Breaking down the disastrous week for DGL; shares down almost 50%

Specialty chemicals and dangerous goods business DGL (ASX: DGL) has lost almost 50% of its market cap in a mere three days following its FY22 results Wednesday.

The backdrop

DGL listed on the ASX on 24 May 2021 after successfully raising $100m at $1.00 a share. The company operates three divisions - chemical manufacturing, warehousing and distribution, and environmental solutions.

The business was founded by Simon Henry in 1999, who currently holds approximately 57% of the company's issued capital.

A combination of strong organic growth, acquisitions and FY21 results exceeding prospectus forecasts helped the company's shares rally to a peak of $4.49 on 26 April 2022.

This included an earnings upgrade on 19 April, where the company forecasted FY22 earnings to be approximately $65m on sales revenue of $354m. Back in February, DGL expected FY22 earnings and revenue to be $54m and $343m respectively.

The new guidance represents year-on-year earnings growth of 80.6% for revenue and 131% for earnings.

FY22 results: No surprises

The FY22 results read well at face value and in-line with the company's guidance, notably:

• Sales revenue of $369.8m, up 88% compared to FY21

• Earnings of $65.6m, up 133%

• Net profit of $33.6m, up 197%

The chemical manufacturing division was responsible for most of the group, with revenue up 141% to $234.7m (63.5% of Group revenue) compared to a year ago.

FY23 outlook: No more growth

"In FY22, because of strategically higher stock holdings, expanded capabilities, balance sheet strength and the Group’s execution, DGL achieved some opportunistic growth in earnings which is unlikely to be replicated to the same extent in FY23," the company said in a statement.

DGL warned that as a result of outsized growth in FY22 and industry-wide inflation, "the Group anticipates its earnings growth to flatten in FY23."

Now, we've seen a massive valuation reset for DGL, which was trading at $2.86 or an almost $1bn market cap on the day before its earnings announcement.

DGL shares are currently trading at $1.50 with a market cap of around $500m. This values the company at a price-to-earnings ratio of approximately 15 but with 'flattening' growth expected in the next 12 months.

Some peers in this space include Incitec Pivot (ASX: IPL) and Nufarm (ASX: NUF).

DGL share price over three months.