RE: Wow! read the Canaccord update for ITX5 Nov 2024 09:13
More key details in the Broker report:
Canaccord Genuity view
Robust 2H outlook in 3Q trading statement
Itaconix has this morning given a 3Q trading update, indicating that revenue for the FY is likely to be at the upper end of the $6.0-6.5mn guidance, with gross margin unchanged at c.36%. This implies 2H revenue close to $3.7mn, only marginally down on 2H23's record $3.8mn and implying growth outside the scaled-back merchandiser relationship of more than 80% y/y. Our forecast implies a FY sales total some 16% ahead of 2022, demonstrating the rapid progress in generating new accounts, orders and products. We highlight strong progress with customers in Europe, in cleaning and in odour neutralisation. We also note the continued strong growth in margin in polymer sales, which we estimate to be up around 7% y/y, reflecting the better pricing mix the company is now achieving. We are making minor amendments to our forecasts; we particularly highlight the improvement in expected gross cash at year-end to $6.2mn (was $5.6mn), primarily on better working capital.
We remain BUYers with an unchanged target of 325p.
SPARX program progress Itaconix's SPARX program sees the group providing formulation and product development services, to both brands and manufacturers, to accelerate time-to market for safer, better performing and more sustainable home and personal care products. As an extension of the existing Formulation Solutions business, which was focused primarily on cleaning products, this is lower margin than polymer sales but should accelerate those sales. We see this as a key driver for sales and margin growth into 2025E and beyond. Product mix: less cleaning We forecast non-cleaning to make up nearly 30% of polymer sales in 2024E, up from just over 10% in 2023, reflecting the strong progress in new products. This is important not only because of the greater diversification, but also because these other products are higher margin, helping to deliver overall increases in gross margin. We continue to see the potential for further increases in gross margin from additional product introductions beyond our current forecasts. We continue to see strong growth and note we forecast c.50% increase in revenue in 2025, both from growth in existing accounts and new clients and products. We continue to see positive EBITDAS from 2026 onwards.
Valuation: 325p target unchanged We continue to base our price target on a combination of peer group multiples and what we believe is a fair valuation of Itaconix's differentiated market position as it would be relevant to an industrial third party. At our 325p target the business would have an MV of £44mn/$55mn, around 5.1x/3.7x 2025E/26E EV/sales
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