Initiation of Coverage Svenska Aerogel: Commercial focus paves the way for growth

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Svenska Aerogel Holding AB  has created a new, patented technology called Quartzene®, which serves as an alternative to traditional aerogels. During Q1 2023, the company has increased sales of Quartzene significantly compared to before, which proves that the transition to commercial focus has so far been successful. Carlsquare Equity Research initiates coverage of Svenska Aerogel with a motivated share price of SEK 0.43 for the next 6-12 months.

Interesting industrial materials company in the early commercial phase

Svenska Aerogel is a materials technology company specialising in developing products to enhance insulation, coatings, and paints. Their flagship product, Quartzene, is an aerogel-based additive that offers an intriguing alternative to traditional aerogels. According to the Company, Quartzene has a lower environmental impact and improves the properties of the end products where it is utilised. The company primarily concentrates on four customer segments: construction and real estate, transportation, process industries, and paper and pulp. These segments have been identified as having a higher potential for a commercial breakthrough than others.

The company has undergone significant investments in product development, organisation, and production facilities since its inception and is currently in the commercialisation phase. This phase is led by Svenska Aerogel 2.0, a customised business plan that identifies customer segments with high anticipated demand for Quartzene.

Until 2022, the company’s sales were minimal due to R&D focus. However, in Q1 of 2023, Svenska Aerogel achieved a noteworthy milestone with the sales of Quartzene. The Company’s production capacity for Quartzene is 225 tons per year but can be rapidly scaled up to 1000 tons annually. With a price of approximately 35-45 euros per kilogram, the production of Quartzene at future full capacity can generate revenues of 30-40 million euros annually. Additionally, the company also offers other products and services.

Fair value in a base scenario

We have assumed the number of tons of Quartzene sold per year to value Svenska Aerogel. Given the company’s production structure, we expect sales of about 320 tons of Quartzene in 2028, which is slightly above the approximate break-even level of 250 tons. At the end of the forecast period, we estimate sales of approximately 1000 tons of Quartzene, which gives a total turnover of about SEK 485 million SEK at a gross margin of about 60 per cent and an EBIT margin of about 23 per cent.

By combining a DCF model with a multiple valuations, a motivated value of SEK 0.43 per share is calculated for the coming 6-12 months. Our valuation corresponds to an EV/Sales multiple in 2023 of 19,2x and an EV/Sales multiple in 2024 of 10.0x. The reference group, consisting of companies in Aerogel and chemicals, is currently traded at an EV/EBIT multiple in 2023 of 2.2x.

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