SecoWarwick: Competitive Landscape, Growth Prospects, and Financial Outlook
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Competition
Competition for SecoWarwick's products is varied and depends on the business segment in question. For aluminum processing lines, the market is similar in value to vacuum furnaces. SecoWarwick's position in aluminum processing is TOP5. In contrast, the market for aluminum atmospheric processing lines (CAB lines within the AP segment) is the smallest of all segments, with SecoWarwick TOP1 in terms of projects worldwide. Given the increasing demand for battery brazing lines with cooling systems, this market can, in our opinion, record high growth rates in the future, which should also be followed by SecoWarwick's order book.
In the case of atmospheric furnace lines, SecoWarwick was one of around a few hundred to a thousand similar players in the industry (there are around 100 significant global competitors in the segment, while the entire segment, including all competitors, local and low-end companies, could number up to 1,000 players). The lack of clear competitive advantages and the progressive decline of the technology have prompted SecoWarwick to leave the segment. In the case of vacuum furnaces, there are approx. 20 significant companies. The remaining companies (approx. 100-150) are local (mainly Asian) players with global exposure and they do not supply key global customers (OEMs). The high technological sophistication of the equipment and access to key markets provides opportunities to increase market share in the future. In terms of melting furnaces, the market is very broad, with very extensive specialization (Retech is one of the market leaders; a smaller market than for vacuum and AP furnaces)
Overall, SecoWarwick's biggest competitive advantages are access to highly qualified engineering staff, its own highly advanced technology and its presence in key sales markets close to the customer (Europe, US, China). Cost advantages are the manufacturing locations in Poland and China.
Financial forecasts
The SecoWarwick group's order book rose to a record PLN 560mn at the end of 1Q23. Relative to 1Q21, this represents virtually a doubling of the value of orders won, with aluminum processing equipment (Aluminum Process; +160%) the highest-growing sector in the period, followed by melting furnaces (+70%) and vacuum furnaces (+50%). The value of new orders won in 2022 was a record PLN 842mn, of which the highest was for melting furnaces (PLN 332mn), followed by aluminum processing lines (AP; PLN 182mn) and vacuum furnaces (PLN 182mn). It is worth noting the growing orders in Aftersales and Service, which is the most profitable part of SecoWarwick's business (over PLN 70mn of orders at the end of 1Q23).
On the basis of the order book, we assume that sales revenues in 2023 will exceed PLN 700mn and will be 13% higher y/y. The CAB AP and melting furnace segments will see the highest growth, followed by vacuum furnaces. We assume that, in the long term, the CAB AP segment will be one of the main drivers of revenue growth in the following years (due to investments in electromobility). We assume that EBITDA in 2023 will grow at a lower rate than revenues, due to higher staff costs, selling and management costs and the strengthening of the PLN against the USD and EUR. We assume that net profit in 2023 will be comparable y/y, due to higher financing costs and higher CIT.
We assume an improvement in cash flow from operations in 2023, which, assuming investment is maintained at replacement level, will lead to the generation of financial surpluses (partly paid out in dividends).
We assume that SecoWarwick's net debt will be approx. PLN 2mn at the end of 2023, a very low level that provides an opportunity to increase the dividend stream to shareholders in the future.
