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.

Supreme (SUP LN) - Record performance, EBITDA ~doubled

Supreme’s FY24 trading update confirms a record performance in the 12 months to 31 March 2024. Organic revenue and profit growth across all four divisions has driven Group revenue +45% YOY to £225m, with FY24 adj. EBITDA almost doubling to ‘at least £38m’, driving record levels of cash generation. Supreme is actively exploring complementary M&A, supported by a debt free balance sheet. Trading on an undemanding FY25 PE of just 6.7x, with a 3.4% yield, we believe downside risks are more than price

Morning Note – 22 April 2024

Supreme+ (SUP, House Stock at 125p) - Supreme, Supreme!

Trading update highlights scale of growth

In a Trading Update for the twelve months to 31 March 2024 Supreme expects to report revenue of c.£225m, and (adj.) EBITDA of at least £38.0m, in line with market expectations, which had been revised upwards during the course of the year and represents almost double the FY23 level. The Group closed the year debt free. Our outlook highlights the extent to which Supreme has expanded, through both acquisition and organic growth during the period. From 2020 to 2024E the Group will have grown sales

SP Angel Spec Sits: FY Trading Update (LTHM)

Headlam Group - Strategy for growth in tougher market

Headlam Group has laid out an ambitious long-term revenue target of between £900m and £1bn, as it seeks to grow its share of the UK floor coverings distributor market. Despite a challenging backdrop due to the low level of residential housing transactions, management is seeking to expand each of its sales channels: Trade Counters, Larger Customers, Regional Distribution and Europe & Other. The FY23 results reflected the more challenging environment and the group trades at a discount to its long-

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

SP Angel Morning View: Copper prices hit $9,700/t as China smelts concentrates for zero charge Tc/Rc

LIBERUM: Ilika: CMD confirms operational progression

LIBERUM: Gattaca: Resilient contract performance, perm tough

LIBERUM: Severfield: Erratum: Better EPS and cashflow, and buyback

LIBERUM: CEO Video: Matt Wragg, Gattaca plc:

Hybridan Small Cap Feast - 22 April 2024

22nd April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

VSA Morning Flow Test 19/04/24 (Quadrise)

Quadrise (QED LN) has provided an update on its Utah project with Valkor. Valkor’s partner (Heavy Sweet Oil LLC) has received funding and approval to commence drilling enabling production of 20-40bopd of heavy sweet oil providing QED with samples for production of test scale quantities of MSAR and bioMSAR; the company’s key fuel decarbonising emulsion fuel products. This should derisk the commercial scale ramp up. QED management has highlighted that Valkor has not yet raised the minimum of US$

AUCTUS ON FRIDAY - 19/04/2024

AUCTUS PUBLICATIONS ________________________________________ Tethys Oil (TETY SS)C; target price of SEK100 per share: Increasing further the size of the prize/Considering Algeria – The South Lahan area on Block 58 is estimated to hold 55-523 mmbl prospective resources (P90-P10 case) with a mean case of 251.8 mmbbl prospective resources across six prospects in the Ara Carbonate. Combined with the previously disclosed prospective resources of the Fahd area in the north-eastern part of Block 58, Te