Update after Q1 2023 Earnings Season
Update after Q1 2023 Earnings Season
Once Q1 2023 earnings season is over, let’s have a look at how the companies I have presented so far have performed.
AMG Critical Materials N.V.
First things first, AMG Advanced Metallurgical Group changed its name to AMG Critical Materials in the last annual general meeting. Management thinks the new name reflects better the company’s mission; I personally didn’t like the former name but I don’t think the new one is much better. I think they should have included the word Lithium somehow in the name so any investor would have known at first glance where the company is focused.
Q1 2023 Results
AMG reported a very strong Q1 2023 performance with the spotlight on AMG Lithium.
Revenue $451M (+12% vs Q1 2022).
EBITDA $118M (+116%).
AMG Lithium EBITDA $92M (78% of total).
Adj EPS $1.72 (+93%).
ROCE 37.9% (vs 18.9%).
Guidance
Confirms 2023 EBITDA guidance of at least $400M.
Raises medium-term guidance - now the company projects EBITDA of at least $650M in 5 years or less (vs $500M previously).
Conference Call
A very interesting conference call as usual, where CEO Dr. Heinz Schimmelbusch goes deep and shares many interesting details about AMG.
Management is very confident in reaching the 2023 EBITDA guidance despite the recent drop in lithium carbonate prices - prices are starting to find a support once China has come back from lockdown, anyway management is sure that the higher volumes from the Mibra mine expansion will make up for the lower prices.
Non-core assets (Critical Materials and Critical Materials Technologies) will be sold when the right offers arrive - there is no hurry to sell these businesses because they are cash flow positive; so far the offers received have not reached the valuation management thinks they deserve.
The new $650M EBITDA guidance is a very confortable number, it could have been higher if they wanted to be more aggresive.
Cambridge 2 Vanadium expansion EBITDA contribution was below 10% - It reached full capacity for the first time in the last week of April, so Q1 was very weak compared to its future run rate. There should be an improvement in Q2 and Q3 will be the first quarter where the expansion will be running at 100% for the whole quarter, so we will have to wait until then to assess its potential contribution to EBITDA.
Shell AMG is not included in the $650M EBITDA guidance - it will be accounted by the equity method, so it will go straight to the net income.
$500M in CAPEX to reach the medium term EBITDA guidance.
Additional lithium resource projects could be announced later in the year.
News
AMG Lithium and Fortum Battery Recycling Oy sign MoU for supply of recycled Lithium Hydroxide - according to this non-binding MoU the lithium recovered by Fortum Battery in its Harjavalta plant will be delivered to AMG Lithium for further processing.
Key Dates
June 13th - Zinnwald Lithium PLC AGM.
July 26th - Half-Year 2023 Results.
Early-Mid August - 2023 Interim Dividend.
Analysis
AMG keeps delivering quarter after quarter while focused on growing via its many expansion projects. Although lithium prices have dipped considerably in recent months the stock is trading at 4-year highs, which highlights its resiliance. The Spodumene expansion project that is scheduled to come online in late Q2 or early Q3 plus the opening of the Bitterfeld Lithium Refinery in Q4 assure that the financial performance will keep improving in the coming quarters. The investment thesis presented last december holds, now it’s time to sit and wait how far the stock can go.
Construcciones y Auxiliar de Ferrocarriles S.A.
CAF presented quite solid results at the beginning of May; the market reacted very well to them with the stock up more than 10% since.
Q1 2023 Results
CAF reported a huge beat on revenue but margins are still under pressure, even below a weak Q1 2022, although there’s improvement from Q4 2022.
Revenue €952M (+29% vs Q1 22).
Railway Revenue €738M (+28%)
Bus Revenue €214M (+35%)
EBIT €43M (+23%).
EBIT Margin 4.6% (vs 4.8% Q1 22 and vs 4.4% Q4 2022).
Order Intake €768M (-33%).
Backlog €13,066M (-1%).
Guidance
Management confirms the 2023 guidance presented early in the year:
Revenue increase 10%-15%.
Increased profitabilty vs 2022 (both EBIT and Net Profit).
News
A vast amount of contract wins both in Railway and Solaris in the last months.
Solaris is awarded the supply of 52 Hydrogen buses in Rostock (Germany) - largest contract to date with this technology, delivery expected to be completed by the end of 2024.
CAF secures new regional train contracts for the Reichshoffen plant in France - includes the manufacture of 18 Coradia Polyvalent platform regional trains totalling €161M.
12 Solaris Hybrid Buses for municipal city transport operator in Grudziadz (Poland).
16 Solaris Urbino 9 LE electric buses headed to Lustenau (Austria).
Key Dates
June 10th - Annual General Meeting.
July 28th - Half-Year 2023 Results.
Analysis
As I have stated many times, for CAF stock to recover the key is to improve the margins: the good news is that there’s is sequential improvement from Q4 2022, the bad news is that the margin is still below 5%. The revenue growth is solid but I almost take it for granted due to the need for cities to decarbonize. Let’s see how the margins develop in the coming quarters, so far the market liked the Q1 results and the stock is again above 30€.
Chargeurs SA.
Chargeurs released the revenue report on May 24th and the stock took a battering, ending the day with a 10% drop. Let’s take into account that we have just half the story because they release just a revenue report with no information on profitability (also no conference call); we will have to wait until the half-year report to know the full picture.
Q1 2023 Results
Total revenue was in line with Q4 2022 but the comparison with Q1 2022 looks bad because it was an abnormally strong quarter thanks to the pent-up demand after the COVID pandemic.
Total Revenue €169.7M (-22.1% vs Q1 2022, -20.5 LFL)
Chargeurs Advanced Materials Revenue €70.7M (-26.3%, -27.0% LFL) - Q1 2022 was exceptionally strong due to heavy stacking after the COVID pandemic (remember the supply chain problems back then, many customers accumulated inventory in case things got worse) so the comparison basis doesn’t reflect well the performance, compared to Q4 2022 revenue was up 8.6% (21% volume growth). Management expects the business to further recover in H2 2022.
Chargeurs PCC Fashion Technologies Revenue €51.3M (-6.0%, -0.2 LFL).
Chargeurs Healthcare Solutions €0.0M (vs €6.1M) - once the pandemic is over this business is basically a zero, it will be integrated in Chargeurs PCC Fashion Technologies.
Chargeurs Museum Studio €24.0M (+50.9%, +30.2% LFL) - management keeps its guidance of €120M in revenue for 2023, next quarters should be even stronger.
Chargeurs Luxury Fibers €21.7M (-30.0%, -30.0% LFL).
Chargeurs Personal Goods €2.0M - there’s no comparison basis with last year because this business is newly created. Swaine is not consolidated yet.
News
Swaine Flagship Store opening in Bond Street in London.
Key Dates
September 7th - Half-Year Earnings Release.
Analysis
Following the negative reception of the revenue report, I have increased my position around the €12.50 area. One “bad” revenue report doesn’t change the long-term outlook of the company, more so when management has stated many times that the first half of the year would be weaker than the second half.