Equity Research Update Svenska Aerogel, Q3 2023: Accelerating order intake and new supplier deal

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Svenska Aerogel Holding AB’s (“Svenska Aerogel” or “the Company”) sales in Q3 2023 were, as in Q2, lower than our forecasts. On a positive note, the company has received two orders so far in Q4 for a total of about 3.2 tons of Quartzene™, which provides good outlook for the remaining part of 2023, but also in the long term. Carlsquare Equity Research raises the fair value to SEK 0.40 (0.27) per share for the next 6-12 months.

Increasing order intake promises brighter outlook

In Q3 2023, sales continued to be low, as in Q2 2023. Given the current macroeconomic climate, this is not surprising. Svenska Aerogel is in an early commercialisation phase and investments in the Company’s customer segments are lower than normal. On a positive note, the Company has received two major orders in the last few weeks totalling approximately 3.2 tons of Quartzene. The first order of about one tonne came from Italy via the distributor Krahn. The end customer is active in the Construction & Property segment. According to the Company, the end customer intends to place further orders during the first half of 2024, then of a significantly larger size than one tonne. The second order of approximately 2.2 tons was announced to the market on 23 November. It comes from an unspecified recurring European customer, who has ordered 44% more Quartzene in 2023 than in 2022. On November 29 the Company revealed a new supplier deal of aerogel material for toothpaste against sensitivity. This toothpaste will be commercialized by the British company Matrix, which is also set to make an investment in Svenska Aerogel’s factory. Projections indicate that the market for toothpaste against sensitivity is anticipated to reach approximately USD 3.9 billion by 2025. Additionally, the company’s Q3 report highlights that the new key customer in the process industry has introduced its product with Quartzene to a selection of its own customers and that the launch of the product is planned for Q1 2024.

As of 30 September 2023, the company’s cash amounted to approximately SEK 15.5 million. 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 raised our Q4 2023 sales projections for Quartzene following two recent orders and the new supplier deal with Matrix. In our adjusted scenario, we anticipate Quartzene sales of approximately 235 tons in 2028, just below the break-even level of approximately 250 tons with the current production structure. We project a modestly positive outcome in 2029. By the end of the 2023-2032 forecast period, we anticipate total Quartzene sales of around 1000 tons. This would result in a total turnover of about SEK 332 million, boasting a gross margin of approximately 51.0% and an EBIT margin of around 42.0%. Note that these sales figures encompass both Quartzene and other products/services.

By combining a DCF model with a multiple valuation, a motivated value of SEK 0.40 (0.27) per share is calculated for the coming 6-12 months. Our valuation corresponds to an implied EV/Sales multiple in 2027 of 5.5x. The peer group, consisting of aerogel and chemical companies, currently trades at a 2024 EV/Sales multiple of 1.6x.

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