Dexco, the owner of brands such as Duratex, Deca, and Hydra, has seen its market value plummet by over 50% in the last year. This is due to the poor macroeconomic environment which has adversely impacted civil construction, Dexco’s main customer.
However, despite this decline in value, the company is currently trading at 5x the estimated EBITDA for this year, which is too cheap for some managers and analysts to ignore. Despite this attractive valuation, the short-term scenario for the company looks challenging, as it has seen disappointing results recently, particularly in the Deca and Coatings divisions, which account for 40% of EBITDA.
The company is also facing macroeconomic issues in Brazil, where civil construction is being adversely affected by the government’s anti-business stance, as well as high-interest rates. However, the company has made significant changes in management, including in the leadership of Deca e Revestimentos, which the market has welcomed.
The company is also verticalized, with its own forests, which helps to offset rising wood costs, as 90% of the wood Dexco consumes is it’s own. The company is currently undergoing a significant investment cycle, with guidance for expansion capex of R$650 million and maintenance capex of approximately R$850 million this year.
This level of investment is not ideal in the current market scenario, but the company began these projects back in 2021. According to analysts, debt, which is currently at 2.6x EBITDA, could reach 3.5-4x at the end of this investment cycle in 2025.
However, there is a positive factor that the market is not considering in the current stock price – the entry into operation of LD Celulose, the dissolving pulp plant that Dexco built in a joint venture with the Austrian Leipzig. The plant began operating in April last year and should generate R$450 million in EBITDA for Dexco this year.