Topic: Nabaltec cut its FY23 guidance on the back of weak Q2 prelims, which came in below our estimates. Despite temporary headwinds, the mid-term prospects of the investment case remain unchanged.

Q2 sales decreased 12% yoy to € 49m (eNuW: € 55m) as a result of weak demand across all products, especially Speciality Alumina (eNuW: -20% yoy). This should have been driven by a continued de-stocking trend, a strong reluctance of steel smelters (Specialty Alumina) and data cable manufacturers (Functional Fillers). With the resulting negative op. leverage and the increased cost base (mainly raw materials), Q2 EBIT decreased by 62% yoy to € 3.3m (margin -8.7pp yoy, eNuW -6.5pp).

Lowered FY23 guidance. As a result of the weak H1 performance (sales -4.2% yoy and 8% EBIT margin) coupled with limited forseeable sequential improvements during the second half of the year, management cut its FY23 guidance, expecting a 4-6% yoy sales decline (old: 3-5% yoy growth) with an EBIT margin of 6-8% (old: 8-10%), below our old estimates of 1.7% yoy growth and a 9.4% margin.

While short-term newsflow should remain dull, we continue to like the case. Here is why:

• 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.
• Boehmite and other new products are coming: Besides boehmite, a high-margin coating material for separator foils and electrodes of lithium-ion batteries in EVs, the company also introduced a gap filler that is mixed with glues used in battery packs/EVs to redirect heat away for the cells.
• Regulatory tailwinds should fuel the core business  with environmental friendly flame retardants (ATH). Demand for those is driven by tightening regulation, wherever cables and hard plastics are used (e.g. buildings, cars, trains, etc.) to maximize escape times during a fire.
• Fundamental downside is limited. While the current valuation (FY23 est.) does not look cheap at 14x EV/EBIT, FY24/25e, with a more normalized earnings profile, reveals fundamental upside (7.8/5.8x EV/EBIT).

We reiterate our BUY rating with a new € 31 PT (old: € 36) based on FCFY 2024e.