Sales and profit down at the half-year mark
The battery manufacturer from Ellwangen will make less sales and profit in 2022 than previously thought. This confirms the recent negative analyst reports. VARTA will have to stretch in order to still achieve decent annual targets. However, in bad years, there is a tendency to make all kinds of write-downs and value adjustments so that the base is significantly lower again the following year. In this way, it is possible to court investors' favor at a new level when external circumstances block strategic progress for the time being.
Ongoing supply chain issues and delayed projects
Like companies in other high-tech sectors, VARTA is also struggling with the ongoing supply chain problem and the constantly increasing cost of production factors. Due to the high inflation rate, wage adjustments in the high single-digit percentage range will also soon be necessary. Only when it becomes apparent at some point that the Group is profitable again in its central CoinPower division and can land a market success with its investments in the lucrative e-mobility segment is the overall situation likely to change. The very weak euro makes raw material purchases more expensive on the one hand, but should support the internationally active VARTA in exports. Especially for US companies such as Apple, they could currently make a favorable supplier.
What is the status of electric mobility?
After some announcements on the subject of high-performance car batteries, the market assumes that the plan for the e-offensive is in place. However, it will probably take more time than expected. In recent publications, management emphasized that everyone in the industry is currently talking to everyone else. That means that the first partnerships could come as a surprise to the market. If a well-known name falls here, there could be a small rally in terms of price. However, since there is not even any speculation as to who the Ellwangen-based company will be working with, cooperation is still a long way off. The grapevine always works very well when it comes to big achievements.
Financial figures reported in advance for the 1st half of 2022
VARTA AG has to row back even harder. In its last guidance, it had announced sales of EUR 950 to 1,000 million and an operating EBITDA margin of 30% or about EUR 260 to 280 million. The half-year figures announced in advance on July 30 are unfortunately significantly below this forecast: total sales of EUR 376.8 million after EUR 397.6 million in the previous year represent a decline of 5.2%.
million EUR in EBITDA is almost 40% below the previous year.
Things do not look any better when it comes to EBITDA on an adjusted basis, with adjusted EBITDA falling to EUR 68.9 million from EUR 112.3 million compared to the first half of 2021 due to cost increases for precursors, raw materials, energy and transportation. That puts the Swabian technology company well below management's expectations and the leading analyst consensus. Presumably, estimates will also be scaled back more here, as there is unlikely to be a rapid improvement in the figures with recessionary tendencies.
Management is trying to present the good side
On Friday, there was a new personnel development: Markus Hackstein will become a new member of the Executive Board as of August 1, 2022. He is to be responsible for the V4Drive (E-Mobility), Energy Storage Systems and Power Pack Solutions business units as a whole and is thus the fourth member of the board alongside Armin Hessenberger (CFO), Rainer Hald (CTO) and the Chairman of the Executive Board, Herbert Schein (CEO). With this, the management clearly shows where the journey is headed.
Michael Tojner, Chairman of the Supervisory Board of VARTA AG, welcomes the changes: "The expansion of the Management Board with Markus Hackstein enables clear management focus on the fast-growing business segments Energy Storage Systems - i.e. power storage for private households and industrial applications - and V4Drive, our ultra-high-performance lithium-ion solutions for electromobility. In order to fully exploit the high growth potential in the area of electromobility for VARTA, we are intensively examining cooperation options and holding exploratory talks with potential partners."
CEO Herbert Schein adds: "The lithium-ion business is our biggest growth driver. In addition to electromobility, growth markets in the future will be very much the energy storage market. We want to expand our position even more intensively in both areas. In particular, we can take a leading role in energy storage thanks to our new, innovative high-voltage storage systems. Markus Hackstein's expertise in the field of systems integration also makes him the ideal person to cover these future fields at board level."
Profit warning? Explanations are necessary
The statements read like a profit warning and disappointment is spreading. Off-market price indications from the weekend point to a fall of -10% to around EUR 72. If this proves to be the case at the beginning of the week, we believe that the share will get off lightly, as the announcement also contains little positive surprise potential with regard to the high-performance battery V4Drive. Thus, the market has to accept an almost 40% drop in earnings.
"The main causes are delays in customer projects and the continuing tense situation concerning raw material and energy prices, as well as high transport costs," according to the announcement from Ellwangen.
With the current business plan, the share is still not cheap, with a 2022 P/S ratio of 3; the estimated P/E ratio will also increase significantly. The recently burdened chart situation and the great uncertainty about the development status are also not off the table. Furthermore, it must be feared that the second half of the year will also run without any significant improvements. An announcement of the figures at the weekend should alleviate the resulting price pressure somewhat. However, more detailed information on the figures and the individual progress in the segments will be available on August 11, 2022. Management would be advised to address market expectations and explain the status quo in the e-mobility segment in more detail.
VARTA AG is now disappointing for the third time in a row. Whether the support recently felt in the share will hold now is increasingly doubtful. However, since the overall market is ready for buybacks again, especially in the technology sector, the price downgrade could quickly change into a buying mood. However, in order to switch back to a technical upward trend, the price would first have to significantly exceed the EUR 88 mark again. A difficult undertaking because the accompanying analysts must first deliver a new assessment. There will be some downgrades here because the VARTA share is classified as a growth stock. The especially higher valuation, however, must also prove itself through real, organic growth.
In our last update, we had designated the EUR 85 mark as a suitable stop. This was recently activated. We therefore remain neutral for the time being until the fundamental outlook improves again.