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ENCE: 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results:
Sales: € 183.5 M (-6.2% vs. -16.5% BS(e) and -13.3% consensus);
EBITDA: € 16.8 M (-67.7% vs. -71.5% BS(e) and -68.5% consensus);
EBIT: € -10.6 M (€ 29.2 M in 1Q'19 vs. € -10.2 M BS(e) and € -7.7 M consensus);
Net Profit: € -11.8 M (€ 17.3 M in 1Q'19 vs. € -12.5 M BS(e) and € -9.6 M consensus);
The company released at yesterday’s closing bell poor 1Q’20 results that were slightly above expectations (virtually in line) on the EBIT level (€ 16.8 M vs. € 14.8 M BS(e) and € 16.4 M consensus) thanks to higher sales (+12% vs. BS(e) and +8% vs. consensus), and also in cash generation (thanks partially to factoring). These poor results were expected given the current low paper pulp prices (-32% vs. 1Q’19). Thus, sales fell -6% vs. 1Q’19 (-16% BS(e) and -13% consensus) due to the expected drop in paper pulp prices that was partially offset with higher sales volumes (+25% vs. 1Q’19) stemming from increased production levels (due to the capacity increases executed in 2019; +9% vs. 2018) and a reduction in stocks, and higher revenues from the renewables division after new plants started operating (96 Mw; +29% vs. 2019). The sale discount was in line with our estimate (~32% vs. ~31% in 1Q’19). EBITDA on the quarter stood at € 16.8 M, which represents a sharp drop vs. 1Q’19 (-68% vs. -72% BS(e) and -69% consensus). As a result of increased pulp sales, the cash cost was reduced by -4% to € 380/T (vs. € 385/T BS(e) and € 372/T for the full year). Net Profit fell to € -11.8 M (vs. €-12.5 M BS(e) and €-9.6 M consensus; € 17.3 M in 2018).
NFD came in above expectations at € 534 M (vs. € 553 M BS(e); € 513 M as of Dec 2019; 6.0x EBITDA in the last 12 months) as a result of better performance in working capital and lower capex levels.
Lastly, the company announced that, in order to strengthen its liquidity position against negative scenarios, it has made use of a liquidity facility of € 70 M (13% NFD) in its paper pulp division that matures in 2023, and has optimised factoring and confirming lines. Also, it has delayed a € 30 M payment corresponding to CAPEX, which was to be paid in 2020, until 2021. In this regard, we recall that as of the end of 1Q’20, ENCE has € 280 M of liquidity and debt maturities over the 2020-21 period total € 87.5 M.
Despite being poor, these results came in slightly above expectations and thus, we expect a neutral or slightly positive market reception, even though the share price has outperformed the market by +11% from February’20 highs. ENC has fallen -21% since 19 Feb (IBEX highs before the Covid-19 crisis started; -32% IBEX).
With the revision of estimates we plan to make in our scenario of V-shaped economic recovery (after two quarters of deep recession), we would cut our EBITDA’20e by -40% (-18% on average in 2021-22) and our T.P. would fall to € 3.80/sh. (+29% upside; -13% vs. previous). In our scenario of U-shaped recovery (deep economic recession for 2 quarters, moderate recovery in the third quarter and strong recovery in the fourth quarter and 2021) we would cut EBITDA’20e by -50% (-35% on average in 2021-22) and our T.P. would fall to € 3.40/sh. (+16% upside; -22% vs. previous).
There will be a conference call at 16:00 (CET) in which we expect the company to give its view on how supply, demand and pulp prices will move in the coming quarters. BUY. T.P. € 4.42/sh. (upside +50.14%).