Nabaltec — Getting back to pre-pandemic performance

Nabaltec (XETRA: NTG)

Last close As at 20/11/2024

EUR13.80

0.00 (0.00%)

Market capitalisation

EUR121m

More on this equity

Research: Industrials

Nabaltec — Getting back to pre-pandemic performance

Nabaltec’s H121 results show that the recovery that commenced in Q420 has been sustained. Revenues were only 2% behind pre-pandemic levels in Q221, resulting in a record EBIT margin. Management has raised FY21 guidance. Performance at the upper end could potentially result in record revenues this year. Guidance is supported by strong demand for boehmite, which is used in electric vehicle (EV) batteries, as management expects its sales of this material (10% of FY20 sales) to jump by around 50% in FY21.

Analyst avatar placeholder

Written by

Industrials

Nabaltec

Getting back to pre-pandemic performance

Materials

Scale research report - Update

31 August 2021

Price

€34

Market cap

€299m

Share price graph

Share details

Code

NTG

Listing

Deutsche Börse Scale

Shares in issue

8.8m

Net debt at end June 202q

€16.5m

Business description

Nabaltec develops, manufactures and distributes environmentally friendly, specialised products based on aluminium hydroxide and aluminium oxide. It is one of the world’s leading suppliers of mineral flame retardants.

Bull

Demand for boehmite boosted by growth in EVs.

Demand for halogen-free flame retardants driven by safety of people, property and environment.

Established customer-base in the United States supports recovery in region.

Bear

Naprotec product approvals further delayed in FY21.

Demand for speciality alumina dependent on health of global steel industry.

Low free float.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Nabaltec’s H121 results show that the recovery that commenced in Q420 has been sustained. Revenues were only 2% behind pre-pandemic levels in Q221, resulting in a record EBIT margin. Management has raised FY21 guidance. Performance at the upper end could potentially result in record revenues this year. Guidance is supported by strong demand for boehmite, which is used in electric vehicle (EV) batteries, as management expects its sales of this material (10% of FY20 sales) to jump by around 50% in FY21.

Strong H121 recovery

The recovery observed in Q420 and Q121 continued throughout Q221. As a result, group revenues rose by 14.8% year-on-year during H121 to €93.9m, with sales in the Functional Fillers segment growing by 13.5% to €65.6m and revenues in the Specialty Alumina segment increasing by 18.3% to €28.4m. EBIT (including exceptional costs) increased by €8.4m year-on-year to €10.5m, giving an EBIT margin (as a percentage of total performance) of 11.3%.

Management raises FY21 guidance

While incoming orders still tend to be short-term in nature, reflecting continued uncertainty in the market, management is confident about the future. Based on the assumption of strong economic and industry performance, in July management raised guidance to 11–14% revenue growth with an EBIT margin of 10–12%.

Valuation: Trading at a discount to peers

At current levels, the shares are trading on prospective consensus multiples that are lower than the respective means of our sample of European chemical companies on all metrics (eg year 1 EV/EBITDA of 9.6x versus 12.7x). This seems undeserved given that consensus estimates show Nabaltec growing at a faster rate than the sample mean over the next three years. The combination of lower than average multiples and higher than average growth indicates there is potential for share price appreciation once there is greater visibility on the group’s pace of recovery in the United States and on its ability to continue to grow boehmite revenues.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

179.0

15.9

1.22

0.15

27.9

0.4

12/20

159.6

(17.8)*

(2.23)

0.00

N/A

N/A

12/21e

181.6

18.3

1.50

0.28

22.7

0.8

12/22e

202.0

23.2

1.90

0.32

17.9

0.9

Source: Refinitiv. Note: *Including €25.3m non-recurring items.

Financial performance

Strong recovery in H121

The recovery observed in Q420 and Q121 continued throughout Q221. As a result, group revenues rose by 14.8% year-on-year during H121 to €93.9m, with sales in the Functional Fillers segment growing by 13.5% to €65.6m and revenues in the Specialty Alumina segment increasing by 18.3% to €28.4m. Q221 revenues were only 2% behind Q219 levels (€47.9m versus €49.0m). Exports as a proportion of total sales increased slightly, from 74.0% of total sales to 74.4%.

The cost of materials as a percentage of total performance (revenues adjusted for change in inventories and own work capitalised) increased from 47.4% to 48.3%, reflecting €1.3m of exceptional costs related to a hike in energy prices following the February snowfall in Texas. Personnel expenses were only €0.3m higher year-on-year as the reduction in the number of employees following cost-cutting measures introduced in April 2020 was offset by a return to working normal hours during Q121. Other operating expenses increased by only €0.2m, attributable to higher freight costs. Depreciation fell by €1.4m to €6.3m because of a substantial write-down in the value of property, plant and equipment at the Nashtec site in the United States during FY20 (see below). EBIT (including exceptional costs) increased by €8.4m year-on-year to €10.5m in H121, giving an EBIT margin (as a percentage of total performance) of 11.3% (12.7% stripping out exceptional costs). The Q221 EBIT margin was a company record at 13.5%.

Strong cash flow

Net debt decreased by €16.6m during H121 to €16.5m. Capital expenditure (capex) was €3.4m, which was half the previous year’s level when there was investment in the completion of the Naprotec facility in the United States and expansion of boehmite production in Germany. The low H121 capex, which was substantially lower than depreciation, reflects management’s caution regards investment at present. It noted that capex this year will be less than €10m while flagging the potential for greater investment in capacity, particularly in boehmite production, in FY22. Cash generated from operations (€20.4m in H121 versus €13.7m in H120 after deducting tax) benefited from an €5.8m reduction in working capital, primarily the result of higher trade payables and to a lesser extent a reduction in inventory. We note that the company started to build up inventories of work in progress and finished goods during Q221, having reduced levels during the pandemic.

Outlook: Management raises FY21 forecast

Management’s confidence regarding FY21 increasing

While incoming orders still tend to be short-term in nature, reflecting continued uncertainty in the market, management is confident about the future. Based on the assumption of strong economic and industry performance, in July management raised guidance given in February of 6–9% revenue growth during FY21 with an EBIT margin of 8–10% to 11–14% revenue growth with an EBIT margin of 10–12%. We note that performance at the upper end of current guidance would result in record revenues this year.

Examining the different elements informing this guidance, we note that the company is already working close to capacity for Functional Fillers products at its site in Germany and brought additional capacity online in Q221 for making reactive aluminium oxides, which are part of the Specialty Alumina segment. The situation is different in the United States. Utilisation of the Nashtec site, which manufactures non-halogenated, flame-retardant fillers, had reached around 70% of installed capacity by March 2020 but utilisation subsequently fell below 50% because of the adverse impact the pandemic had on sales. Management notes that production here has now stabilised at a ‘solid’ level, supported by an established customer-base. This follows a substantial write-down in the value of property, plant and equipment at the site in FY20 since management expected that it would take longer for revenues attributable to the Nashtec site to recover fully compared with the German operations because a higher proportion of sales in the United States are attributable to the automotive industry. Production at the new Naprotec production facility for refined hydroxides at Chattanooga was starting to ramp up in March 2020 so that work could commence on gaining customer approvals. However, customer qualifications have taken substantially longer than usual. Initially this was because of travel restrictions imposed in response to the pandemic. Now it is because potential customers are focused on addressing raw material supply issues, making the qualification of new flame retardant materials a low priority.

Boehmite for EVs a key growth driver

Looking beyond the current return to normality, we expect that demand will be driven by increasing adoption of boehmite. This material is used as a separator coating in lithium-ion batteries. Demand for boehmite is growing quickly, driven by increasing adoption of EVs (see our report EV Outlook#2 Driving better performance from EV batteries). The transition to EVs is expected to continue. A report issued by Meticulous Research in May 2021 predicted that the global EV market will reach 233.9m units by 2027, growing at a CAGR of 21.7% during the forecast period of 2020 to 2027. Boehmite sales accounted for €16.0m (10%) of Nabaltec’s revenues in FY20. Management expects sales of the material to jump by around 50% this year, following a 48% rise in FY20. Sales are still primarily to customers in South Korea, Japan and China. However, in early FY21 Nabaltec made its first sales to a European customer of boehmite for separator coatings. This activity is small-scale at present, but management hopes it will increase significantly as proposed European gigafactories come on-line.

Valuation

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Exhibit 1: Multiples for European chemicals companies

Market cap

EV/Sales (x)

EV/EBITDA (x)

P/E (x)

Revenue

(€m)

1FY

2FY

1FY

2FY

1FY

2FY

CAGR (%)*

Akzo Nobel

19,391

2.2

2.1

13.5

12.1

22.5

19.0

7.2%

Bodycote

2,129

3.1

2.9

10.9

9.4

25.2

19.8

5.7%

Croda International

14,879

7.6

7.1

25.3

23.5

39.4

36.2

13.1%

Elementis

1,016

1.9

1.9

10.5

9.4

20.0

16.3

4.3%

Evonik Industries

13,441

1.2

1.2

7.1

6.8

15.3

13.6

6.9%

Fuchs Petrolub

5,218

1.9

1.8

12.0

11.1

23.2

21.1

7.9%

Johnson Matthey

6,851

1.5

1.4

8.0

7.5

12.7

11.7

7.5%

Kemira

2,210

1.2

1.2

7.3

7.1

14.9

14.9

3.3%

Koninklijke DSM

31,578

3.7

3.5

18.3

17.5

35.5

32.3

6.7%

Orapi

46

0.4

0.4

5.8

5.4

36.4

21.0

-2.7%

Symrise

16,668

4.8

4.6

22.5

21.1

44.0

40.6

6.3%

Umicore

13,922

3.6

3.4

11.4

12.2

19.6

22.3

13.9%

Victrex

2,638

7.2

7.0

19.6

18.5

29.6

26.6

8.0%

Wacker Chemie

7,753

1.3

1.3

5.9

7.3

10.5

16.1

7.3%

Mean

3.0

2.8

12.7

12.1

24.9

22.3

6.8%

Nabaltec

296

1.8

1.6

9.6

8.3

22.5

17.7

10.9%

Source: Refinitiv. Note: Prices at 26 August 2021. *Year 3 to Year 0.

At current levels, the shares are trading on prospective consensus multiples that are lower than the respective means of our sample of European chemical companies on all metrics. This seems undeserved given that consensus estimates show Nabaltec growing at a faster rate than the sample mean over the next three years. The combination of lower than average multiples and higher than average growth indicates the potential for share price appreciation once there is greater visibility on the group’s pace of recovery in the United States and on its ability to continue to grow boehmite revenues.


.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Nabaltec

View All

Industrials

Nabaltec — High-tech white powders

Industrials

Nabaltec — Recovery underway

Latest from the Industrials sector

View All Industrials content

Research: Investment Companies

Premier Miton Global Renewables Trust — Are higher power prices here to stay?

Premier Miton Global Renewables Trust (PMGR) is arguably unique among UK investment companies for its broad global focus on renewable energy securities, aiming for both income (current yield c 5.5%) and capital growth. Fund manager James Smith believes that renewable infrastructure operators, in which the trust invests, are likely to greatly benefit from a sustainable potential upward shift in power prices. He views this as driven primarily by increasing demand for electricity as the world transitions to cleaner sources of energy. The trust changed its mandate in late 2020, having shifted in recent years towards renewable energy stocks from its previous wider focus on utilities, water and energy companies. Given that most closed-ended renewable peers trade at a premium, a narrowing of PMGR’s discount over time could present an opportunity for investors.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free