Recticel Model update – forecasts lowered after profit warning

After 3Q revenue declined by a disappointing 17.5% and Recticel has lowered FY adjusted EBITDA guidance from a € 40-45m range to a € 35-40m range, we have updated our earnings model. We have lowered our FY23 adjusted EBITDA forecast from € 43.7m to € 37.5m whilst also cutting our forecasts for 2024 and 2025 by respectively 21% and14%. With a net cash position that has further increased to € 155.6m in 3Q23 but taking into account lower EBITDA generation, we now believe Recticel has a war chest for acquisitions of at least around € 300m that would still allow to keep net debt/EBITDA24 below 2.5x. So whilst the war chest offers the potential for making sizeable acquisitions and this seems plan A for now, we are not blind to alternative scenarios whereby immediate share upside might come from a take-out scenario for Recticel or a combination with Recticel being the smaller partner. The weaker than expected short term business momentum prompts us to lower our target price from € 12 to € 11, while keeping an Accumulate rating.