da Intermonte – AQUAFIL company research report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a AQUAFIL a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto

Laura Morreale

M. +327 3435530

3Q Results Fall Short, but Ambitious BP Targets Recovery

• 3Q well below our estimates: 3Q results fell well short of our already conservative estimates. As a matter of fact, net sales were Eu131.1mn (12.7% below our est.), down 26.7% YoY due to a 4.6% YoY drop in volumes and a marked decline in selling prices due to their being indexed to falling production costs. As for profitability, adj. EBITDA was Eu5.7mn (vs. our estimate of Eu13.3mn), a 4.2% margin, well below the Eu21.7mn posted in 3Q22 (11.7% margin). As well as lower operating leverage due to falling volumes, profitability was heavily affected by the high unit cost of raw materials in inventory, the impact of which was quantified at €20mn in 9M, implying a negative impact of c.€7mn in 3Q alone. Finally, net debt was Eu263mn, up from Eu251mn as at the end of June due to business seasonality, and higher than our Eu255mn estimate due to the disappointing operating results. 
• Ambitious, 3-year business plan. The company presented a three-year business plan with ambitious targets in terms of EBITDA recovery after a complicated 2023 penalized not only by the weakness of final demand but also by temporary elements linked to inventories. The plan envisages an improvement in EBITDA from Eu68-70mn in ’23 (once the Eu23-25mn stock impact is stripped out) to Eu76-82mn in ‘24 and Eu84-92mn in ‘25. The improvement is to be attributed to Eu9-12mn of cumulative savings (the largest chunk being represented by the layoff of ~150 employees), while Eu7-10mn should come from an increase in volumes (all three divisions seen increasing in ‘24/’25). As for cash generation, the goal will be to reduce net debt by Eu50-60mn by 2025, with net debt/EBITDA amply below the 3.75x covenant as early as 2024 (~3x), benefitting from the recovery in EBITDA, shrewd NWC management and lower investments. 
• Estimates slightly more conservative. We have significantly cut our estimates for 2023, a year that saw the company hit by the perfect storm; by contrast, we are only marginally revising our ‘24 and ‘25 EBITDA estimates. As regards 2024, our estimate is slightly below  the lower part of company guidance as we incorporate a more conservative scenario in terms of volumes given the exposure to sectors that could be affected by the economic slowdown, such as residential and commercial real estate. The increase in EBITDA expected next year is therefore mainly attributable to the recovery of the stock effect and efficiencies, while in 2025 we also see a more significant recovery in terms of volumes, which would still be below the levels achieved in 2021. Ultimately, we see net debt/EBITDA declining to 3.1x in 2024 and 2.4x in 2025.
• Outperform confirmed, TP Eu4.1 from Eu5.8. We confirm our view on the stock, as we think that the company is adopting the necessary measures to recover the ground lost during 2023. Our estimates include a certain degree of caution compared to the business plan targets and thus there would be some upside if the scenario depicted by the company in terms of volumes were to occur. At the same time, the downside risk is represented by a scenario of further contraction of volumes should the macro slowdown be harsher than expected. Finally, we note that our estimates and our investment case are based on the successful conclusion of negotiations with financial institutions to obtain a covenant holiday for ‘23 and 1H24.