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SGL reported the expected mixed set of results burdened on the one hand by the troubled wind turbine business (fortunately the company exited the wind blade manufacturing business years ago) and on the other pushed by the very strong demand from the semiconductor and LED business. The impairment on Carbon Fibres was a necessary evil in that a recovery for this business appears to have been postponed, but all the other three divisions are doing well.
Companies: SGL Carbon SE
AlphaValue
SGL had pre-released some figures and announced a strong impairment in Carbon Fibers due to the downturn in the wind business. Without this and with all the other three divisions reporting higher figures, SGL would have reported strong results. After a glittering past, the management flagged that Carbon Fibres may have a decent future starting after 2024 due to a more diversified portfolio.
SGL released preliminary figures which were somewhat below our expectations as the wind turbine business remained in difficulty. Having lost confidence in the industry’s future prospects, the management wrote off the Carbon Fibers assets despite anticipating a business recovery in 2024.
SGL’s profitability is now in a much better shape compared to some years ago. After solving the internal issues, the financials are clearly showed the impact of the government’s reluctance to approve new wind turbines. Sales to wind customers fell from €27.2m (Q4 22) to €14.1m in Q1 23. The reported figures were ahead our expectations.
SGL Carbon had been undergoing a transformation, but the momentum picked up when Dr Derr took the helm; he turned every stone and delivered on the targets. The restructuring was the subject of a successful acid test in 2022. That said the company has yet to unveil new longer-term targets and a broader prospective on what SGL might look like in five or seven years time, or when shareholders can expect the re-instatement of a dividend.
SGL had implemented a price-before-volumes strategy when Mr Derr became CEO back in 2020. Now the strategy allows the generation of good margins. Additionally, the somewhat criticised hedging policy turned out to be a USP as the company was able to keep production up and customers are willing to accept higher prices. The Q3 figures were slightly ahead of our expectations.
SGL’s management has been active in making the company’s sales more resilient by adding an energy clause to most contracts. This more technical measure has been accompanied by a positive demand situation. The recent guidance increase underpins the management’s positive view on the economic future although it nevertheless flagged the uncertainties around the globe. The reported figures were a notch better than our expectation although not meaningful enough to lead to forecast revisions.
In the past, SGL had been a clear candidate for collapsing margins in any kind of crisis. Management has done much to the operational structure and costs. This is now paying off in tough times, seen in the resilient margin development, partly helped by a one-off (just for the sake of clarity). The Q1 figures were ahead of our expectations and look also stronger than anticipated by management.
SGL’s figures were a positive surprise to us, especially on profitability. The company was able to pass on the higher input costs, some of which had skyrocketed. The FY guidance seems to be impacted by certain learnings from the previous management team, who had to take its guidance off the table. Also, there are many moving parts, which make a more optimistic and lasting guidance rather difficult. 2022 might be another challenging year, but because of uncertain external factors.
We had feared roaring raw material prices as well as energy costs might have strongly weighed on SGL’s Q3 figures, but we were wrong. The company dealt quite successfully with them by (partly) passing them on. But, we believe, this will become more difficult in Q4. Nevertheless, the reported figures were better than expected. Luckily, SGL missed its ‘usual’ period for making impairments, which is positive in our view.
How can a guidance upgrade exclude higher raw material prices in a time of price inflation. Then, only some days later, price inflation was used partly to explain the held-back profitability development. This does not bode too well in our view. The H1 report showed the expected business recovery in some parts of the company and a vibrant improvement in profitability, but not in all divisions.
SGL released preliminary figures, which are quite positive and made management so enthusiastic that it lifted the guidance. The top line is expected to be marginally up (+3%), but the EBITDA before one-offs target is lifted by +23% as well as a positive net result. This upgrade looks impressive and is a positive surprise. We are struggling a bit in understanding the stronger profit increase compared to the EBITDA one.
SGL benefited from its cost cutting programme, reporting higher profitability. What is helpful is the higher granularity of its businesses, but we believe management’s focus on the adjusted EBITDA as KPI puts a disadvantageous figure into the lime-light. The reported figures were slightly ahead our expectations.
The FY figures were finally not too bad after the new management had surprisingly made another impairment, ending up at the upper end of its guidance. In essence, there might be another loss-making year to come, which is already in our estimates, but even more meaningful to us is management’s commitment to deliver on its promises and it has to acquiesce to be tackled about its targets, which we see may not be quite so easy to reach.
...but there will not be much fun in Q4. The Q3 preliminary figures had already been released and the report was only an obligatory act as long as the updated five-year-plan is not published. What we have understood so far is that SGL will be in restructuring mode until 2022. We believe management should act faster (before the release of the annual report) as uncertainty is a slow poison.
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Research Tree provides access to ongoing research coverage, media content and regulatory news on SGL Carbon SE. We currently have 2 research reports from 1 professional analysts.
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