OrganoClick reported Q2 sales 5% below our expectations, and although the exciting non-woven segment saw strong growth, it still undershot our expectations. Meanwhile, Green Coatings & Maintenance (GCM) was better than expected due to high initial volumes from new customer Bever. As expected, Functional Wood sales were down notably y-o-y due to the current weak construction market. The gross margin is a clear step up y-o-y, as we are seeing effects from: 1) licensing out production of some products and 2) a higher share of non-woven and OrganoTex sales. This resulted in EBIT of SEK -0.4m (ABGSCe -2.1m), up from -6.7m in Q2'22. Finally, operating cash flow was strong, helped by the NWC release, but there is still little room for error on the balance sheet with a cash position of SEK 12m (11m in Q1) and r12m FCF of -7m. As such, the Q2 numbers did not significantly lessen the risk of a capital injection, in our view.
Sales down 2-4%, driven by FW and non-woven
We lower our sales estimates by 2-4% for '23e-'25e, with downgrades in FW (where we are now more hesitant to model a sharp recovery next year given the prolonged weakness of the construction sector) as well as in non-woven, although this is mostly an effect of adding the Q2 numbers.
Good operational momentum, but balance sheet still strained
OrganoClick has had some good operational momentum in recent quarters. We have seen positive newsflow such as the Bever OrganoTex reselling agreement as well as an agreement with Glatfelter, a major global non-woven producer. Also, as mentioned, margins are picking up as non-woven and OrganoTex grow. In the near term, however, we still need to see a few quarters of solid cash flow to alleviate balance sheet concerns.
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