Topic: While Q2 should show no sequential improvements vs. Q1, first indications point towards a better H2. With the FY guidance in reach and the mid-term prospects, shares seem attractively valued.

Q2 with no sequential improvements. Following a muted Q1 with € 57m sales (+4% yoy) and an EBIT margin of 9.1% (-3.9pp yoy), we expect Q2 to paint a similar picture with € 55m sales (-1.1% yoy) and a 8.9% EBIT margin (-6.5pp yoy). Above all, this is seen to be the result of (1) a weak end market demand on the back of a deteriorating industry sentiments (e.g. construction) and further inventory reductions across its customer base, (2) several cost increase since the beginning of the year/mid Q1 (labour, electricity, raw materials) and (3) the inability to currently pass on those higher costs to customers.

First indications point towards a pick up in H2. Based on preliminary discussions with customers, management expects an improving demand situation from Q3 onwards. Our new FY23e estimates imply H2 sales to grow by 1.9% yoy while the EBIT margin is seen to decrease by 2.7pp yoy to 9.8%. With that, the FY guidance should be well in reach, particularly on the sales level: FY sales to grow by 3.5% yoy (eNuW: 1.7%) with an 8-10% EBIT margin (eNuW new: 9.4%).

Boehmite retains its game changer potential. Boehmite is Nabaltec's high-margin (~30% EBIT margin, eNuW) product used to coat the separator the foil in Li-ion batteries of EVs in order to enhance their performance and increase safety KPIs. While the potential is significant, growth has been muted for the last few quarters mainly as a result of (1) notable capacity ramp ups of its Chinese peer Anhui Estone and (2) ongoing delays in the construction of battery fabs in Europe.

However, until 2030, Europe alone is seen to build 1.3k GWh cell manufacturing capacities supported by recent regulatory initiatives. In fact, CATL is moving forward with its 24GWh plant in Germany and a 100GWh plant in Hungary (kick-off expected for H2´23). This bodes well with Nabaltec's current boehmite capacity expansion (from 12kt to 24kt by the end of 2024e). A fully utilized German production, which is sufficient for roughly 240GWh of battery cells, would yield € 72m sales and € 22m EBIT.

While Q3 will have to show whether or not Nabaltec has passed the trough, the mid-term prospects, stemming from boehmite, supported by its solid core business with environmental friendly flame retardants, remain highly attractive. BUY rating with an unchanged € 36 PT, based on FCFY 2024e.