Q3 sales decreased by 12% yoy to € 49.8m (eNuW: € 50.5m) as a result of continued weak end markets, which left a particularly strong mark on the group’s Specialty Alumina segment (-24% yoy to € 14.1m). Positively, demand for its high-margin product boehmite, which has been weak for more than one year, has begun to pick up. This explains the “only” 6% sales decline of the Functional Fillers segment to € 53.7m. In fact, monthly sales volumes should have improved from ~450t to roughly 600t as customers across Eastern Europe are gradually (but slowly) ramping up battery production volumes and Asian customers are slowly reverting back to regular orders.

Q3 EBIT came in better than feared at € 4.6m (eNuW: € 3.4m), a 9.3% margin driven by the improved product mix (higher boehmite and lower Specialty Alumina sales shares) and slightly lower input costs (vs. previous quarters) that compensated for general labour cost inflation.

FY guidance confirmed. At the beginning of August, the company adjusted its FY23 guidance to a 4-6% yoy sales decline (eNuW: 5% with an EBIT margin of 6-8% (eNuW new: 7.8%). While we still expect Nabaltec to meet the mid-point of the sales guidance, the upper end of the EBIT margin guidance should be in reach (9M: 8.4% margin), implying a margin of only 5.8% in Q4.

Balance sheet remains strong. At the end of Q3, Nabaltec’s balance sheet featured roughly € 15m net cash (€ 93m cash, € 15m short-term financial assets and € 90m debt). During the next 2-3 years, the company looks set to invest roughly € 45m into expanding production capacities of boehmite and APYRAL, a gap filler that is mixed with glues used in battery packs/EVs to redirect heat away from the cells. Fully utilized boehmite and APYRAL capacity expansions would yield € 65-70m incremental sales and € 16m EBIT.

What to expect from 2024e. Nabaltec is seen to return to slight growth, thanks to stabilizing sales of core products, environmental friendly flame retardants, and a gradually improving order momentum for boehmite and APYRAL as European EV and battery productions are ramping up. The resulting improvement of the product mix and slight raw material/energy price deflation should allow for further expanding margins. Beyond 2024e, core products should also return to structural growth, in our view.

Nabaltec remains a BUY with an unchanged € 31 PT, based on FCFY 2024e.