SGL - Q3 20 results supported by initial cost cutting measure
All, CPlease find our unchanged analysis on SGL here.
SGL’s Q3 20 results were stronger than expected. Revenues were roughly in line with our projections, but EBITDA of EUR36m was significantly higher than our EUR19m estimates. This is driven almost equally by margins beats in Composites and Graphites, and according to the company, partly reflects the early impact of certain cost-cutting measures. It is unclear how much of it will be sustainable. We expect the upcoming results call to shed more light on the issue.
The EBITDA improvement has mostly filtered down to cash flow generation, despite the EUR17m capex, which was 6m higher than our projections.
The new CEO started in June, one month earlier than originally scheduled. The recent presentation on the new turnaround plan going forward, as published on 30 Oct, also suggests that the new management team is moving faster than originally expected. Cash balance ended Q3 20 at EUR168m vs our EUR162m projections, which should ensure a relatively smooth liquidity bridge if progress in the turnaround continues.
Despite the company’s significant liquidity and strong shareholder structure, we are not considering taking a position in the converts until we can see more clearly how management is looking to turn around the business fundamentally. As the most junior part of the capital structure, they are especially exposed to SGL’s equity story, which at this point is necessarily the ability to transition to a consistently FCF positive position. The 30 Oct call suggested that the new management is aware of SGL’s structural issues, and also willing to try new and more radical measures than those previous teams. We will update our views after updating our Q3 20 numbers and projections for future years, following the results call this afternoon.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
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