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ENCE: 4Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'20 vs. 4Q'19 Results
Sales: € 180.9 M (+22.0% vs. +21.4% BS(e) and +16.0% consensus);
EBITDA: € 24.1 M (€ 0.5 M in FY2019 vs. € 17.4 M BS(e) and € 17.7 M consensus);
EBIT: € -6.3 M (€ -23.24 M in FY2019 vs. € -9.0 M BS(e));
Net Profit: € 15.5 M (€ -18.6 M in FY2019 vs. € 18.0 M BS(e) and € 19.0 M consensus).
FY2020 vs. FY2019 Results
Sales: € 707.7 M (-3.8% vs. -3.9% BS(e) and -5.0% consensus);
EBITDA: € 73.6 M (-42.0% vs. -47.6% BS(e) and -46.9% consensus);
EBIT: € -40.1 M (€ 32.66 M in FY2019 vs. € -42.8 M BS(e));
Net Profit: € -26.4 M (€ 9.2 M in FY2019 vs. € -23.9 M BS(e) and € -22.9 M consensus).

The company released at yesterday’s closing bell 4Q’20 results above expectations in EBITDA (€ 24.1 M vs. € 17.4 M BS(e) and € 17.7 M consensus) and debt (€ 178 M vs. € 189 M BS(e)).
Sales grew +22% vs. 4Q’19 (+21% BS(e) and +16% consensus) thanks to higher pulp sales (+26% vs. 4Q’19), lower selling prices (-2.4% vs. 4Q’19), and higher revenues from the Renewables division after the new plants started operations (96 MW; +29% vs. 2019). The sales discount beat our estimate (~33% vs. 34% BS(e)). The quarter’s EBITDA came in at € 24.1 M, above expectations (€ 17.4 M BS(e) and € 17.7 M consensus) thanks in part to better cash costs than expected (€ 366.8/T vs. € 370/T BS(e) and € 373/T from 3Q’20), but also to the effect from a lower discount and a smaller negative impact from other costs and provisions. Thus, the year’s EBITDA came in at € 73.6 M (-42% vs. 2019 and vs. the company’s guidance of € 70 M), of which € 6.8 M would come from the pulp division (vs. € 0.6 M BS(e)) and € 17.4 M from the Energy business (in line with our estimate).
Net Profit was affected by the capital gains stemming from the sale of the Puertollano solar thermal plant (€ +32 M) and came in at € 15.5 M (vs. € 18 M BS(e) and € 19 M consensus; € -19 M in 4Q’19), due especially to a more negative tax impact than expected.
NFD was better than expected, standing at € 178 M (according to ENC’s definition; vs. € 189 M BS(e); € 513 M in Dec’19; 2.4x EBITDA’20), due largely to better working capital performance than expected (despite the reduced factoring vs. 3Q’20 and the end of 2019) and lower CAPEX. The strong debt reduction vs. 2019 is thanks mainly to the expected positive impact from the asset sales in Renewable Energy (€ +389 M cash inflow and debt deconsolidation).
We expect a slightly positive market reaction despite the fact that the share price has soared +20% YtD (+18 vs. IBEX), mainly fuelled by the rise in pulp prices (+15% vs. YE’20). We believe that the market is waiting for the court ruling on the extension for the Pontevedra plant. There will be a conference call at 16:00 (CET), where we expect the company to share its view on supply and demand levels, as well as pulp prices over the coming quarters, as at current levels the upside is more limited. In addition to the business, the key lies in the possible scenarios regarding the legal resolution on Pontevedra plant. If we were to rule out the immediate shutdown of Pontevedra plant (unlikely, in our view; this would mean -17% in our T.P.; -12% potential), a ruling against ENC would leave our T.P. practically unchanged (+6% upside), while a positive decision (but not final) would mean +7% in our T.P. (+13% upside). Our T.P. if the current 60-year extension is confirmed would mean +18% in T.P. (+25% upside). BUY, T.P. € 4.31/sh. (+5.77% upside).