DALLAS, TX -- May 15th, 2023 -- Aquafil Group (ECNL.MI): Stonegate Capital Partners updates coverage on Aquafil Group (ECNL.MI). The full report can be accessed by clicking on the following link: ECNL Q1 2023 Report
Aquafil reports strong 1Q23 results
In 1Q23 Aquafil benefited from their large geographic footprint allowing them to better weather market volatility. Top line growth was challenged year over year as volumes declined in EMEA. ECNL is focused on navigating through a 2023 that is expected to be volatile due to the macro and geopolitical environment. Management plans on accomplishing this by leaning on their geographical diversification, focusing on cost saving and continuing to invest heavily in R&D. Essentially, focusing on variables that can be controlled.
- 1Q23 results: ECNL reported revenue, adj EBITDA and adj EPS of €169.5M, €21.6M and €0.07, respectively. This compared to our/consensus estimates of €174.3M/€1474.3M, €20.9M/€20.9M and €0.07/€0.07, respectively. Revenue was impacted by both higher selling prices, better mix, and lower volumes. Higher prices were largely offset by correlated increases in costs of sales. The higher than expected EBITDA was a product of the favorable sales mix and lower operating expenses that translated into a 12.7% EBITDA margin vs our 12.0% estimated EBITDA margin.
- Outlook remains positive: The Company, having recently completed their 3-year business plan, sees a lot of optimism out to 2025. Management does see short term choppiness in 2023, as the current market conditions are expected to induce significant volatility over the year. To get ahead of these challenges ECNL is focusing on cost cutting initiatives. From a geographic frame, the Company is expecting relative softness in the European market, with a positive trend materializing in the American market and a stable trend seen in the API market. Notably, the Company was able to pay down approximately €1.1M worth of debt in the quarter.
- Expansion into India is on track: In August of 2022, ECNL began the process of acquiring a controlling interest in the Indian company of Gujarat Polyfilms Private Limited. This acquisition, if completed, will further expand the Company’s geographical footprint into an area of the globe that should see significant growth over the coming years, in a jurisdiction that is expected to have favorable labor and energy characteristics. On the most recent call, management informed us that they are through the due diligence process and are proceeding with the acquisition process.
- Valuation – Based on our F24 estimates, Aquafil is trading at a 5.4x EV/EBITDA multiple vs. the average comp at 11.8x. Given the comps, coupled with historical trading ranges, we believe using an EV/EBITDA range of 6.5x to 7.5x with a mid-point of 7.0x is reasonable. Applying this range to our F24 estimate, we arrive at a valuation range of €6.61 to €8.42, with a midpoint at €7.52. When we apply a DCF valuation using a terminal growth rate of 2% and a range of discount rates between 10.0% to 10.5% with a midpoint of 10.25% we arrive at a valuation range of €7.00 to €8.01, with a midpoint at €7.47.
