Greater profitability pressures than expected
Despite revenue’s dynamism, the lower profitability of Polymer Solutions, Wavin, and Netafim, in a cost-pressure environment, and rising energy costs, led to a 28.4% YoY decline in EBITDA
Although we find the valuation attractive (FV/EBITDA at 4.0x), backdrop challenges under a lower growth scenario and the company's exposure to Europe, make us be cautious in the short term
Revenue’s resilience, but sharp declines in profitability. The 3Q22 figures were mixed, with revenues above expectations, but margins contracted even more than our conservative expectations. Revenues remained virtually flat at $2.3 billion, while EBITDA contracted 28.4% YoY to $381 million. On the positive side, results obtained in Dura-Line and Koura stood out, supported by favorable industry trends in the former, where even profitability advances were not only annual but also sequential, and a solid pricing environment in the latter, but with slight pressure on QoQ margins due to raw materials increases and logistics costs. Nevertheless, the good results were not enough to offset the weakness and strong pressures in Polymer Solutions, Wavin, and Netafim, which were impacted by lower demand in certain markets and rising costs. In particular, in Polymer Solutions, China confinements put strong pressure on PVC prices, while in Wavin, lower volumes dynamism in Europe affected the figures. At Netafim, we observed a demand slowdown in most markets, combined with higher raw material and transportation costs. Although we believe the long-term outlook for Orbia is positive, backdrop challenges could continue to generate stock price volatility. Despite the fact that the company has an outlined strategy which will allow it to continue with a long-term growth trend, supported by businesses’ diversification, vertical integration, and a healthy financial structure (ND/EBITDA of 2.0x), environment challenges could continue to impact figures in the short term. We will have to be very cautious to build or increase positions, despite the very attractive valuation.
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