Equity Research Svenska Aerogel, Q2 2023: Weak sales, but several projects in the pipeline

Read the full research update here

Svenska Aerogel Holding AB’s (“Svenska Aerogel” or “the Company”) sales did not show the same positive development in Q2 2023 as in Q1. However, the Company believes that the business is developing positively in terms of both key customers and market conditions. As a result of the downgraded sales forecasts for 2023 – 2025, Carlsquare Equity Research reduces the motivated value to SEK 0.27 (0.43) per share for the next 6-12 months.

Low sales, despite high activity levels

During Q2 2023, Svenska Aerogel has shown great activity regarding business development. Mainly regarding the development project with the world-leading producer in the process industry, where two of three sub-projects are now completed. Two key customers in the Process Industry and Transportation customer segments have completed internal product tests during the quarter and intend to proceed with Quartzene as a solution in their products. The key customer in the Process Industry segment is also expected to start selling its product containing Quartzene to its customers in the near future. In the Construction & Real Estate segment, a major customer has invested in new equipment adapted to dose Quartzene into its product. The company also sees a growing potential in the Transportation segment. Despite high activity, sales growth in Q2 2023 decreased compared to the three previous quarters and the company is still waiting for the breakthrough order. We therefore see a greater risk that significant growth may be delayed and therefore model a lower growth rate in the years 2023-2025 than before.

Recently, the Company refinanced the existing convertible loan of 20 MSEK from February 2023 to the main owner Gästrike Nord Invest AB. The refinancing was carried out through a new convertible loan of SEK 10 million. The company also received just over SEK 27 million before issue costs because of the redemption of warrants of series TO6. At the end of Q2, cash amounted to SEK 37 million. However, in our scenario, the company will need to raise additional capital to ensure operation and to finance investments in production capacity.

Fair value in a base scenario

We have adjusted the short-term expectations for the number of tons of Quartzene sold per year. In our adjusted scenario, we expect sales of around 240 tons (280) of Quartzene in 2028. This is slightly below the break-even level of 250 tons given the Company’s production structure. We thus model a positive result only in 2029. At the end of the forecast period (2023-2032), we expect sales of just over 1000 tons of Quartzene. This gives a total turnover of about SEK 474 million at a gross margin of about 60 percent and an EBIT margin of about 23 percent. Sales include sales of services and other products.

By combining a DCF model with a multiple valuation, a motivated value of SEK 0.27 (0.43) per share is calculated for the coming 6-12 months. Our valuation corresponds to an implied EV/Sales multiple 2027 of 2.4x. The peer group, consisting of Aerogel and Chemicals companies, is currently trading at an EV/Sales multiple 2024 of 1.6x.

Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, is engaged in corporate finance and equity research, publishing information on companies and including analyses. The information has been compiled from sources that Carlsquare deems reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be considered a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the analysis are intended solely for the recipient.

The content may not be copied, reproduced, or distributed to any other person without the written consent of Carlsquare. Carlsquare shall not be liable for either direct or indirect damages caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments offer the potential for appreciation and gains. All such investments are also subject to risks. The risks vary between different types of financial instruments and combinations thereof. Past performance should not be taken as an indication of future returns.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be disseminated to such persons. The analysis is not di-rected at natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.

The analysis is a so-called Assignment Analysis for which the analysed company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for the usually fixed fee. Carlsquare may or may not have a financial interest with respect to the subject matter of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analysts Christopher Solbakke and Bertil Nilsson do not own and may not own shares in the analysed company.