Spinnova H1'24: We expect a step forward at the end of the year

This report is a summary translation of the report “Odotamme nytkähdystä eteenpäin loppuvuodesta” published on 8/23/2024 at 8.22 am EEST.

We reiterate our Accumulate recommendation and EUR 2.00 target price for Spinnova. Spinnova's H1 report was quite surprise-free compared to our expectations, both in terms of technological developments and H1 numbers. As a result, we have not materially changed our forecasts for the commercialization progress of Spinnova's technology portfolio. In our view, given the current market value and the trajectory of our forecasts, there is still a positive expectation for the stock, although the range of scenarios is wide, and the story will take time to materialize. The extensive report on Spinnova, published in May, is still relevant and can be read here.

In H1, the progress of the technology development work and the progress of the main chapters quite in line with our expectations

Spinnova's revenue and operating loss decreased and cash burn slowed down in H1 year-on-year. On the whole, the performance was pretty much in line with our estimates, although revenue and loss were below our forecasts and cash flow exceeded them. Spinnova had a strong cash position of MEUR 54 at the end of H1. Spinnova reiterated its guidance for the current year, according to which the company's revenue in 2024 is expected to be lower than in 2023. Spinnova expects the operating result to improve this year compared to 2023, but to be negative. The reiteration of the guidance was to be expected. With respect to the letter of intent signed by Spinnova and Suzano in the spring, the company reaffirmed the original timeline for the project to move into the pre-engineering phase, which will generate revenue for Spinnova, in H2. The areas of technology development required to move forward are still being worked on, but it was somewhat positive that the quality of Suzano's MFC and fiber production is now on track. Regarding Respin, the company repeated the comments made in July when it announced its letter of intent with ECCO, and there were no big surprises in the comments on the textile waste recycling development either.

We left our forecast for technology project timelines unchanged

As the company's trajectory was largely in line with our H1 expectations, we have not changed our expectations for the timelines of Spinnova's technology projects. As a result, the forecast changes we have made since the H1 report are marginal. In the positive scenario of our forecasts, commercialization will proceed roughly in line with the company's volume targets. The low revenue we estimate will keep Spinnova in the red until 2028, and the business will not begin to scale until the 2030s, when more and larger early-stage technology projects will be delivered. According to our calculations, the company's financing needs for the coming years are covered by the current cash position and the share series is not threatened by dilution in the near future. Nevertheless, the tightest cash situation will take place in 2028-2029. The main risks to our forecasts are a failure to reduce technology investment and operating costs, a shift in investment by technology customers for external reasons, dependence on individual customers (especially Suzano), and a slowdown in the sustainability trend.

We believe pricing is still cautiously attractive to long-term risk investors

We have approximated the return potential of the stock through EV/S multiples for the next few years, DCF and long-term expected return scenarios. Given the overall picture of the methodologies, we see the return potential of the stock as cautiously attractive at current price levels (e.g. DCF around EUR 2/share), even taking into account the risks. However, investing in a company requires patience and a high risk tolerance, as there is still a lot of time and hurdles to overcome before reaching the scalable growth phase enabled by the business model and market size.