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ENCE: 3Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs 3Q'19 Results
Sales: € 164.9 M (-17.9% vs. -19.1% BS(e) and -19.5% consensus);
EBITDA: € 13.7 M (-59.9% vs. -60.2% BS(e) and -62.3% consensus);
EBIT: € -12.9 M (€ 8.9 M in 9M'19 vs. € -16.0 M BS(e) and € -10.5 M consensus);
Net Profit: € -16.5 M (€ 2.8 M in 9M'19 vs. € -18.0 M BS(e) and € -16.0 M consensus).
9months'20 vs 9m'19 Results
Sales: € 526.8 M (-10.3% vs. -10.6% BS(e) and -10.8% consensus);
EBITDA: € 49.5 M (-60.9% vs. -60.6% BS(e) and -61.5% consensus);
EBIT: € -33.8 M (€ 55.9 M in 9M'19 vs. € -36.9 M BS(e) and € -31.4 M consensus);
Net Profit: € -41.9 M (€ 27.8 M in 9M'19 vs. € -43.4 M BS(e) and € -41.4 M consensus).

The company released at yesterday’s closing bell poor 3Q’20 results that were very much in line with expectations in EBITDA (€ 13.7 M vs. € 13.6 M BS(e) and € 12.9 M consensus) and slightly above in debt. These poor results were expected to some extent, given the current low paper pulp prices (-17% vs. 3Q’19), an unfavourable EUR/USD exchange rate on the quarter and the maintenance stoppage planned (delayed to 3Q due to Covid-19). Thus, sales fell by -18% vs. 3Q’19 (-19% BS(e) and -20% consensus) as a result of lower pulp sales (-11% vs. 3Q’19, affected by the planned stoppage) and lower selling prices (-20% vs. 3Q’19), partially offset with higher revenues in the Renewables division after new capacity was put on stream (96 Mw; +29% vs. 2019). The sale discount was in line with our estimate (~34% vs. ~34% in 3Q’19). The quarter’s EBITDA came in at € 14 M, which means a sharp fall vs. 3Q’19 (-60% vs. -60% BS(e) and -62% consensus). Cashcost was reduced by -1% vs. 3Q’19 to € 373/T (vs. € 379 BS(e); € 372 for the full year), even below 2Q’20 levels of € 375/T and despite the stoppage planned (which should have increased it). Net Profit fell to €-16.5 M (vs. €-18 M BS(e) and €-16 M consensus; € 2.8 M in 3Q’19) due to lower amortisation levels and higher financial costs.
We should point out that the company has announced that for 2021 it has ensured the sale of 193,000 t (18% of our estimate of tonnes sold for 2021) at a price of US$ 770/t (€+90 vs. current price and vs. € 763/t BS(e) for 2021), which we could consider a leading indicator of the expected recovery of pulp prices.
NFD was better than expected, coming in at € 556 M (vs. € 569 M BS(e); € 513 M in Dec’19; 11x EBITDA over the last 12 months) as a result of better working capital performance than expected (despite the reduction of factoring vs. 2Q’20) and the lower CAPEX. As of the end of 3Q’20 ENC had € 360 M of liquidity, and debt maturities in 2020-21 total € 125 M.
We expect a neutral or slightly positive market reaction, as these numbers were expected, save for the announcement that part of the production at higher prices than current levels, especially after the stock’s -12% underperformance vs. the IBEX since February’s highs (-23% since the beginning of September). Conference call at 16:00 (CET), where we expect the company to unveil its stance on the performance of supply, demand and pulp prices over the coming quarters. BUY, T.P. € 3.83/sh. (+91.46% upside).