pTopic: Nabaltec looks set to report muted Q3 figures in line with our estimates and its FY23 guidance. Yet, in light of the attractive mid-term prospects, the currently undemanding valuation (5-10y lows) looks like an attractive buying opportunity.

Q3 sales is seen to come in at € 50m, a slight sequential improvement (+3% qoq) but still roughly 11% below last year’s figure as a result of weak demand across all products. Due to the resulting negative operating leverage and coupled with the increased cost base (mainly raw materials), Q3 EBIT should decrease to € 2.5m (-67% yoy, 5.2% margin). Importantly, August and September are seen to have shown first slight sequential improvements, which suggests that the trough has been passed.

FY guidance in reach. For FY23e, management expects sales to decrease by 4-6% yoy with an EBIT margin of 6-8%. Assuming no further sequential improvements for Q4 (9Me: sales -6.3% with a 7.1% margin), our FY estimates (sales -5% yoy and a 6.7% EBIT margin) should be reachable.

Headwinds are only temporary. Overall demand is currently subdued due to the cyclicality of Nabaltec's end markets and an ongoing de-stocking trend. While the latter effect is already fading (empty inventories), overall demand should sooner or later also begin to bounce back.

€ 90m cash pile to unlock mid-term growth. During the next 2-3 years, Nabaltec should partially deploy its cash to expand production capacities of selected products. Firstly, boehmite, a high-margin coating material for separator foils and electrodes of LIBs in EVs (€ 20m planned capex). Secondly, APYRAL, a gap filler that is mixed with glues used in battery packs/EVs to redirect heat away from the cells (€ 20m planned capex). Fully utilized boehmite and APYRAL capacity expansions would yield € 65-70m incremental sales and € 16m EBIT.

Valuation detached from fundamentals. Putting the current valuation (EV/EBIT multiples) of Nabaltec in relation to the company’s historical averages (5y and 10y), shares are trading at a 35-40% discount to those figures despite improved balance sheet metrics. The undervaluation becomes more evident when considering the 10.6% free cash flow yield despite the depressed operational performance in FY23e.

We reiterate BUY with an unchanged € 31 PT based on FCFY 2024e.