Betolar Q1'25: More information needed before getting excited

Translation: Original published in Finnish on 4/28/2025 at 8:23 am EEST.

Betolar's Q1 report missed our expectations due to lower order intake, which led us to lower our estimates for the current year. We believe that a new metal extraction method has taken center stage in the investment story, and its economic potential seems significant. However, the road to a commercial product is still long. Although we raised our medium-term forecasts, we are not ready to rely more on the potential in light of the current data, and we are waiting for more detailed information on this topic at Betolar's Capital Markets Day. Considering these estimate revisions, we raise our target to EUR 1.2 and reiterate our Reduce recommendation.

Orders remained sluggish

Betolar’s revenue settled at 0.2 MEUR in Q1, which fell short of our forecast of 0.3 MEUR. The company comments that commercial progress in the mining industry has been slower than expected, although there seems to be clear market interest in Betolar's low-carbon rockfill solutions. We estimate that the Q1 EBITDA of -0.9 MEUR was supported by a grant from Business Finland of 0.6 MEUR, which was somewhat heavier than we had expected given the cost structure. Orders remained sluggish at 0.1 MEUR, indicating that the commercialization of existing products is progressing slowly. The liquidity situation was in line with our expectations, and the company's cash and cash equivalents stood at 10.3 MEUR at the end of Q1.

New method emerging at the heart of the investment story

Betolar reiterated its guidance for the financial year 2025, pointing to growing revenue. This was to be expected, given the company's stage of commercialization and the low comparison figures. In fact, it will take much less than the doubling of revenue that we expect to achieve the guidance.

We believe that the new metal separation method announced by Betolar at the beginning of April, which has enabled Betolar to successfully separate valuable metals from slags from the metal industry, has taken center stage in the investment story. In addition, the residual slag material can be used as a binder to replace cement in concrete. We believe that the process creates value primarily in the form of the valuable metals extracted, but the value of the green cement produced from the previously unused side stream is also significant. However, to assess the potential, information is needed on the operational costs required for the process (conventional separation processes are energy-intensive) and the investment needed to build the necessary infrastructure. These factors determine the cost competitiveness and economic viability of the method. A better understanding of the investment required to commercialize the method is also important for Betolar's capital needs, as the company's current balance sheet does not allow for large investments. The company is likely to outline these factors, among others, at its Capital Markets Day in May.

We lowered our estimates for the current year to reflect the lower-than-expected order intake and increased our investment estimates for the coming years by a total of 6 MEUR to reflect the development work required for metal extraction, although the scale of the investments is currently challenging to estimate. In turn, we increased our longer-term forecasts due to the potential of the new method.

Valuation relies on far-reaching potential

The 2025 and 2026 EV/S valuation ratios based on our forecasts for Betolar are 23x and 6x, which we consider high considering the risks related to commercializing Betolar’s innovations and reaching industrial scale. The value of the DCF model based on our long-term forecasts is at our target price. We see no rush to jump on board the stock until further details on the development and commercialization strategy of the new metal separation process, as well as financing plans, are available.