Alzchem - health benefits from creatine and the disruption of the world order

[_TeemuHinkula]

The company that won the pitching competition, in my opinion, deserves its own thread.

The actual presentation should naturally be done with user @Jackfin’s excellent pitch:

@Tomi_Valkeajarvi

Alzchem - health benefits from creatine and the disruption of the world order

Alzchem is a German chemical industry company whose business is divided into three segments: Basics, Others, and Specialty Chemicals. The Specialty Chemicals segment manufactures various compounds used in many different industrial sectors - from consumer products to the defense sector. These two are the theme of this pitch. In short - Alzchem is one of the few cases to still get in cheaply on the rearmament of the European defense sector and benefit from the increasing use of creatine.

Company History

For years, Alzchem invested in the Specialty Chemicals segment, and the market did not give it any value, even though the segment grew steadily year after year. However, as the German chemical industry took a hit due to rising energy prices, Alzchem was able to raise prices in the specialty segment without volumes suffering, and the market began to understand the value of the company’s business. The price increase that occurred in 22/23 appears to be sustainable, as prices have remained stable during 2024, but volumes have grown.

A significant reason for this has probably been the structure of the creatine market. Various studies speak of the market size being around a billion - it is, however, more difficult to ascertain whether this refers to the additive products themselves or the compound itself. However, some clarity on this can be gained by listening to management’s comments from the Q3 call.

Analyst:

“Could you share numbers regarding Creamino (creatine intended for livestock)?”

CEO:

“We do not want to give too much information because we only have one competitor, a German one, and the next is a Chinese company.”

The market thus appears to have a few Western companies and an unspecified number of Chinese companies. This suggests that it is an oligopoly. Market stability is beneficial to all. However, recent events may have positive effects on Alzchem’s market share.

With most creatine coming from China, this also has a very interesting consequence. The price of Chinese creatine is now more expensive for the US due to Chinese import tariffs, and this may have a positive impact on Alzchem.

Defense Theme

Alzchem is the sole manufacturer of Nitroguanidine in Western countries, meeting the needs of the EU and US armies. Nitroguanidine is primarily used as a propellant in large-caliber artillery.

Over the past couple of years, Western countries have realized that they do not have enough ammunition stockpiles. The growing need for nitroguanidine is a direct consequence of this. As a result, both the EU and the US government are paying Alzchem to increase its nitroguanidine production capacity. How often do your customers pay you for your growth?

These are two very large investments. Approximately 140 million for Europe and another similar one for the United States. The European facility will be inaugurated for production in autumn '26, while the schedule for the US facility is still more unclear. Likely by the end of the decade.

Catalyst

The reason why investing in Alzchem right now is interesting is that it has become clear over the past week that the Trump administration cannot be relied upon for European defense. This leads to a forced further increase in defense spending, and as a result, the uncertainty regarding the utilization rate of the Nitroguanidine plant decreases.

Valuation

Therefore, in the cash flow calculation, I assume that Alzchem invests a communicated total of 15 million in new creatine capacity and the mentioned 150 million in guanidine over the next two years. I assume that the investments yield a 20% ROIC and that the non-guanidine business grows by 4% until the terminal period.

As a result, using a 9% discount rate suitable for a small company, I arrive at a current share value of €100, which suggests an upside potential of approximately 50%. It is noteworthy in this valuation that I do not assign value to the US guanidine plant or potential M&A activities that management has started discussing.

From a valuation perspective, a 2026 P/FCF of 16 is elevated for a small company, but a 2027 P/FCF of 8 is attractive for a company operating in an oligopolistic market (creatine) and having a natural monopoly in another (nitroguanidine).

My own interest in the company arose precisely through these investments. To my understanding, they are targeting precisely the company’s most profitable segment.

Segment	Year	External Sales (EUR thousand)	EBITDA Margin (%)
Specialty Chemicals	2021	220,499	23.0
	2022	288,361	18.4
	2023	319,802	22.9
	2024	348,089	27.0
Basics & Intermediates	2021	176,274	6.2
	2022	227,539	2.2
	2023	192,183	5.0
	2024	174,003	6.2
Other & Holding	2021	25,520	5.5
	2022	26,323	7.4
	2023	28,664	1.6
	2024	32,140	5.6

I also asked NotebookLM to create a podcast based on the company’s three latest financial statements. However, the emphasis in them was so much on ESG matters that the podcast also became focused on that theme. It also starts repeating itself after about twenty minutes.

If the Greens do not manage to destroy the German government’s recovery plans, the company could be expected to see growth in the future, at least after the investments. That is, by 2027 at the latest. According to the financial statements, about 75% of the current production facilities’ capacity has been in use, although the most profitable parts have been in full production. Perhaps considering the promising future, the stock is not prohibitively expensive even after the recent price increase.

Addition: low-quality discussion about the company can be found here, for example.

Alzchem Group Aktie • Forum

[Jackfin]

Great to see that there was enthusiasm to create a thread about the company.

A few things related to the company’s business. Opportunities but also risks that I didn’t mention in the pitch.

The construction and financing of the nitroguanidine plant to be built in Germany have been set in stone. Unfortunately, there is no public information available on production capacity or demand, but expanding the German investment even beyond its current scope could be justified for security reasons. European decision-makers are certainly currently considering whether American aid can be relied upon in any way.

That is an interesting option, but it should not be relied upon too much because the consumption of nitroguanidine appears to be relatively slow:

https://usfcr.com/search/opportunities/?oppId=75f4c16b27a343c18c624a7d47c61623

The article in question discusses the United States’ nitroguanidine reserves and their expansion, as well as the decentralization of production. It becomes clear that they had reserves manufactured in the 80s, which, of course, required processing to be suitable for modern purposes.

What I’m trying to refer to with this is that nitroguanidine is an important but very slowly consumed substance.

In previous investor calls, management stated that facilities are used according to customer needs. The current environment indeed suggests that demand in Europe is high, both due to consumption and the building of emergency reserves. In the United States, on the other hand, there is no hurry, as indicated by the unhurried search for a factory construction site.

Thus, it is expected that the demand for nitroguanidine will be cyclical unless the war expands. I assume that the company will operate nitroguanidine plants at full capacity for some years, but it is quite reasonable to assume that at some point, the utilization rate will decrease significantly. The market is unlikely to be interested in this, as that moment is still years away, and for now, accelerating earnings growth is on people’s minds.

Regarding the US investment - a change in government should have no bearing on the investment decision.

Then, about the risks. Transparency in the specialty segment is poor because the company does not want to disclose figures related to creatine so that current or future competitors do not gain information, or due to confidentiality reasons concerning security sector customers.

The market size is indeed very small, and potential price competition would be very destructive for the company. Of course, it also lowers the barrier to entry into the market.

Import tariffs and economic weakening can have unexpected effects. Since Trump appears to be treating Chinese imports with tougher tariffs, at least for now, this should benefit Alzchem in two ways.

1. Chinese creatine becomes more expensive, and creatine manufactured by Alzchem becomes more competitive and gains market share.
2. If the Chinese want to keep their products competitive, they will have to lower prices, making further competition for market share by lowering prices impossible, as profitability would decrease significantly.

However, tariffs and economic weakening can turn against Alzchem with leverage:

1. Due to tariffs, demand in the creatine market decreases, and Alzchem is forced to lower prices.
2. As purchasing power weakens due to recession, demand decreases.

There is thus a possibility that the company will be hit twice due to the current macroeconomic environment. In connection with Q4, the company stated that growth would continue, although macroeconomic weakening was mentioned as a risk.

Other interesting points; they would very much like to expand by building or through acquisitions in the United States.

[Jackfin]

Alzchem’s Q1 results will be released tomorrow. Here is the link to the call:

Airtime Platform

[Jackfin]

Alzchemin tuloksessa ei mitään ihmeellistä. Vastaan tuli muutama kiinnostava havainto kylläkin.

In the first quarter of 2025, Alzchem’s economic and indus-
try-related environment was characterized by the change
of government in the USA and the associated expectations
of changes in US customs policy, which then materialized in
April. Alzchem considers the NAFTA region to be an import-
ant growth market and is looking for a location in the USA
for this reason, among others. For many products, Alzchem is
the only manufacturer outside China and is therefore hardly
in direct competition with US companies but is certainly in
intense and direct competition with Chinese suppliers. The
current discussion about disproportionately higher US tar-
iffs on Chinese products could possibly even represent an
opportunity – however, it is still too early for a detailed and
well-founded assessment. Overall, Alzchem considers the US
and NAFTA market as a whole to be intact and with high po-
tential. The Defense and Human Nutrition sectors in particu-
lar are expected to continue to provide strong impetus.

Saa nähdä mille tasolle tullit lopulta jäävät.

Yhtiön presentaatiossa oli nyt myös ensimmäistä kertaa kasvutavoitteita edustava dia.

Vaikuttaa viiden vuoden aikajänteellä realistiselta tavoitteelta jos molemmat nitroguaniidilaitokset toimivat täydellä käyttöasteella sekä kreatiinituotteet jatkavat kasvuaan. M&A on villikortti ja odotan johdolta tarkempia kommentteja minkälaisia yhtiöitä he ovat miettineet.

[Bear_of_the_nasdaq]

Alzchem Group AG continues growth trajectory in the first

The rise has been strong before the earnings report.

[antti314]

Alright, let’s let some air out now.

[Jackfin]

Alzchem invests 120 million in increasing creatine production. A welcome announcement. The investment should increase turnover by well over 100 million and margins should be in line with current business, meaning ROI remains above 20%.

Successful nine-month results for 2025

If the company has brought the German nitroguanidine plant to full capacity by -28 after this news, free cash flow will probably be 100 million. If the slowly progressing US nitroguanidine plant is operational by -31, then probably 140 million in free cash flow? I didn’t bother to calculate it more precisely; I just threw the numbers into Excel.

-28 P/FCF 15 and -31 P/FCF 10?

In Bloomberg’s article, there was an interesting comment from an analyst;
Warburg Research’s Schwarz said it would require a lot of investments and scale for other companies to mimic what AlzChem is doing.

To start producing these chemicals “we’re not talking investment of a few million euros, but actually 1 or 2 billion euros,” he said. “If you wanted to do it new, you would basically kill your margin.”

People like to pay for monopolies, but I wasn’t excited by the news and didn’t buy back shares. Perhaps a double could still be achieved from this in 3-5 years.