Exel Composites Q1'25: Possible pause in nascent market recovery

Translation: Original published in Finnish on 5/9/2025 at 8:00 am EEST.

Exel's operational development in Q1 was slightly ahead of our forecast, and the company's order flow also continued to pick up, supported in part by a wind power order received early in the year. The market had indeed shown signs of recovery in the beginning of the year, before the build-up of geopolitical and trade policy tensions. The company expects that the current uncertainty may delay customer decisions in the coming months. However, this did not impact the guidance for the current year. Given the overall picture, we made only small positive changes to our forecasts. We believe the stock is fully priced in the short term and thus reiterate our Reduce recommendation but raise our target price to EUR 0.38 (was EUR 0.35) in line with the forecast changes. 

Start of the year slightly above forecasts

In Q1, the company's revenue grew 8% year-on-year to 25.3 MEUR, up from a sluggish comparison period and slightly above our expectations. Among customer industries, Transportation in particular grew (+38% y/y), partly supported by early demand from customers preparing for the closure of Exel's Belgian factory. Adjusted EBIT amounted to 0.7 MEUR, which was well above our estimates. We estimate that the earnings beat was due to one-off costs (0.6 MEUR) related to the closure of the Belgian factory and the relocation of production, the impact of which we had not taken into account in the adjustment items. The reported result was indeed in line with our forecast. At the bottom of the income statement, net financial expenses were significantly higher than our expectations, which we believe were influenced by non-cash FX movements on intercompany loans. On the other hand, order intake in Q1 (35 MEUR) remained positive as at the end of last year, but it should be noted that the orders received were supported by the 10 MEUR wind power order with a longer delivery time announced in February. The company commented that the year began with improving market conditions, which slowed in April due to geopolitical and trade policy tensions.

Guidance unchanged and minor estimate changes

As expected, Exel reiterated its guidance and expects its revenue to increase (2024: 100 MEUR) and its adjusted EBIT to increase significantly compared to last year (2024: 1.7 MEUR). According to the company, however, increased uncertainty may delay customers' decision-making and slow down order intake and deliveries in the near term. We therefore estimate that the market situation was heading for an improvement, but with the increased uncertainty, the recovery will take at least a temporary pause while customers wait for the situation to clear up. At the same time, the comfortable level of the order book (43 MEUR, the highest since Q2'22), given the nature of the business, supports progress. However, in view of this overall picture and the actual developments, we have made only minor positive revisions to our forecasts for the coming years in absolute terms. We continue to expect Exel's growth to accelerate more clearly only next year, driven by larger wind power contracts and their deliveries. For the current year, however, we expect the company's revenue to increase to 107 MEUR (was 105 MEUR) and adjusted EBIT to 5.2 MEUR (was 4.5 MEUR).

We do not see any significant valuation upside

The overall valuation picture for the stock this year is challenging (2025e: P/E 82x, EV/EBIT 12x, EV/EBITDA 6x) compared to our acceptable valuation range (P/E 10x-14x, EV/EBIT 8x-12x, EV/EBITDA 5x-8x). Looking ahead to next year, in contrast, we believe the valuation is relatively neutral (P/E 10x, EV/EBIT 8x), as we see the acceptable valuation remaining towards the lower end of the ranges for the time being, given the unproven earnings turnaround and the volatile performance in recent years. At the same time, we see heightened forecast risks amid trade policy tensions, also reflecting Exel's chronically short order book. Our view that the stock is reasonably priced is also supported by our DCF model, which is around the share price level.