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ENCE: 1Q’21 RESULTS AND T.P. INCREASE (ANÁLISIS BANCO SABADELL)

1Q'21 vs. 1Q'20 Results
Sales: € 167.0 M (-9.0% vs. -14.2% BS(e) and -10.4% consensus);
EBITDA: € 16.8 M (0.0% vs. -14.9% BS(e) and +6.0% consensus);
EBIT: € -10.3 M (€ -10.6 M in 1Q'20 vs. € -14.7 M BS(e) and € -7.6 M consensus);
Net Profit: € -9.6 M (€ -11.8 M in 1Q'20 vs. € -16.1 M BS(e) and € -11.1 M consensus).

The company released poor 1Q’21 Results at yesterday’s closing bell above expectations in sales (+6% vs. BS(e) and +1% vs. consensus), beating our EBITDA estimate but below that of the consensus (+18% vs. BS(e) and -6% vs. consensus), which in our view would be due to a worse-than-expected cashcost (€ 386/t vs. 378 BS(e)) and despite positive one-offs on the EBITDA level.
Sales came in above expectations (+4% vs. BS(e)) on higher volumes and lower discounts (-35.8% vs. 37% BS(e)). The drop vs. 1Q’21 would be due to (i) the scheduled annual maintenance stoppage (in 3Q’20), already known; (ii) the sale of the Puertollano solar thermal plant; and (iii) paper pulp prices that do not yet price in their current trading levels (US$ 760/t on the quarter on average vs. US$ 936/t as of today).
EBITDA totalled € 16.8 M (in line with the 1Q’20) and even though it exceeded our estimate, note that this would be largely explained by the higher pulp sales and positive one-offs that would not be seen again, in principle (other revenues and expenses not included in cashcost and collection of a € 2.4 M compensation in the renewable division). Thus, excluding the impact from the compensation, the EBITDA of the renewable division would have come in below our estimate (€ 6.1 M vs. € 8.7 M BS(e)).
The NFD came in above expectations at € 227 M (vs. € 195 M BS(e); 178 Dec’20; 3.1x EBITDA in the past 12 months) mainly explained by slightly higher than expected CAPEX (€ 32 M vs. € 26 M BS(e) and higher working capital consumption due largely to a € 20 M factoring reduction.
In summary, we would not rule out a moderately negative reaction by the market, especially when the stock has risen +20% so far this year (+12% vs. IBEX). There will be a conference call at 16:00 (CET).
With all this in mind, in the medium and long term we raise our EBITDA estimate +17% in 2021e and +23% on average in 2021-23e (+37% CAGR’20-23e vs. +29% previously) due to a better outlook for hardwood pulp prices (average US$ 910/t in 2021e vs. US$ 805/t previously and US$ 900 in 2023e vs. US$ 840). With this, we raise our T.P. +8% to € 4.65/sh. (+14% upside). We reiterate our BUY recommendation, pending the first resolution on the Pontevedra factory (expected in the short term). In this regard, note that if we rule out a scenario of an immediate closure of the factory (we see this as unlikely; it would mean -16% to our T.P.), the scenario of a ruling against ENC would leave our T.P. practically unchanged (-1%), whereas a ruling in favour (without being definitive) would mean +6%. A scenario of a definitive confirmation of the current 60-year extension would mean a +15% increase to our T.P. Although the stock could be affected by the noise surrounding the Pontevedra factory in the short term, we expect pulp prices to continue to rise, underpinning the share price. BUY. T.P. € 4.65/sh. (upside +14.27%).