fluke and even if Exel may not quite reach such high orders in the coming quarters we nevertheless see the company is now positioned for high single-digit organic CAGR for years to come. In our view Exel might well reach double-digit top line growth this year and we see such growth rates driving long-term EBIT margins meaningfully above 10%.
Earnings multiples have already rerated for a valid reason
Exel is valued ca. 9.5x EV/EBITDA and 15x EV/EBIT on our FY ’21 estimates. The multiples are a bit high compared to the historical respective averages of 8x and 13x but in our view warranted by the current growth prospects. Top line growth continues to drive profitability and the multiples are some 8.5x and 12x on our FY ’22 estimates. In our opinion the next few quarters’ orders will determine how much forward into the future the multiples may lean. We retain our EUR 11 TP, rating now HOLD (BUY).
Exel’s Q1 report was close to our expectations in terms of top line and profitability. Order intake was very high. Exel also highlights the risk that global raw materials challenges may hurt short-term profitability.
Exel continued to perform despite the pandemic. In our view the company remains positioned for strong organic growth in the years to come. The strategic priorities now work solid. Our TP is EUR 11 (10); retain BUY rating.
The strategic priorities have already delivered results
In our view Exel Composites is a competitively positioned player in the materials value chain and operates in a niche that has a strong long-term growth outlook. The company manufactures composites for demanding industrial applications. Strategy execution paid off in 2019-20 as adjusted operating profit almost doubled to EUR 9.7m in FY ’20 from the level seen in FY ’18. The excellent financial performance was due to a pick-up in organic growth as well as successful cost reduction measures, both of which helped the company to scale the relatively high fixed cost base. Exel seems to have found an advantageous positioning within the Wind power customer industry but also in areas like Buildings and infrastructure, among many others.
Growth outlook continues to support profitability gains
Exel posted a 5% organic top line growth last year despite the pandemic. Wind power was a big driver but there were other notable positives such as Machinery and electrical. Transportation and Telecommunications were the only two customer industries, out of the seven, with revenue declines. The pandemic may still hurt Transportation demand this year but in our view the area has good long-term outlook. Telecommunications is the one industry with a bit muted outlook but even there the situation may improve with the rollout of 5G. Exel guides increasing revenue and adjusted EBIT for this year. We estimate 7% growth and an additional EUR 1m EBIT gain. We view Exel positioned for ca. 5-6% CAGR in the years to come.
We see more room for earnings-based multiple expansion
Exel has been historically valued around 8x EV/EBITDA and 0.9x EV/S. The current valuation is ca. 8.5x EV/EBITDA on our estimates for this year, in other words not that high in the historical context even though the shares have appreciated a lot. Profitability gains have justified the rally. The valuation is now historically rich in terms of EV/S, but we also find this justified since the strategy is poised to deliver more in the years to come. Our TP is now EUR 11 (10) per share. We retain our BUY rating.
Exel beat estimates; we see the share is still not expensive all considered. Our TP is now EUR 10.0 (7.25), rating BUY.
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.
Exel Composites’ Q4 top line was slightly above estimates, but the strong profitability was a clear positive surprise. The overall impression is very solid.
Exel Composites’ Q3 results were overall quite neutral relative to expectations, however we are now more confident top line will continue to grow going forward. Our new TP is EUR 7.25 (6.25) while we retain our BUY rating.
Overall outlook appears strong despite the pandemic
Exel’s EUR 26m Q3 revenue grew by 10% y/y and so topped the flat estimates. The Wind power customer industry supports high volumes and grew by 37% y/y after growing 52% in Q2. We now expect a 27% y/y increase for Q4. Defense is also developing well, and there’s plenty of long-term potential (now only some 5% of LTM revenue). Cable core rods remain one high potential application in the long-term, although the Buildings and infrastructure customer industry continued to develop soft for now due to the pandemic (which also undermined Transportation demand). Exel progressed in areas outside Europe as Asia-Pacific grew by 58% y/y, driven by Wind power.
We are now more confident towards next year
Although top line was strong, Exel had pandemic-related issues in Q3 which affected bottom line and so the company was unable to reach similarly high profitability as in Q2 (which was close to long-term targets). The 7.8% EBIT margin was thus soft relative to our 9.5% estimate. We expect the Q3 US operational efficiency hiccup to pass. Demand has developed positive since Q2 and based on Exel’s comments we are now more confident revenue continues to grow in Q4 and next year alike. The Austrian investment is proceeding as planned and Exel is also ready to readdress its capacity for different end-markets with small capex. We see Exel has good handle on long-term customer account management, arguably the single most important consideration given the business model and strategy.
We see some more upside even with cautious multiples
The share has appreciated a lot lately, now close to the pre-pandemic highs. The strong Q2 profitability development, driven especially by the US unit, and good volumes justify higher multiples for their part. On the other hand, the growing pandemic uncertainty limits multiple potential even if outlook is still positive. Our new EUR 7.25 (6.25) TP values Exel roughly within the 7-8x EV/EBITDA and 11-13x EV/EBIT ranges on our estimates for FY ’20 and ’21. We retain our BUY rating.
Exel Composites’ Q3 top line exceeded expectations while operating margin remained at a good level and absolute profitability increased y/y.
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 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.
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 results met expectations. The company nevertheless had to withdraw FY ’20 guidance. The pandemic has so far had only a limited impact on business.
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 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.
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 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 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.
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 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.
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’ Q1 exceeded our expectations. Actual revenues topped our estimate by 12%, and the company also surprised in terms of EBIT margin.
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.
|Shareholders||Date||% of shares||% of votes|
These research reports have been prepared by Evli Research Partners Plc (“ERP” or “Evli Research”). ERP is a subsidiary of Evli Plc.
None of the analysts contributing to this report, persons under their guardianship or corporations under their control have a position in the shares of the company or related securities. The date and time for any price of financial instruments mentioned in the recommendation refer to the previous trading day’s closing price(s) unless otherwise stated in the report. Each analyst responsible for the content of this report assures that the expressed views accurately reflect the personal views of each analyst on the covered companies and securities. Each analyst assures that (s)he has not been, nor are or will be, receiving direct or indirect compensation related to the specific recommendations or views contained in this report.
Companies in the Evli Group, affiliates or staff of companies in the Evli Group, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the publication or report. Neither ERP nor any company within the Evli Group have managed or co-managed a public offering of the company’s securities during the last 12 months prior to, received compensation for investment banking services from the company during the last 12 months prior to the publication of the research report.
ERP has signed an agreement with the issuer of the financial instruments mentioned in the recommendation, which includes production of research reports. This assignment has a limited economic and financial impact on ERP and/or Evli. Under the assignment ERP performs services including, but not limited to, arranging investor meetings or –events, investor relations communication advisory and production of research material. ERP or another company within the Evli Group does not have an agreement with the company to perform market making or liquidity providing services. For the prevention and avoidance of conflicts of interests with respect to this report, there is an information barrier (Chinese wall) between Investment Research and Corporate Finance units concerning unpublished investment banking services to the company. The remuneration of the analyst(s) is not tied directly or indirectly to investment banking transactions or other services performed by Evli Plc or any company within Evli Group.
This report is provided and intended for informational purposes only and may not be used or considered under any circumstances as an offer to sell or buy any securities or as advice to trade any securities.
This report is based on sources ERP considers to be correct and reliable. The sources include information providers Reuters and Bloomberg, stock-exchange releases from the companies and other company news, Statistics Finland and articles in newspapers and magazines. However, ERP does not guarantee the materialization, correctness, accuracy or completeness of the information, opinions, estimates or forecasts expressed or implied in the report. In addition, circumstantial changes may have an influence on opinions and estimates presented in this report. The opinions and estimates presented are valid at the moment of their publication and they can be changed without a separate announcement. Neither ERP nor any company within the Evli Group are responsible for amending, correcting or updating any information, opinions or estimates contained in this report. Neither ERP nor any company within the Evli Group will compensate any direct or consequential loss caused by or derived from the use of the information represented in this publication.
All information published in this report is for the original recipient’s private and internal use only. ERP reserves all rights to the report. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature, without the written permission of ERP.
This report or its copy may not be published or distributed in Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or South Africa. The publication or distribution of this report in certain other jurisdictions may also be restricted by law. Persons into whose possession this report comes are required to inform themselves about and to observe any such restrictions.
Evli Plc is not registered as a broker-dealer with the U. S. Securities and Exchange Commission (“SEC”), and it and its analysts are not subject to SEC rules on securities analysts’ certification as to the currency of their views reflected in the research report. Evli is not a member of the Financial Industry Regulatory Authority (“FINRA”). It and its securities analysts are not subject to FINRA’s rules on Communications with the Public and Research Analysts and Research Reports and the attendant requirements for fairness, balance and disclosure of potential conflicts of interest. This research report is only being offered in U.S. by Auerbach Grayson & Company, LLC (Auerbach Grayson) to Major U.S. Institutional Investors and is not available to, and should not be used by, any U.S. person or entity that is not a Major U.S. Institutional Investor. Auerbach Grayson is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of the FINRA. U.S. entities seeking more information about any of the issuers or securities discussed in this report should contact Auerbach Grayson. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements.
ERP is not a supervised entity but its parent company Evli Plc is supervised by the Finnish Financial Supervision Authority.
Revenue is to decrease in 2023 and adjusted operating profit is to decrease significantly compared to 2022
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%
For professional investors wishing to discuss the case, please book a complimentary analyst call