”Some valuation thoughtsHi all,
I have been a bit in the background in the past months, so its time for an update and I have added to my position recently.
I wanted to share some thoughts on valuation of the stock.
- I think the share price decline after the Q4 results and the AMS/Osram Micro-LED issues can be well understood, the market worried about the lack of order intake guidance, a wide revenue guidance range for 2024 and a general perceived weakness in EV demand (look at Teslas Q1 delivieries, look at the slower production rates of German OEMs in Germany etc).
- Consensus EBIT expectations for 2024 have declined from ca. € 188m to now € 168m, a decline of -11%. The share price declined by -26% (!) since the results and -40% YTD (!!). Consensus now expects 2024 sales of € 677m, at the 168m EBIT that implies a 25% margin, both - sales and EBIT margin - are just at the mid-point of the guided range of 630-720m and 24-26%.
- Given the CEO comments during the Q4 call "with the current project pipeline we aim for the upper end of the range" as well as Aixtrons history over the last 3-4 years (raising / narrowing guidance with Q3 results at the latest), I think that the current consensus estimates seem fair, or said differently, are less at risk of further downgrades. Therefor, lets look at valuation.
- Looking at Aixtrons trading multiple I always focus on EV/EBIT. Historically the stock traded in a range of 18-20x. So where does it trade today?
- The EV is market cap - net debt. The market cap at € 23.20 share price is € 2.6bn, there is no debt but € 182m cash, so the EV is € 2.43bn. At consensus EBIT of € 168m, the multiple is 14.5x 2024e EV/EBIT. With the EBIT estimate somewhat de-risked as we discussed above.
- Given that I am a longer-term Shareholder, I would even dare to look at the 2025 multiple, which of course is lower, given that the CEO indicated his expectation for double digit revenue growth and I expect EBIT margin improvement due to better product mix (more SIC/GAN vs. traditional LED business). On top, Free cash flow should improve as the large capex project for the new cleanroom is concluded. I would guess a 2025e EV/EBIT multiple of around 12.5x at least.
However, we need a catalyst for the stock to really recover. And here is the bad news, I dont think that the Q1 results, due end of April, will provide that catalyst just yet - maybe rather a negative catalyst - at least I would not rule that out! I think Q1 orders may well be weaker and that can add to the fear around the EV slowdown etc. Lets hope that Management can provide some more optimism about the project pipeline.
But at some point, that should be priced in at these share price levels.
Just looking at the share price chart, I would clearly hope that the stock does not break below the € 20 mark, but that is hard to say. Given that I remain convinced of the potential for SIC and GAN (and eventually MicroLED) I regard those levels as further buying opportunities.
One last word: Another negative is the fact that the long-time IR has left to pursue new opportunities, the new IR only starts in April/May.. the previous person had a lot of trust in the market and was strong in communication. So there is some vaccum in that area as well.
Keen to hear your thoughts and additions.
Best regards,
Fel
fel216, 03.04.24 10:14
@fel, thank you for sharing your thoughts on the valuation of the stock and analysis.
Recently, I have spent also some time thinking about this. In addition I would say that also the price-to-book ration 2023 of 3.33 appears moderate comparing to the last several years, expecting even lower value for 2024 at the current stock price.
All in all my gut feeling tells me that now is the moment to buy more Aix stocks or at least we are near the point where one can buy with enough safety margin over a horizon of 1 or 2 years.
As to the catalyst needed for the turnaround you mentioned, I believe that sometimes the stock price and valuation can be catalyst enough to do the job. At least, I observed this multiple times over the years.
Other than that I don't expect any stock price driver before Q2 reporting. Q1 report is just to close to the '23 report to have any stock moving news in terms of guidance change (but one never knows). I think even if with not so good Q2 report the price of the stock might keep the level and falling further.
Latest in the range of 20 EUR/share I consider a large order...but again, depending on the overall market condition.
If we can trust the management, and for now no reason not to do so, I think this dip can be viewed as a good mid-/long-term buying opportunity. Something tells me that latest around 20 EUR there should be a bottom. At that level the valuation gets quite attractive and some long term investors will not be able to resist.
Just sharing my thought and no intention of recommending any action to anybody.
@CWL, Baggo, fel, dlg. and all the other valuable contributors I cannot list:
Your valuable contributions are very much appreciated and I am very thankful about it!
Good luck to everyone!