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.
Companies: SGL Carbon SE
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.
The main question is, is this the final one? Under the former CFO who has since stepped down, the company booked a substantial impairment in CFM during 2019 and, precisely one year later, the new management has made a second substantial impairment for similar reasons. In our view, it is legitimate to ask whether the new view on the business is now realistic. Only the future will tell. The timing is well chosen.
It works! However, it will not play out for SGL, but we still see a tiny chance that the company jumps on our idea, Si4C, on which we have elaborated for quite a while. Currently, this could limit SGL’s future perspectives.
As we have seen many times in this crisis, a single segment or industry can not offset the weakness of a handful. This was also true for SGL’s Q2. Despite Digitization, customers from all other industries showed resistance to buying to different degrees with various (negative) impacts on sales and profitability.
As the company had already released some preliminary figures and had given a FY guidance, the report provided only more details, also regarding the guidance.
SGL’s new CEO took the helm in challenging times and he is known, as we also cover Lanxess, to be able to sort things out. But can he turn this tide? We do not think so as the issues come from outside and there are no internal ones like in 2019. Nevertheless, he made a strong statement by giving a FY guidance, where other (bigger) companies flinched.
SGL’s operations had been or are suffering from the ongoing restrictions. There is a long list of sites, where short-time work and other measures are currently implemented, which reduce personnel expenses. Having cancelled FY guidance in early April, things seem to be even more severe as the company already started to gather cash and management guides for a negative recurring EBIT in Q2 and said nothing about the rest of the year.
We hope management is still in the seat and can ‘translate’ the forward strategy into sustainable growth and earnings momentum. The provided information and the announced new mid-term targets give a first idea of the (positive?) future growth momentum. SGL highlights the stronger product pipeline, which is expected to foster the momentum. We see some disconnect between the new plan, which looks achievable, and efforts to change the mindset, which seems to have become a key component for future
As expected, SGL reported a mixed set of figures with lower profitability (a notch below our expectations). The changes of the sales to customer industries showed strong demand from digitalisation while good demand from Chemicals and Energy more than offset Mobility’s weaker demand.
Various effects impacted SGL’s Q1 figures with a good ending for GMS. CFM was also good news as it reported a black zero. All in all, everything is in line with expectations and nothing unusual popped up. After all the difficult times, the spectacular point is that Q1 was unspectacular.
SGL Carbon reported stronger than expected FY 2018 figures, but the given 2019 outlook fits better with our moderate expectations for the year due to planned investments. We value the latter as positive as the investments will be made in the right industries (e.g. LED, batteries) and in the transformation of the automotive industry.
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