Exel Composites Q3'25 preview: Transition to the growth phase is approaching

Translation: Original published in Finnish on 11/04/2025 at 08:00 am EET

Source: Inderes

We reiterate our Accumulate recommendation and EUR 0.43 target price for Exelahead of the Q3 earnings report to be published on Thursday. We estimate that the company's market situation has largely continued as in the early part of the year, and thus the demand situation has remained moderately good compared to the average level of recent years. However, we believe that Q3 development was still hampered by the transfer of production from the Belgian plant to other plants. Considering this, we have cut our Q3 estimates and, consequently, slightly lowered our full-year estimates as well. In contrast, our estimates for the coming years remain unchanged. With the recently strengthened order book, the nascent market turnaround, and the earnings turnaround that has progressed in previous quarters, we are relying more strongly on our view for next year, in light of which we see the stock's valuation as attractive.

We expect slight earnings growth from the comparison period

In connection with the report, we have revised our Q3 operational estimates downwards, as we believe that the earlier closure of the Belgian factory and the transfer of production to other factories continued to affect the company's development, especially in the early part of the quarter. This did not come as a complete surprise, as we already commented after the Q2 report that this could be possible. We assume, however, that production transfers have been largely completed during Q3.

In turn, Exel’s starting points for Q3 were clearly better than in the comparison period in terms of order backlog (Q2’25: 47 MEUR vs. Q2'24: 34 MEUR), although we estimate that the order book structure is longer than typical. Despite this, we estimate the company's revenue has decreased slightly from the comparison period (-3% y/y, cf Q2’25 revenue -7% y/y) and settled at 23.8 MEUR (was 26.4 MEUR). We also estimate that lower revenue will be reflected in the company's earnings performance through lower utilization rates. In addition, we consider it possible that the ramp-up of different product applications may result in slightly elevated raw material costs (i.e. waste). Reflecting this, we estimate that the adjusted EBIT will amount to 0.9 MEUR (was 1.8 MEUR) and be above the comparison period level (0.7 MEUR).

Estimates for the coming years unchanged

For this year, Exel has guided that its revenue will increase (2024: 100 MEUR) and its adjusted EBIT will rise significantly from last year (2024 1.7 MEUR). We expect this to be repeated in connection with this report. Reflecting our estimated Q3 development, we slightly raised our Q4 estimates, as we believe the situation may have also led to some deliveries shifting. Overall, however, our 2025 estimates decreased slightly, and we expect revenue to be 106 MEUR (was 108 MEUR) and adjusted EBIT to be 5.1 MEUR (was 5.8 MEUR). In contrast, our estimates for the coming years are unchanged, and we expect Exel's growth to accelerate next year as the company moves into the growth phase of its strategy, supported by larger wind power contracts and their deliveries. In this regard, we are interested in more detailed comments in the report on the demand situation and the ramp-up of volumes at the Indian plant.

Eyes still on the longer game

The stock's valuation picture is elevated for this year relative to our accepted valuation (P/E 10x-14x, EV/EBIT 8x-12x, EV/EBITDA 5x-8x). In contrast, looking at next year, the multiples (P/E 9x, EV/EBIT 8x) are at the lower end of the ranges or below them. With the order book strengthening this year, a market environment that we estimate has remained fairly stable, and an ongoing earnings turnaround, we see upside in next year's multiples. At the same time, next year still involves elevated estimate risks, especially related to the larger ramp-up of volumes at the Indian factory and the factory's margin development, which means that valuing the share at the upper end of the ranges is not warranted either. Our view on the stock’s moderate valuation and long-term potential is also supported by our DCF model (EUR 0.45 per share), which is above the current share price.