OXE Marine: Revoked Growth Target

New LOI in the US
OXE’s distributor ODN has increased its distribution territory to cover South East US; by signing a final agreement, ODN will place an order of EUR ~2.8m of OXE200 to be delivered during 2021. The order is a good start for the US-relocation of the OXE200 production and increases the total order book to about SEK 85m. It is clear in recent communication that the US will be a key market for OXE going forward, and we believe it to be advancing nicely at this point in time.

Unchanged estimates despite reduced growth targets
Besides the announcement of a new LOI, OXE revoked its 50% growth target for 2020. This does not affect our current view, however, as we already had penciled in much more conservative expectations in our model, forecasting FY’20 growth of 30%. To reach our 2020-forecast of SEK 120m in sales, OXE has to deliver on the previously communicated order book of SEK 57m, while adding another SEK 30m in sales before the year will come to an end. Further, we need to see additional order book build-up during this fall, to underpin our projected sales of SEK 170m for 2021.

The share has surged in the last months and trades well above our base case valuation of SEK 1.3. We argue that the market has discounted a little too much of the recent news regarding USCG and Parsun. Before discounting their full potential, we would like to see further commitments by the parties. Below follows a recap of our recent research update; read the full version here.

Several risks remain
We identify several near-term risks; i) Financial risks due to a combination of a high indebtedness (SEK 200m in debt) and a cash position of SEK 40m (end of Q2) in relation to a SEK -40m operational cashflow (H1’20); ii) Production risk may occur with a new powerhead supplier in BMW and moving the current production facilities abroad; iii) The cash position and expected B/E point in FY22 might require an additional capital injection into the company.

We remain conservative with a base case of SEK 1.3 but recognize that OXE is fundamentally advancing. Our current base case valuation does not include any significant Parsun or USCG orders in the near term. This could, however, trigger a revaluation if the agreement materializes nicely. In recent time, the share has surged increasing the expectations on OXE, putting additional pressure on the company to ramp up sales in the coming 6-12 months to defend the current valuation of 2.5 per share. We certainly believe the upcoming year will be the most interesting – with the OXE300 now being launched, it’s time to deliver for OXE, by scaling up sales to reach profitability.