Exel Composites Q4'24 preview: Market outlook in the spotlight

Translation: Original published in Finnish on 2/6/2025 at 10:30 pm EET.

Exel will publish its Q4 report on Friday, February 14 at around 9.00 am EET. We expect the company's revenue to grow from the weak comparison period, reflecting a higher order book. In contrast, we estimate that operating performance levels will remain sluggish. While we have added the one-off costs of the Belgian factory closure to our forecasts, we have not made any material changes to our operational forecasts before the result. We are therefore awaiting more detailed comments, in particular on the demand outlook. We currently expect that a more pronounced pick-up in demand will have to wait until later in the year at the earliest. In view of this and the elevated valuation in the short term, we reiterate our Reduce recommendation and our target price of EUR 0.35.

Improvement expected from weak comparison period

In terms of the order book, t the company had a slightly better starting position in Q4 than in the comparison period (Q3’24:
31 MEUR vs. Q3'23: 28 MEUR). Considering this and the weak comparison period, we expect the company's revenue to grow by as much as 15% and reach 25.4 MEUR. We estimate the operating result to have remained sluggish (adj. EBIT: 0.8 MEUR), but to have improved from the comparison period, supported by revenue performance and cost savings. However, we expect the reported EBIT to have fallen well below zero due to the one-off costs of 4.2 MEUR (of which 1.7 MEUR have cash flow effects) related to the closure of the Belgian factory, which we have now included in our forecasts. On the other hand, we estimate the lower lines to have been around the normal level and therefore the reported earnings per share to have settled at EUR -0.04. Given the negative result, we do not expect the company to pay a dividend.

Focus on current year’s guidance and market outlook

We have made very minor revisions to our forecasts for the next few years and expect Exel's revenue to grow by 3% to 103 MEUR this year (previously 104 MEUR) and the adjusted EBIT to improve to 4.3 MEUR (previously 4.1 MEUR). Thus, the company's guidance should indicate at least an increase in the operating result compared to last year (there is uncertainty about the underlying assumptions of the verbal guidance). Expectations for the current year are moderate, especially in terms of growth, given the recent order flow (cf. Q3'24: 21 MEUR) and the still subdued outlook. As a result, we expect that a more comprehensive recovery in demand will have to wait until at least the second half of this year. Similarly, given the moderate top-line growth we expect, we do not expect Exel to be in a position to achieve significant margin improvements, despite the cost savings and efficiency improvements that have been implemented. In terms of cost savings, we have only marginally taken into account the company's target of 1.8 MEUR per year in cost savings related to the closure of the Belgian factory. The company has previously commented that it expects some of these to be realized as early as H2'25. However, we are still waiting for more detailed comments on the rationale and a more detailed timeline in the Q4 report. We also believe that a more robust realization of savings will require a pick-up in the market, which would support volume development.

The valuation is twofold

The overall valuation picture for the stock this year is challenging (2025e: P/E 21x, EV/EBIT 12x, EV/EBITDA 5x) compared to our acceptable valuation range (P/E 10x-14x, EV/EBIT 8x-12x, EV/EBITDA 5x-8x). Meanwhile, looking ahead to next year, we see a slight upside in the valuation (2026e: P/E 9x, EV/EBIT 7x, EV/EBITDA 4x). With an earnings turnaround yet to be proven and volatile earnings levels in recent years, we see the acceptable valuation settling around the lower end of the range. At the same time, forecast risks are elevated due to uncertainty about the timing of the market turnaround and a lack of concrete signs. We therefore see the expected risk-adjusted return as slightly below the required return in the current situation.