Topcic: LION published its solid 9M figures, which should be followed by a 2024 marked by strong growth and op. improvements. The recent share price weakness provides a good risk/reward opportunity, in our view.

Solid 9M performance amid significant operational changes. Throughout H1 '23, LION was moving a highly automatized production for EV battery packs (purchased from BMW) to its new site. With completion at the end of Q2, the company has begun selling packs produced on this line on top of remaining inventory to bride the moving time for customers. 9M sales came in at € 29.8m (Q3: € 10.5m). Positively, and despite significant ramp-up costs, the 9M EBITDA came in positive at € 0.1m. Further, the 9M op. cashflow came in at € 1.1m as the company sold down pre produced battery packs.

Strong Q4 in the books. With two weeks remaining in Q4, LION recorded Q4 sales of € 20m with another at least € 5m to be booked in the remaining two weeks. With around € 25m of sales, the fourth quarter will show significant sequential and yoy growth underpinning the plant’s revenue potential. With this, the FY '23 sales guidance of more than € 55m remains unchanged and in reach, eNuW.

SVOLT partnership to unlock energy storage growth. Thanks to the partnership with SVOLT, the company will produce higher energy density (20% more vs currently used cells) NMC and LFP battery packs from H2 '24 onwards. Especially the latter is set to turn into a notable tailwind as it should allow LION to fully break into the thriving energy storage market, which prefers LFP over NMC cells.

LIGHT Battery project progressing. A LIGHT Battery prototype (immersion cooled battery pack for ultra-fast charging and discharging) has been delivered to an OEM and is going through a so far successful testing phase.

Following 2023, a major transition year, one should expect FY '24e to be marked by (1) strong sales growth (eNuW: 44% yoy) thanks to a running production and an increased sales force, (2) LION turning at least EBITDA breakeven thanks to operating leverage, (3) the launch of LFP battery packs and (4) further progress on the LIGHT battery. With shares trading at a mere 0.4x EV/sales 2024e, this is not adequately reflected in the current share price. BUY with an unchanged € 10.5 PT based on DCF.