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ENCE: FY2019 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'19 vs. 4Q'18 Results
Sales: € 148.3 M (-30.1% vs. -30.2% Bs(e) and -27.1% consensus);
EBITDA: € 0.5 M (-99.4% vs. -99.1% Bs(e) and -82.4% consensus);
Net Profit: € -18.6 M (€ 37.4 M in FY2018 vs. € -23.3 M Bs(e) and € -12.1 M consensus).
FY2019 vs. FY2018 Results
Sales: € 735.4 M (-11.6% vs. -11.6% Bs(e) and -10.8% consensus);
EBITDA: € 127.0 M (-56.3% vs. -56.3% Bs(e) and -51.8% consensus);
Net Profit: € 9.2 M (-92.9% vs. -96.5% Bs(e) and -87.8% consensus).

At yesterday’s closing bell the company released 4Q’19 results that were in line with our estimate but below the consensus, and above expectations (vs. BS(e) and consensus) in cash generation (partially due to factoring). This negative set of results was expected to some extent given the scenario of low pulp prices (-33% vs. 4Q’18) and the scheduled shutdown in the Navia factory (to increase its capacity by 80,000 T), which has lasted longer than expected (at least 7 days more) and which we find unsurprising, considering it a one-off. Thus, sales fell by -30% vs. 4Q’18 (-30% BS(e) and -27% consensus), impacted by lower production levels (as a result of the shutdown), which was partially offset with a reduction in inventories vs. 3Q’19. EBITDA on the quarter came in at € 1 M, which means a sharp drop vs. 4Q’18 (-99%), which would be in line with our estimates although below those of the consensus (-99% BS(e) and -82% consensus), with the pulp division registering €-10 M of negative EBITDA. As a result of low production levels/pulp sales, cash cost increased above our expectations (there was little visibility) to € 427/T (vs. € 410/T BS(e)), which leaves the annual figure at € 397/T (vs. guidance of € 388/T). However, we are surprised by the sale discount, standing at 31.4% vs. 34% BS(e)). Net Profit fell to €-19 M (vs. €-23.3 M BS(e) and €-12.1 M consensus; € 37.4 M in FY2018).
NFD performed better than expected, reaching € 513 M (vs. € 588 M BS(e) and € 548 M consensus; € 305 M in Dec’18; 4.0x EBITDA’19) as a result of better working capital performance than expected.
Lastly, the company has announced that, as expected, the Board of Directors has decided to postpone the pending investments from the Strategic Plan for the pulp business in order to try to keep the NFD/EBITDA ratio below 2.5x at average cycle prices.
Even though the results were much in line with our estimates (even better in NFD), the fact of coming in below the consensus could entail a negative market reaction despite the -6% YTD correction vs. the IBEX. In any event, in principle, we understand that these results cannot be largely extrapolated due the longer stoppage than initially expected as a result of the enlargement of the Navia plant, and thus, for the time being (with upside exceeding +30%), we keep our BUY recommendation as pulp prices have already stabilised (although the recovery will depend on the final impact from the coronavirus). Conference call at 16:00 (CET), where we expect details on the consequences of the stoppage of the Navia plant and on its 2020 targets. BUY, T.P. € 4.42/sh. (+31.15% upside).