Spinnova Q4'24: Burden of proof is still heavy

Translation: Original published in Finnish on 2/14/2025 at 8:30 am EET.

We reiterate our Accumulate recommendation and EUR 1.10 target price for Spinnova. We have not made any material changes to our forecasts for the commercialization progress of Spinnova's technology portfolio since the company's H2 report. In our view, the share still offers positive expected value considering the company's current market capitalization and the trajectory of our estimates, even though the range of different scenarios is wide and the realization of the story will require time and positive news flow from H1. However, the risk level of investing in the company is now high. 

H2 slightly below our expectations with lower-than-expected cash burn

Spinnova's revenue and operating loss decreased year-on-year in H2. In the big picture, developments were fairly well in line with our estimates we lowered in November. However, cash flow was better than expected as investments, mainly related to the recapitalization of Woodspin, were below our forecast and the positive change in working capital also supported cash flow. As a result, Spinnova's net cash position at the end of H2 was higher than our estimate at 41 MEUR. We commented on Spinnova’s results in more detail here yesterday.

We made no significant estimate revisions

In contrast to previous years, Spinnova did not provide guidance for the current year. Spinnova argued that the progress of the Suzano technology project will determine the company's near-term prospects, and we agree. The company has not yet received an updated schedule for the Suzano plant project, which was delayed in November. Spinnova and Suzano continue to validate Spinnova's technology efficiency metrics as quickly as possible, and Spinnova aims to provide guidance in the coming months. The status of the technology development for the Suzano project was the most interesting aspect of the H2 report in advance, and in this respect the report provided few answers, although there were no obvious disappointments. The scenario in our projections of the Suzano project now advancing to pre-engineering with H2 also remains realistic.

The H2 report didn’t lead to changes in our expectations regarding the progress of Spinnova's technology development in the short and long term. Therefore, the estimate revisions we made after the H2 report were marginal adjustments. In our forecast, revenue, which will turn to growth this year in the commercialization phase but will remain low for years, will keep Spinnova's EBIT negative until 2030, and the business will only begin to scale in the 2030s, when more and larger, later-stage technology projects will be delivered. According to our calculations, the company's financing needs for the next few years are still covered by the current cash position and Business Finland loan financing, and the stock is not threatened by dilution in the near future. Still, the tightest cash flow situation is not expected until the end of the decade. The main risks to our forecasts are a failure to reduce technology investment and operating costs, a shift in investment by technology customers for external reasons, dependence on individual customers (especially Suzano), and a slowdown in the sustainability trend.

Expected value remains cautiously positive

The required rate of return we use in Spinnova's valuation is high, as the risk of commercialization proceeding slower than our forecast is tangible due to the lack of a timeline for the Suzano project. Even the most negative scenario (i.e. development fails) is on the table until the techno-economic competitiveness of the technology is proven. With an enterprise value of around 10 MEUR at the end of the current year (e.g. DCF around EUR 1.6/share), we consider the return potential of the stock to be cautiously attractive, even considering the risks. However, investing in Spinnova at this stage requires patience and a high risk tolerance, as the road to scalable growth enabled by the business model and market size is still long and rocky, even in the best case.