Preliminary sales amounted to SEK 10m, clearly below our expectations of SEK 28m. The shortfall is derived from several customers requesting deferral of their orders. EBITDA was SEK -14m, slightly better than our expectations of -16m. As we previously highlighted, sales vary widely between quarters, depending on the delivery of specific orders. The gross margin was well above our expectations at 23% vs. estimated 11%, which is encouraging even if its on low unit sales. We believe the gross margin to be derived from the high production rate during Q1’20 as the company utilized its full production capacity. OPEX came in at SEK -16m vs. estimated -19m and derived from lower than expected sales volumes and cost-reducing initiatives.
Key highlights from the business update:
We have reduced our sales forecast due to the effects of the Corona crisis. Further, we expect the delivery of the order book amounting to SEK 56m, of which the Americas order amounting to around SEK 30m in 2020. We estimate sales uptake to increase in Q4 with the OXE300 at market and in serial production. We believe the full utilization of the production capacity on the OXE200 in Q1’20 to increase the gross margin in the short term, as the company now will sell 200s from its own stock up until Q3’20.
We believe that new customer acquisition (outside the current order book) during Q2 and Q3 will be negatively affected as all near term fairs will be canceled or postponed. Further, we believe OXE potential customers within commercial to temporarily take a financial hit, as several of them can be accounted for within tourism and transportation. On the other hand, we believe the governmental customer projects to keep on running but might be delayed due to a shift of focus towards more societal critical functions, etc.
We have also noticed that one of the company’s largest customers to date Hurtigruten, has announced its interest in purchasing 30 outboard engines from the competitor Evoy, who’s marketing a fully electric 150hp outboard. We don’t see this as an immediate threat, as the company has not yet launched its product and is competing within smaller sized outboards where OXE has lower margins and moreover lesser focus.
On the back of the recent business update, we lower our base case valuation to SEK 1.3 (1.4). The stock will require catalysts (such as a large signed deal) as well as a stronger market sentiment to close the valuation gap to our base case. If the company manages to reduce costs effectively during the crisis, followed by a steady ramp-up of OXE300 sales in H2’20, and thereafter, we see a bull case potential at SEK 3.5 per share.
The final Q1’20 report will be published on the 22nd of May.
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