Nexam Chemical continues to deliver on our forecasts and we are gaining confidence in its profitable growth journey. Growth remained impressive in Q4 at 46%, which we believe highlights the company's significant potential beyond its 2022 sales target, driven by a good business case for the plastic industry to increase recyclability and better use of plastic materials. The stock is selling at a 2022e EV/sales of 2.6x. We have lifted our fair value to SEK13-17 (10-14).

Details from the Q4 report. We find it encouraging that the company continues to deliver on our forecasts with Q4 sales 3% above our estimate, translating into strong growth of 46% while EBITDA was positive for the fourth consecutive quarter, in our view yet another testimony to the profitable growth story. Our key conclusions from the quarter are: 1) the Uponor settlement could offer a sizable sales opportunity of around the "triple-digit millions" in the long term we believe, if successfully commercialised; 2) we believe PET fibre could be the next growth leg and offer meaningful volumes in 2-3 years; and 3) breakeven volumes appear to have been reached and we are gaining confidence in our 10% EBIT margin by 2022e as the company continues to gain economies of scale and gross margin contribution.

Profitable growth and earnings multiples in sight. We believe Nexam Chemical is well-placed to deliver on its 2022 sales target of a cSEK300m run rate by 2022 and on our forecasts implies a 2020-2022e sales CAGR of 37%. As volumes increase, our margin forecasts appear more achievable, driven by a 3%-point gross margin contribution and 7%-point economies of scale on an opex level. We forecast that the company is set to reach an EBIT profit by 2021, and we note that the valuation implies a 2022e EV/EBITDA of 19x on our forecasts.

Estimate changes. Following the report we have lifted our 2021-2022e sales and EBITDA by 5%.
Fair value raised to SEK13-17 (10-14). Although the stock price has risen recently, we note that it is still trading 23% below our specialty polymer peer group. We continue to base our fair value on our DCF peers' 2022e EV/sales of 3.5x, applied to our sales forecast. We believe the company's recent results highlight its growth potential beyond its 2022e financial target.

Best regards 
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Viktor Trollsten | DNB Markets | Equity Research
 
DNB Bank ASA, Filial Sverige
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