Exel: Eyes on the longer game

Exel ’s share issue was clearly oversubscribed based on the preliminary result. We had already included the issue in our forecasts, and thus the result did not put change pressure on our forecasts. Instead, we believe the outcome will lower Exel’s risk profile as the uncertainty related to the financial position is removed and the capital raised brings degrees of freedom to strategy implementation. Reflecting this, the longer term potential and the stock price that was under pressure with the share issue, we raise our recommendation to Accumulate (was Reduce) and reiterate our target price of EUR 0.38. At the same time, we point out that an investor interested in the company before the share series are combined should observe any differences in the share series.

The company received the funds it sought with the rights offering

Exel announced on Tuesday that based on the preliminary result, approximately 141% of the offered shares were subscribed for in the issue. Thus, the offering was clearly oversubscribed with support from secondary subscriptions. Reflecting this, the company will receive the targeted 21.8 MEUR gross assets and net assets of good 20 MEUR through the offering. At the same time, the new financing agreement, which was conditional on the full implementation of the issue, was also confirmed in this respect. The final result of the share issue will be published on around 6/13/2024 after Exel's Board of Directors has approved the subscriptions made in the issue. With the share issue, the company’s number of shares will grow approximately 9-fold. The new shares are estimated to be registered in the Trade Register on 6/14/2024, which is also the last trading day for the temporary shares.

We had already included the issue in our forecasts, and the financial position strengthens considerably

We already included the issue in our forecasts in connection with our previous update, and we made no changes to our operational forecasts now either. As we stated in the previous report, we estimate that the company’s financial position improves once and for all, supported by the share issue (2024e equity ratio 42%, net gearing 36%, net debt/EBITDA 1.5x). We expect this to provide a degree of freedom in strategy implementation, considering possible write-downs related to the strategic review of the factory network (e.g. the currently ongoing review of the factory in Belgium). As a whole, the strengthening of the financial position also gives the company leeway in case the demand recovery takes longer, although recently small glimpses of light have been seen in the industry. However, we consider it likely that an overall recovery will not occur until next year at the earliest, and we also estimate that the implementation of the company’s ongoing change strategy will take time.

2024 valuation is challenging, but with the strengthened balance sheet eyes are on the longer game

Looking at this year, the overall valuation picture is challenging (2024e P/E 38x, EV/EBIT 15x, EV/EBITDA 5x) despite the share price drop. However, with the significantly strengthened financial position, we believe that we can look beyond the current year with the elimination of balance sheet risks (incl. the financing agreement). Correspondingly, support for the valuation will come next year when the overall valuation picture is cautiously attractive (2025e: P/E 12x, EV/EBIT 8x, EV/EBITDA 4x). On the other hand, the still uncertain earnings turnaround and its timing, as well as the earnings level that has fluctuated strongly in recent years, limits the upside in the multiples for the time being, despite the decreased required return. These factors also further limit the willingness to rely on the longer-term potential of the company's much higher profitability (incl. the measures taken to reduce fixed costs) as indicated by our DCF model (EUR 0.5/share, was EUR 0.47).