Getting ahead of the curve

This is the easier task but staying ahead is a tougher one. And, for a tough quarter, management guided in the call that, due to the steep energy price increases in Q1, these would have to be passed on with a one quarter time lag. Another core topic was Lanxess’s preparedness, when it comes to potential embargos / sanctions and other impacts from the Ukraine war. The financials were no big surprise after the release some days ago at first sight, but divulged some interesting details.

A stronger-than-expected profitable start

Lanxess’ preliminary figures were above consensus expectations (sales: +8.5%; adjusted EBITDA: +6.8%). This positive development is anticipated to stem from the changes in contract terms allowing for a more stringent roll-over of higher energy prices. Despite this head start, the management made no changes to the guidance.

A decent 2021, but uncertainties hover over 2022

Lanxess reported some moderate impact on profitability after the strong portfolio rotation. Rightly, the company became a stronger player in the specialities chemicals arena, which gives Lanxess’ EBITDA a certain robustness as it should be clear that margins are not carved in stone. Lanxess reported a good set of figures, strongly beating our top-line expectations (+6.1%) and EBITDA was well ahead. Consensus was partly beaten (top line: +3.2%; adjusted EBTDA: 0%). Current tensions prevented

Some challenges flagged for Q4

Despite the consensus-beating Q3 figures, the positive Lanxess’ share price performance has taken a breather. The management flagged a more difficult Q4 and guided to the lower end of the unchanged corridor. We share the management’s view that the factors mentioned will weigh on the figures despite their being part of the business model and the fact that they should be temporary.

A new home for an unwanted asset

Lanxess has taken the opportunity to acquire the Microbial Control business from a leading player in the flavour and fragrance business, which had seen three owners in three years. But this is quite an expensive opportunity once the synergies are stripped out. It looks as if management has some inner understanding of how profitability could be increased and how to stop the personnel drain.

The upswing took its toll on cash flow

Lanxess’ reported figures were, all in all, quite a re-bounce story, but the operating CF was severely hit by the strong NWC outflow. This was mainly a result of the higher inventories. Nevertheless, the company has shown its resilience and its determination to cushion the negative effects from higher raw material prices. Consensus was beaten by +8.9% at the top line and by +3.9% at EBITDA pre level. The guidance adjustment stemmed mainly from acquisitions’ contributions.

Revelling in high expectations

Lanxess has undergone quite a substantial and lengthy restructuring phase to make the company more resilient. The proof it has worked was shown in 2020, but street expectations have also risen. The reported figures were above these, but the beat was quite tiny compared to its peers. Looking at the company’s own expectations, they were at the upper end. ‘Selling’ the narrowing of the previous guidance range as a rise, looks like a marketing gimmick.

Well protected through the crisis

One could get the impression that Consumer Protection ‘disinfected’ the group as the company came quite well through the pandemic. Adjusted EBITDA was down 15%, which looks like next to nothing compared to the previous crisis (e.g. the one in 2012/13). The fair answer is that Lanxess looks totally different and the far lower share of cyclical businesses helped to sustain profitability. Our estimates have been clearly beaten on the top line and less pronounced on the profitability levels. Consen

Pushing Customer Protection

There were some rumours a few weeks ago that Lanxess might be in takeover discussions with the PE firm American Securities. This became a reality today. Contrary to the typical analyst’s reflex, we value the deal as not an expensive one despite management’s strong reference to synergies. In our view, the acquisition of Emerald Kalama makes a lot of sense and fosters Lanxess’s position in its new strong playing field of Consumer Protection, which will absorb ~75% of the quite profitable sales.

Guidance cut at the upper end

Lanxess had a tough Q3. All divisions, except Consumer Protection, suffered from a weaker top line (prices and volumes), which also weighed on margins. However, these divisions saw some recovery with different dynamics. We value the narrowing of the guidance as management’s realistic view on recent developments. The reported figures slightly missed our strong expectations, but fitted with consensus.

Preparing for what?

Lanxess’ cash pile remained quite high and the pattern of NWC flows gave us no clear indications. Q2 net earnings were positively impacted by the divestment result from the 40% stake sale in Currenta. The group was primarily hit by the lower volumes, except for Consumer Protection. Reported figures were above our expectations, but broadly meet street expectations.

Awash with cash

We see management’s actions and the reference to its achievements of the measures made on the portfolio as a bit disconnected. On one hand, Lanxess has great liquidity in a crisis situation since the spin-out from Bayer and, on other hand, it highlighted a more balanced portfolio and lower exposure to the automotive industry. However, it was a smart move to sponge up cash. The Q1 figures came in above our expectations and beat the street’s estimates.

Good 2019, too optimistic in 2020

Against the background of the looming COVID-19-driven panic, the Saudi Arabian show-of-force and a rising likelihood of a global recession, we believe Lanxess’s 2020 guidance does not include all the negative impacts as some are really quite recent. We appreciate management’s efforts to guide for potential COVID-19 effects. Lanxess’s figures came in fully in line with our operational expectations, especially on the profitability levels that we were focusing on. Consensus was partly beaten and it

Good resilience

Lanxess seems to have left the path of strong cyclicality and the respective impact on profitability. Nevertheless, the company could not completely decouple from the economic environment as Engineering Materials recorded lower margins. Reported figures were stronger than expected, especially on the profitability line, but full matched the street’s expectations.

Doing well in a harsh environment

Back in 2014, prior to Mr Zachert taking over, the current harsh environment would have had a significantly negative impact on the figures. For the current-day Lanxess, these negative impacts were not that strong as prices remained quite stable in Q2. The reported figures were a notch above our expectations and in line with consensus.

Judges Scientific+ (JDG, House Stock at 11,300p) - Challenging H1 trading update, forecasts reduced

Invinity Energy Systems - Inaugural Capital Markets Day

Invinity hosted their inaugural capital markets day at their manufacturing facilities in Scotland. The day marked the official opening of the company’s new 26,000 sq. ft assembly facility in Motherwell and included a tour of their current Bathgate facility near Edinburgh, consisting of a deep dive into their technology, manufacturing and R&D focus areas. Our key takeaway from the event is that Invinity are well placed to take advantage of accelerating demand for long duration electricity storage

PANMURE: Insurance : Fat Tail Friday: What we learnt from Q1 Earnings Season

Activity building after period of strategic change

eEnergy’s H1 update confirms that trading remains in line with expectations with momentum building at the start H2’24. As previously reported, H1 started slowly as a result of weak market conditions and balance sheet constraints, which were resolved by the sale of the Energy Management (EM) division in Q1. Encouragingly, market conditions have improved and full year revenue guidance has been maintained at £25-26m. We make no changes to our underlying forecasts or fair value of 13p/ share. In o

Morning Note – 25 July 2024

discoverIE Group - FY25 earnings expectations maintained

discoverIE’s Q125 trading update confirmed that underlying earnings expectations for FY25 are unchanged. While the Q125 revenue decline reflects the lower bookings environment in previous quarters, book-to-bill was above one and bookings increased organically year-on-year despite ongoing destocking by customers in the industrial market. Robust gross margins and a well-controlled cost base support the company’s 13.5% target operating margin for FY25 and we maintain our forecasts.

Judges Scientific+ (JDG, House Stock at 10,100p) - Geotek acquisition, synergistic

AUCTUS ON FRIDAY - 26/07/2024

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PANMURE LIBERUM: FirstGroup: Trading in line, further reduction in Greyhound liabilities

SigmaRoc (SRC LN) - Initiation: Major player in a key market

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PROGRESSIVE: Van Elle: First in line for housing and infrastructure boost

We initiate coverage of Van Elle, the UK’s largest ground engineering and foundations specialist. Van Elle is at the ‘front end’ of the construction process and, in our view, will be among the first companies to benefit from national priorities of housebuilding and investment in creaking water and energy transmission sectors, all of which Van Elle has targeted for growth. These sectors should be supported by the Labour government, which has pledged 1.5 million new homes and aims to speed up plan

Judges Scientific+ (JDG, House Stock at 9,500p) - Developing the portfolio

Judges Scientific+ (JDG, House Stock at 10,350p) - Refinancing to 2028

Hybridan Small Cap Feast 07/07/23

Joiners: No joiners today. Leavers: Medica Group plc has left the Premium Segment of the Main Market. What’s cooking in the IPO kitchen?** Blackpoint Biotech plc, a medical cannabinoids company established to fulfil gaps in the medical cannabis market by creating products that provide fast onset of action and accurate dosing, intends to join intends to join the Access Segment of the AQSE Growth Market. Expected Admission 20 July 2023. Metals One Plc, a company focusing on acquiring natural resou