DALLAS, TX -- March 30th, 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: https://stonegateinc.com/reports/ECNL_4Q23.pdf
Aquafil reports strong 4Q22 results
In 2022 Aquafil benefited from their large geographic footprint allowing them to better weather market volatility. Top line growth was highlighted by a 20.1% year-over-year increase. 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, expansion of portfolio production and sales activities, and continuing to invest heavily into R&D.
- 4Q22 once again exceeds estimates: ECNL reported revenue, adj EBTIDA and adj EPS of €158.7M, €19.1M and €0.06, respectively. This compared to our/consensus estimates of €173.0M/€146.5M, €15.0M/€14.9M and €0.01/€0.01, respectively. Revenue was impacted by both higher selling prices and better sales mix. 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 that translated into a 12.0% EBITDA margin vs our/consensus 8.7%/10.2% estimated EBITDA margin.
- Outlook remains positive: The Company, having recently completed their 3-year business plan, sees a lot of optimism out to 2025. They believe that their innovation and technical solutions will help them remain a leader in the circular economy going forward. Management does see short term choppiness in 2023, as the current market conditions are expected to induce significant volatility over the year. From a geographic frame, the Company is expecting relative softness in the European market, with less softness in the American and Asian markets. Management is encouraged by the continued expansion into the Japanese market.
- 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 5.2x EV/EBITDA multiple vs. the average comp at 11.6x. 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 €7.09 to €8.95, with a midpoint at €8.02. 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 €7.40 to €8.48, with a midpoint at €7.91.
Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high-quality investment opportunities.
