Monday, December 18, 2023
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Post Mortem Nabaltec AG – Beware of the “Short term fundamental Bull trap”


As mentioned in the comments of the original post, I exited Nabaltec a few days ago, in order to fund a new position. There is no way around the fact that it was not a good investment. Actually, in the 13 years of this blog, it qualified as the 4th worst investment with regard to overall percentage loss within my “hall of shame” that I proudly present in this table:

Of course, there will be always bad investments but I think it is important to analyze what I could have been doing better in order to avoid making the same mistakes over and over again.

So what went wrong ?

The initial thesis on Nabaltec was that it was a boring old school specialty chemicals company that had a decent track record and a interesting story with regard to EVs and batteries (The “Boehmit story”).

  1. Bad timing / Ukraine Invasion

The first thing that went wrong was timing: I published the post on February 3rd 2022, 3 weeks later, Russia invaded Ukraine and the whole landscape with regard to energy prices clearly changed forever. This however in my opinion was clearly bad luck. Very few people have seen that coming back then, although the run up in Natutal gas prices in the months before was quite strange.

In the initial write-up, I included the “anti-pitch” which clearly indicated that this would create issues:

In my first “Panic post” after the invasion, I correctly identified Nabaltec as a potential critical position, but I also assumed that this might be balanced by better traction on the EV side:

With regard to EVs, one of the clearly unexpected outcomes is that gasoline prices are now pretty low again, which makes ICEs from a cost perspective clearly more competitive for the time being. And it doesn’t help that the German Government just killed the EV purchase subsidy. There is now clearly a risk, that especially in Europe, EV adoption will progress slower than I have expected.

2. The “bull trap”

Looking at the chart, we can see that at first, Nabaltec moved in line with the market, the real gap only opened up in 2023:

One thing that was very unique was the fact that initially, Nabaltec seemed to benefit from the whole trouble as I lined out in a post June 2022. Back then, I interpreted the Q1 results as proof of pricing power for Nabaltec and increased the position to “full”, however at a significant lower price than the initial position. Back then, I didn’t even consider that this would be only a very short time effect of “panic restoking” of the clients.

In the Q2 2022 review in July, I mentioned that a potential stop of Russian Gas could be an issue for Nabaltec:

Looking through the comments, I traded the position much more than I usually do. Initially I sold on the way down like in June 2022:

But then I bought back in which was driven by continuing good earnings throughout 2022, as in November 2022:

I think the first tangible hint for this bull trap was the very cautious outlook in March 2023:

In any case, after Nabaltec warned for 2023 it was clear, that 2022 was realy only a shrot term exception and that they will struggle for some time.

3. The “Boehmit Story” broke early

One topic that I clearly didn’t pay enough attention to was the fact that the “Boehmit story” failed to materialize. The increase in profits observed in 2022 was based on short term gains in the traditional business, but the Boehmit ramp up did not materialize and as things look now, EV adoption might be slower than previously thought.

Also a lot of potential Battery manufacturing projects were delayed and/or moved to the US where Uncle Sam garnted very generous subsidies in the IRA.

In my opinion, this creates the problem that also the runway shortens for this application, as for instance next generation batteries (Solid state) don’t require Boehmit. Toyota now plans for solid state mass production in 2027/2028 and normally, the Japanese are not known to exagerate like Elno.

4. Putting it together

With the new situation (no Russian gas) Nabaltec has a VERY different risk profile than before. Maybe things turn out better if LNG prices stay low, but Nabaltec will be subject to LNG price volatility. From what I heard, they have fixed gas prices for 2024 but after that, they need to buy at the market, wherever the price will be.

It also doesn’t helpt that in the area where they are located, there is very little renewable energy development. With increasing CO2 prices, they might be subject to some hits there as well. Combine this with very short order cycles, you get a much more volatile business model than in the past. So assuming that the past is a good predictor for the future might not be applicable here.

Considering all this, I should have sold earlier from a fundamental perspective as my initial case is not valid anymore. Psychologically, one always hope for a reversal. Currently things look better for Chemical stocks, but that could change quickly. In any case, I sold now because I needed the money to fund a new position and my process is to sell the one where I have the lowest conviction.

Interestingly, one of the positions I sold to finance Nabaltec was Agfa. I sold Agfa at 3,65 EUR per share, because back then it was my lowest conviction position. Now it trades at 1,34 EUR. One could argue that I avoided an even larger loss by byuing Nabaltec. The point is that over time, process dominates outcome.

So as a summary, the two main mistakes from a fundamental perspective were not to react more quickly on the changed fundamentals (Natural gas) and the failed Boehmit story.

The main learning for me is that one really needs to understand that a short term positive developments could be a “bull trap” in an overall detariorating environment.



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