Hard and unjust punishment of Nexam after Q1 report

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The Q1 report from Nexam came on Wednesday. This is the first report for a full quarter after the acquisition of Plasticolor. Of course, this makes comparison difficult. Nevertheless, I cannot find reason in the report for a 9.4 % fall. The market reaction seems both hard and unjust.

The Nexam report short

A few facts first. During Q1 Nexam had total revenues of 28.9 MSEK and made a loss of 4.2 MSEK. In the report Anders Spetz, the CEO, tells that sales are up 10 %. In these 10 %, the sales of high-tech products from the old Nexam is growing four times faster than the sales of traditional Plasticolor products.

Nexam holds plenty of cash, 76.6 MSEK after Q1. The cash flow is -10 MSEK, of which -5.3 comes from running business.

Difficult to access sales

In my pre-report guess, I tried to assume sales. I did that by summing up the 3 quarters before the acquisition (Q1-3 in ‘17), added one extra quarter by taking the average sales in 2017 and then added 86 MSEK, which was Plasticolor sales in running 12 months prior to the acquisition. By leaving out Q4-17, we of course will have a conservative bid on sales, since sales rose in the old Nexam throughout 2017. The result of my guessing was sales of 25.3 MSEK with 0-growth. The actual sales (28.9 MSEK) is 14 % higher than my guess of sales if no growth. I find the sales growth quite OK in a company in the midst of a transformation.

Market and products

During 2016 and 2017, Nexams strategic focus have been on three areas: Polyethylene pipes, Polyester foam and High Performance. During the period, the company have delivered proof of concept and a growing number of commercial customers (marked by the dots in the picture above taken from the CEO presentation of the report – dark dots are customers). Having a number of customers in each focus area, Nexam have now opened two more, Medical and Electronics. Both areas are apparently customer driven, which should help developing the market.

One of the encouraging aspects of the report is the preoccupation from the CEO in securing enough capacity for growth. The company factory in Scotland is fully utilized and a new production line in the Plasticolor factory north of Malmö will be later this year. Nexam both intents to invest in further capacity and secure extra capacity via supplier contracts. To me this indicates a firm belief in growth and perhaps an indication on volumes rising in the future.

Share price

I started by noting that the market punished the share after the report. It must be added, though, that prior to the report the share went up, surely, because some investors positioned themselves before the report. But what did they expect? Frankly, I do not know. Perhaps just a better-than-expected result.

Judged by discussion forums some investors are complaining about inadequate investor information and even blaming the CEO for not commenting on the share price development. Personally, I find Nexams communication adequate.

Investor communication changes as a company matures. Still Nexam sends out many releases compared to other companies and after each report, the CEO makes an audio conference. Find the latest here.

Currently, though, the Nexam share seems to be in some kind of limbo. At New Year, the share price was 9.55 SEK and now 8.88 SEK (11th May). This far in 2018 we have been a little up and a little more down, and have seen no lasting effect of the acquisition and the immense scaling of business the acquisition has caused – sales in Q1 are almost 7 times higher than before the acquisition. Perhaps this was the point for the investors buying up before the report.

Check out my growth share portfolio, the share price trigger list or my EGS (Evaluation of Growth Shares) Model.

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