Nabaltec — Record revenues despite US shutdown

Nabaltec (XETRA: NTG)

Last close As at 01/11/2024

EUR14.40

0.20 (1.41%)

Market capitalisation

EUR125m

More on this equity

Research: Industrials

Nabaltec — Record revenues despite US shutdown

Nabaltec posted record revenues in H118 despite the US facility being out of operation. A shift to high-margin products partly offset the negative impact of the factory closure. Commissioning of the expanded facility commenced in August, with production ramping up the rest of the year.

Analyst avatar placeholder

Written by

Industrials

Nabaltec

Record revenues despite US shutdown

Materials

Scale research report - Update

29 August 2018

Price

€24.40

Market cap

€215m

Share price graph

Share details

Code

NTG

Listing

Deutsche Börse Scale

Shares in issue

8.8m

Last reported net debt at end June 2018

€28.2m

Business description

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

Bull

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

World leader in supply of halogen-free flame retardants based on fine precipitated hydroxides.

Demand for boehmite boosted by growth in electric vehicles.

Bear

Capacity constraints until US facility comes back online in Q318.

Cash drain of US investment.

Low free float.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

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.

Nabaltec posted record revenues in H118 despite the US facility being out of operation. A shift to high-margin products partly offset the negative impact of the factory closure. Commissioning of the expanded facility commenced in August, with production ramping up the rest of the year.

Record revenues and double-digit margins in H118

H118 revenues rose by 3.5% year-on-year to a record €91.8m. Revenues from the Functional Fillers product segment increased by only 0.5% to €60.0m because of capacity constraints while the US operation is out of action. The very modest growth reflected a shift in product mix to include greater volumes of high-margin boehmite used in lithium-ion batteries. Revenues from the Specialty Alumina segment grew by 10.0% to €31.8m, also from a shift to higher-margin products. EBIT margin reduced by 0.6bp to 10.7% as higher boehmite volumes and positive currency tempered the negative impact of the US operation being closed and higher freight costs. Group EBIT was flat at €9.7m. EPS fell by 23.7% to €0.58 as a result of the dilution caused by the September 2017 placing. Net debt rose by €2.3m to €28.2m and gearing by 1.0pp to 31.6%.

FY18 margins depressed by Nashtec ramp-up

Management has reiterated its guidance of mid-single digit revenue growth and high single-digit EBIT margin for FY18, noting the dampening effect on margin as US production ramps up during H218. By FY19, the start-up inefficiencies should have worked through, so the benefit of releasing capacity in Germany to rising EU demand driven by tighter safety standards should be seen in profit growth. In July management purchased a site for manufacturing refined hydroxides in the US. It estimates that this plant will commence production in mid-FY19 and make a positive contribution to earnings a year after that.

Valuation: Trading at a discount to peers

The share price has fallen back from the peak of €31.10 achieved in mid-January, possibly reflecting investor concerns about the level of drag that ramping up production at Nashtec may have on FY18 profits and the delay in re-opening the facility. The shares are currently trading on prospective multiples that are at a discount to the mean of the peer group. This indicates potential for share price appreciation once the ramp-up in production at Nashtec is complete and there is greater clarity about the impact that the proposed US facility for refined hydroxides will have on margins.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

159.2

9.2

0.67

0.15

36.4

0.6

12/17

168.6

15.7

1.39

0.18

17.6

0.7

12/18e

181.0

14.7

1.19

0.19

20.5

0.8

12/19e

196.5

16.8

1.32

0.21

18.5

0.9

Source: Bloomberg

H118 revenues at record levels

H118 revenues rose by 3.5% year-on-year to a record €91.8m. Following the temporary closure of Nashtec in August 2016, customers in the US have been supplied from Nabaltec’s plant in Schwandorf, Germany, which operated at peak capacity throughout the period. This meant Nabaltec was not able to increase capacity further in response to rising demand for fine hydroxides in Europe. Revenues from the Functional Fillers product segment therefore increased by only 0.5% to €60.0m in H118. The very modest growth is attributable to a shift in product mix to include greater volumes of boehmite, which commands a higher than average gross margin. Revenues from the Specialty Alumina segment grew by 10.0% to €31.8m, also related to a shift to higher-margin products. Around half of Nabaltec’s Specialty Alumina output is used in longer-lasting refractories, supporting efficient steel production. Requirements for this application benefited from a buoyant global steel industry. Exports accounted for 73.8% of total sales, which was a similar level to H117 (73.5%).

The cost of materials as a percentage of revenues increased by 0.8pp to 48.2% as it has not yet been appropriate to push through higher prices to reflect rising raw materials costs given the uplift in fine hydroxide prices that was achieved in FY17. Although personnel expenses increased by €1.0m to €16.8m, this was the result of moving US staff who had previously been treated as consultants working for the JV onto the payroll. Other operating expenses increased by €0.9m to €16.5m, because of higher freight costs and charges for repairs. Group EBIT was flat at €9.7m. Operating margin, which declined by 0.6pp to 10.7%, was also adversely affected by the provision to cover the cost of the Nashtec closure (we note that the operation was closed throughout H117 as well) being fully utilised by the end of March, and commissioning did not start until August rather than April as originally planned. EPS fell by 23.7% to €0.58, reflecting the dilutive impact of the placing in September 2017.

Net debt rose by €2.3m to €28.2m and gearing by a very modest 1.0pp to 31.6%. Cash generated from operations (€13.4m) was €1.4m lower than the prior year period as more favourable movements in working capital were offset by higher taxes. Overall, €13.4m cash was consumed in capital expenditure, primarily in retrofitting and expanding capacity at Nashtec from 22,000 tonnes per year to 30,000 tonnes per year, and optimising production processes at the German site.

Additional capacity underpins future growth

Expansion of capacity in the US

Until August 2016, Nabaltec’s US customers were supplied from Texas-based Nashtec, a JV with Sherwin Alumina in which Nabaltec held a 51% stake. Sherwin Alumina provided Nashtec with raw materials, but this source stopped in August 2016 when Sherwin entered Chapter 11 bankruptcy. The plant was temporarily closed and Nabaltec retained its US customer base by supplying them from its Schwandorf site. In March 2017, Nabaltec concluded discussions to acquire the outstanding 49% stake in Nashtec, and some production buildings and technical equipment on an adjacent piece of land required to operate the plant independently. It also concluded discussions regarding reinstatement of raw material supply. This enabled management to proceed with its investment programme for the site, expanding capacity and improving efficiency. Commissioning of the new production line started in August before gradually ramping up production during the remainder of H218 so American customers can start to receive fine hydroxides direct from the US again. The full 30,000 tonnes of capacity is expected to become available in FY19.

Management also plans to construct production facilities for refined hydroxides and boehmite in the US, thus opening up additional applications for flame retardants, as well as entering the e-mobility sector. The first phase will be the development of a production facility for refined hydroxides with an annual capacity of around 30,000 tonnes. This phase is expected to cost around US$12m (including land), to commence production in H219 and to have a positive impact on consolidated earnings one year after that. In July 2018, Nabaltec acquired land and buildings in Chattanooga, Tennessee for this proposed production facility (estimated cost $3m). The second phase, construction of a facility for boehmite production, will follow, assuming that demand from e-vehicles has developed sufficiently to warrant this.

FY18 guidance confirmed

At the interims in August, management reiterated its guidance for FY18 of mid-single digit revenue growth and high single-digit EBIT margin, because the inefficiencies while Nashtec ramps up production during H2 are expected to have an adverse impact on profits. Capital investment is expected to be at a similar level to FY17 (c €25-27m). This includes completion of the alterations at Nashtec, process optimisation and infrastructure at Schwandorf and purchase of the Chattanooga site.

Market drivers

Future revenue growth is predicated on continued demand for functional fillers for flame retardants and products targeted at emerging applications such as boehmite. Demand for non-halogenated flame retardants is growing because of tightening fire safety requirements and increasing attention on the reduction of fumes. This is of particular concern in areas where it is difficult for people to escape quickly, such as tunnels, airports and high-rise buildings, and for electronic products that may be taken onto aircraft. In July 2017, the Construction Products Regulation came into force throughout the EU. This made it mandatory for new cabling supplying electricity or being used for control or communication purposes to meet the EN 50575 standard regarding performance when subjected to fire. Nabaltec is well positioned to take advantage of this demand when full capacity at Nashtec is available in 2019.

Demand for boehmite, which is used as a separator coating in lithium-ion batteries, is growing very rapidly. Q218 sales were higher than those for H117. We expect demand for this material to continue to rise, driven by the global roll-out of electric vehicles and stationary energy storage systems. Over time, boehmite could represent an activity equal in scale to the Specialty Alumina segment.

We note the diversity of applications that use Nabaltec’s materials. Flame retardants are used in buildings, cars, aeroplanes and consumer goods. While around 45% of Specialty Alumina revenues relate to the steel industry, the remainder are deployed in applications as wide ranging as engine catalysts, polishing powders, a substitute for asbestos in brake linings, high-voltage insulators, ballistic protection and ceramics.

Valuation

The share price has fallen back from the peak of €31.10 achieved in mid-January, possibly reflecting investor concerns about the level of drag that ramping up production at Nashtec may have on FY18 profits and the delay in re-opening the facility. The shares are currently trading on prospective multiples that are at a discount to the mean of the peer group. This indicates potential for share price appreciation once the ramp-up in production at Nashtec is complete and there is greater clarity about the impact that the proposed US facility for refined hydroxides will have on margins.

Exhibit 1: Multiples for European chemicals companies

Name

Market cap (€m)

EV/Sales 1FY (x)

EV/Sales 2FY (x)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x)

PE 1FY
(x)

PE 2FY
(x)

Akzo Nobel

20,445

2.5

2.4

19.9

16.8

28.0

23.4

Bodycote

2,091

2.6

2.5

9.4

8.9

18.5

17.2

Croda International

7,513

5.2

4.9

17.8

16.5

27.0

25.0

Elementis

1,358

2.1

1.9

10.6

9.2

16.4

15.1

Evonik Industries

14,953

1.2

1.2

7.0

7.0

13.0

12.9

Fuchs Petrolub

6,636

2.5

2.4

14.6

13.5

22.9

21.2

Holland Colours

74

0.8

0.7

6.2

5.8

11.1

10.1

Johnson Matthey

7,636

0.5

0.5

10.2

9.5

15.6

14.2

Kemira OYJ

1,740

0.9

0.9

7.1

6.6

15.1

12.8

Koninklijke DSM

16,268

1.8

1.8

9.5

10.3

15.7

17.9

Nanogate

186

1.2

1.1

10.8

9.2

82.0

54.7

ORAPI

40

0.4

0.4

9.4

7.2

(23.3)

14.4

Symrise

10,068

3.7

3.5

18.2

16.5

33.5

29.6

Umicore

11,511

0.9

0.8

16.0

13.5

32.0

26.7

Victrex

2,958

7.9

7.7

17.9

17.7

23.7

23.5

Wacker Chemie

6,303

1.4

1.3

6.5

6.2

17.4

15.7

Mean

0

1.8

1.8

12.0

10.9

20.7

18.6

Nabaltec

190

1.2

1.1

7.1

6.5

18.3

16.5

Source: Edison Investment Research. Note: Prices at 22 August 2018. Grey shading indicates exclusion from mean.

At Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
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.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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: Industrials

Delignit — Delignit delivers

Delignit has combined another strong trading performance (H118 EBITDA up 16%) with further signs of a potentially lucrative return on its strategic goal of business model transition. While early days, the award of a high-profile OEM contract for motor caravans brings not only the promise of double-digit million annual sales but, yet more importantly, encouraging evidence of Delignit’s ability to transfer its model to new markets. Meanwhile, H1’s clear EBITDA margin beat (by 10%) suggests that, as for 2017, this full-year management guidance may well prove cautious. Finances remain sound (net debt/EBITDA of only 0.8x for the last 12 months).

Continue Reading

Subscribe to Edison

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

Sign up for free