Update after Q2 2023 Earnings Season
After a summer hiatus let’s have a look at the performance of the companies presented so far (hint: no so good).
AMG Critical Materials N.V.
Performance -29.31%
While the results for the first half of the year were very strong, surpassing an already solid first half of 2022, a lowered guidance for the rest of the year due to lower prices for Lithium Carbonate has sunk the stock price, going from nearly €50 (5-year high) to around €25 in the span of three months.
Q2 2023 Results
Revenue $439M (+4% vs Q2 2022).
EBITDA $107M (+32%).
Cash from Operating Activities $60M (+52%).
Net Income $43M (+44%).
Diluted EPS $1.28 vs $0.91.
ROCE 35.7% vs 25.5%.
Guidance
2023 EBITDA guidance lowered to a range between $350M-$380M from “at least $400M” due to lower prices for Lithium Carbonate.
Medium-Term guidance is mantained: EBITDA of €650M or more in 5 year or less.
Conference Call
A defective fan in the new Zanesville (Ohio, USA) Vanadium facility affected the performance of the business - it translated in a loss of volume and also in incremental costs. AMG has started an arbitration claim seeking compensatory damages. The facility is already operating at full capacity so it will provide full run-rate production in H2 2023.
The JV with Shell for the construction of a new Vanadium recycling supercenter in Saudi Arabia is progressing - The FEL3 feasibility study will be completed later this year.
The average realized sales price for lithium concentrate was $3,633 per ton CIF China, while the average cost per ton was $547 CIF China - the cost per ton was higher than in Q1 ($338) owing to lower prices and volumes of tantalum concentrate. Management guides for an avarage cost of $500 per ton, but it varies quarter to quarter depending on the sales of tantalum.
The expansion projects remain on track for 2023 - the Lithium concentrate expansion project in Brazil should be completed very soon and the Lithium Hydroxide refinery in Germany is expected to start commissioning in Q4. The new Vanadium electrolyte plant expansion in Germany (6,000 cubic meter capacity per annum) is also expected to be finished at the end of the year.
News
Zinnwald Lithium (AMG owns a 25% stake) is awarded additional expliration licence - the area called Barenstein is next to the main Zinnwald Mining Licence, it has the potential to further expand company’s lithium resources.
AMG Engineering selected to supply vaccum melting and re-melting funaces to TIMET Titanium melt facility in West Virginia (USA).
Key Dates
November 8th - Q3 2023 Financial Results.
Analysis
AMG lowered the guidanced and the stock crashed. I am not worried about the share price because for me AMG is a long-term investment; I was not excited when the stock was trading at almost €50 and I am not troubled now that the stock is trading in the mid 20s. In my view the upcoming extension projects are key for the future of the company, especially the Lithium Hydroxide refinery (less reliance on Lithium Carbonate prices). I have increased my position recently below €30 per share, which I think is a very attractive price for the company.
Construcciones y Auxiliar de Ferrocarriles S.A.
Performance +5.9%
Good results from CAF showing a strong revenue growth although profitability is still under pressure (EBIT margin below 5%). Revenue was way higher than what the consensus expected, especially in the bus division where Solaris had a strong first half of the year aided by a more favourable mix because of higher unit value (high proportion of zero-emission buses).
Q2 2023 Results
Revenue €1,877M (+23% vs H1 2022).
Railway Revenue €1,429M (+19%)
Bus Revenue €448M (+34%)
EBIT €85M (+27%).
EBIT Margin 4.5% (+0.1 p.p.).
Order Intake €1,964M (-26%).
Backlog €13,377M (+1%).
Net Financial Debt / EBITDA 1.2x.
Guidance
2023 guidance confirmed - Revenue +10%-15%, improved profitability vs 2022 and Net Financial Debt stable.
News
CAF is awarded contracts in Italy worth in excess of €150M - a major order for 98 electric buses for Cagliari, 6 metro units for Naples and the project for the construction of 3 tramsway lines and the supply of 9 trams for Palermo.
Solaris is the leader of the European electric bus market after first half of 2023 - with a 16.4% market share, Solaris is more than 6 points ahead of the second manufacturer in the list. The segment of electric buses in the first half of 2023 has increased by 45% vs 2022 (2567 buses vs 1768). Right now the e-bus segment accounts for more than 37% of all city bus registrations.
Tests of the Solaris Trollino Trolleybus in Canada - important step for the ambitions of CAF to expand in North America.
Solaris to carry out the biggest order for Hydrogen buses in Europe - the city of Bologna is going to purchase as much as 130 hydrogen buses. The carrier has the right to extend the order by an additional 140 vehicles as an option.
More Solaris wins in cities like Novi Sad, Aarhus, Krakow, Duisburg, Venice, Poznan…
Key Dates
November 15th - Q3 2023 Financial Results.
Analysis
When I review the results of CAF I always look at the margins first : it’s vital for the company to improve its profitability. H1 2023 has seen a slight improvent vs 2022 but the second part of the year the trend should accelerate because it was at the end of last year when margins started deteriorating. Revenue growth is almost assured thanks to the green obsession of our politicians. The investment thesis holds, let’s see how the second half of the year develops.
Chargeurs S.A.
Performance -48.66%
Chargeurs released its financial results at the beginning of September which were not very well recevied by the market. The performance of Chargeurs Advanced Materials in the first half of the year has impacted the stock price, trading at 8-year lows (even lower than during the COVID crisis).
HY 2023 Results
Revenue €352.8M (-11.5% vs H1 2022, -12% LFL).
Q2 Revenue €183.1M (-6.2% vs Q2 2022, -5.7 LFL).
EBITDA €24.9M (-32.7%).
EBITDA Margin 7.1% (vs 9.3%).
Recurring Operating Profit €14.1M (-44.5%).
ROP Margin 4.0% (vs 6.4%).
Attributable Net Profit €3.3M (-67.6%).
Results by Business
Chargeurs Advanced Materials Revenue €146.7M (-23.1%), ROP 4.1M (-74.4%), ROP Margin 2.8% (vs 8.4%) - as expected the first half of the year was very week, showing a steep decline in revenue and a compression in margins. H1 2022 was a very strong half for CAM due to restocking after the COVID pandemic, making the comparables tough to beat. The silver linings reside in the increase in revenue in Q2 (€76M) from Q1 (€70.7M), which was better than Q4 2022. It looks that the low point is well behind and H2 should be stronger than H1.
Chargeurs PCC Fashion Technologies Revenue €100.5M (-9.5%), ROP €7.2M (-4.0%), ROP Margin 7.2% (vs 6.8%) - a resilient performance compared to H1 2022, which also benefited from the pent-up demand in the fashion sector after the COVID pandemic.
Chargeurs Museum Studio Revenue €61.2M (+48.5% LFL), ROP €3.8M (+111.1%), ROP Margin 6.2% (vs 5.0%) - clearly the bright spot in the earnings report, stellar performance with strong like-for-like growth and margin improvement.
Chargeurs Luxury Fibers Revenue €40.3M (-25.9%), ROP €1.2M (+20.0%), ROP Margin 3.0% (vs 1.8%) - revenue was impacted by the cyclone that hit New Zealand in February but it was compensated thanks to strong sales of its higher margin NATIVA range products.
Chargeurs Personal Goods Revenue €4.1M, ROP €0.2M , ROP Margin 4.9% - this new business line encompasses the B2C brands that the company recently acquired (Altesse Studio and Cambridge Satchel). Swaine is no consolidated yet.
Guidance
2024 Revenue more than €800M, EBITDA Margin between 9%-10% and net debt/EBITDA ratio less than 3x.
CMS Revenue of €150M for 2024 (€120M for 2023).
Conference Call
During the earnings call most questions were centered on the (weak) performance of CAM.
The results in CAM can be attributed to 3 different headwinds the company has faced in the first half of the year: inflation, energy price increases in Europe and a high level of stock in customers. Also the construction sector accounts for 25% of the sales, which has been recently penalized due to the increase in interest rates.
Management expects the performance of CAM in 2024 to reach 2022 levels.
The NATIVA range accounts for 1/3 of the profits of CLF due to the change in business model: not only the NATIVA wool is sold at a premium price but revenue is also captured thanks to the services provided.
News
Chargeurs steps up its presence in Saudi Arabia - agreement to create a joint venture between CMS and two Saudi Arabian companies to develop cultural projects in the kingdom. Morevoer, CAM has decided to review a construction project for additional production capacity in the country, to benefit from competitive access to raw meterials, cheap energy costs and strengthen its strategic position in the Middle East.
Chargeurs and JCDecaux launch “Pearlflex”, a new PVC-free advertising canvas.
Diversification and extension of the financing resources - looks like a move to have ample financing resources in case a new acquisition in the luxury segment materializes.
Speeding up the pace of the Share Buyback Program - so far in the year the company has bought back 358,871 shares which is around 1.44% of the total capital.
Key Dates
November 9th - Q3 2023 Financial Results.
Analysis
Obviously not a good performance of the company in the first half of the year, but I think the results in CAM overshadow a good performance in the rest of the businesses. CMS is well stablished as an engine growth for the company while CFT and CLF improved margins compared to 2022. The stock is trading around a long term support just below 8€ so I have taken the opportunity to increase my position.