Buon pomeriggio, di seguito e in allegato inviamo il company research report relativo a SOMEC a cura di Intermonte. Rimaniamo a disposizione per ulteriori informazioni. Un caro saluto, Lucrezia Pisani M. +39 347 6732 479
Cost Inflation Kicks In But Cash Generation Remains Strong
* Strong revenues growth, margin dented by cost inflation: Somec posted 1H22 revenues of €152mn (in line with our estimate), up 18.8% YoY, with the Interiors division growing 167%. The EBITDA margin went from 11% in 1H21 to 6.0% due to rising production costs (raw materials and energy), leading to an adjustment to the expected profitability of current orders, but also to recruitment, new acquisitions and promotional activity. It should be noted that 1H21 also benefited from a non[1]recurring €2.5mn contribution from the US Paycheck Protection Program. Net profit, at €-0.2mn, was lower than our forecast (€0.7mn), due to €1.8mn of credit impairments relating to two foreign clients.
* Strong cash generation: The company was nevertheless able to generate considerable cash, with operating cash flow coming to €16.5mn (+€10.4mn vs. 1H21), thanks mainly to positive working capital trends. FCF came to €12mnn, vs. €3.1mn in 1H21. Despite the strong cash generation, the NFP went from €48.2mn at YE21 to €63.4mn, due to: i) the payment of €7.5mn in dividends; and ii) the acquisition of minorities in Fabbrica for €16.5mn and Bluesteel for €5.3mn (leading to a non-cash increase of €1.1mn under IFRS 16).
* 2H margin expected to normalise: the company expects a continuation of volumes growth in 2H22 and has already put measures in place to recover profitability. In particular, some segments (such as Professional Cooking) should start to benefit from an upward revision in catalogue prices, while no further revision in profitability of ongoing orders is expected following the afore-mentioned assessment, meaning the 1H revision fully absorbed the expected cost increases going forward. Finally, the resumption and acceleration of activity in the Refitting business should have a positive mix effect on group margins.
* Change in estimates: we cut 2022 estimates in order to take into account the loss of profitability in 1H22 and the extraordinary €1.8mn provision affecting the bottom line, resulting in a 47% cut to EPS. We expect the 2H22 EBITDA margin to be in line with 2021 (8.9%), with strong cash generation continuing. This should partially offset the cash-out for the acquisition of Budri (€7.5mn + earn-out and put and call options), with net debt therefore expected at €71mn (3.1x leverage). In 2023, we expect the company to be able to recover its profitability (although not to the levels we previously forecast), due to a better mix in revenues (higher % of Refitting and Interiors) and the positive contribution from acquisitions. We also expect a significant decrease in leverage, to 1.6x, thanks to the strong cash generation that is a hallmark of the business.
* BUY; target from €38.1 to €31.0. Cost inflation has negatively affected 1H results but in the absence of further increases in raw material and energy costs the company should be able to return to a more normal margin. We appreciate the strong cash generation, which so far the company has used to carry out M&A deals, with management pursuing its growth strategy in the Interiors business in particular. We have cut our target price from €38.1 to €31.0 due to the revision in estimates and DCF assumptions (risk-free rate now at 4.0%).
Cost Inflation Kicks In But Cash Generation Remains Strong
* Strong revenues growth, margin dented by cost inflation: Somec posted 1H22 revenues of €152mn (in line with our estimate), up 18.8% YoY, with the Interiors division growing 167%. The EBITDA margin went from 11% in 1H21 to 6.0% due to rising production costs (raw materials and energy), leading to an adjustment to the expected profitability of current orders, but also to recruitment, new acquisitions and promotional activity. It should be noted that 1H21 also benefited from a non[1]recurring €2.5mn contribution from the US Paycheck Protection Program. Net profit, at €-0.2mn, was lower than our forecast (€0.7mn), due to €1.8mn of credit impairments relating to two foreign clients.
* Strong cash generation: The company was nevertheless able to generate considerable cash, with operating cash flow coming to €16.5mn (+€10.4mn vs. 1H21), thanks mainly to positive working capital trends. FCF came to €12mnn, vs. €3.1mn in 1H21. Despite the strong cash generation, the NFP went from €48.2mn at YE21 to €63.4mn, due to: i) the payment of €7.5mn in dividends; and ii) the acquisition of minorities in Fabbrica for €16.5mn and Bluesteel for €5.3mn (leading to a non-cash increase of €1.1mn under IFRS 16).
* 2H margin expected to normalise: the company expects a continuation of volumes growth in 2H22 and has already put measures in place to recover profitability. In particular, some segments (such as Professional Cooking) should start to benefit from an upward revision in catalogue prices, while no further revision in profitability of ongoing orders is expected following the afore-mentioned assessment, meaning the 1H revision fully absorbed the expected cost increases going forward. Finally, the resumption and acceleration of activity in the Refitting business should have a positive mix effect on group margins.
* Change in estimates: we cut 2022 estimates in order to take into account the loss of profitability in 1H22 and the extraordinary €1.8mn provision affecting the bottom line, resulting in a 47% cut to EPS. We expect the 2H22 EBITDA margin to be in line with 2021 (8.9%), with strong cash generation continuing. This should partially offset the cash-out for the acquisition of Budri (€7.5mn + earn-out and put and call options), with net debt therefore expected at €71mn (3.1x leverage). In 2023, we expect the company to be able to recover its profitability (although not to the levels we previously forecast), due to a better mix in revenues (higher % of Refitting and Interiors) and the positive contribution from acquisitions. We also expect a significant decrease in leverage, to 1.6x, thanks to the strong cash generation that is a hallmark of the business.
* BUY; target from €38.1 to €31.0. Cost inflation has negatively affected 1H results but in the absence of further increases in raw material and energy costs the company should be able to return to a more normal margin. We appreciate the strong cash generation, which so far the company has used to carry out M&A deals, with management pursuing its growth strategy in the Interiors business in particular. We have cut our target price from €38.1 to €31.0 due to the revision in estimates and DCF assumptions (risk-free rate now at 4.0%).
Intermonte-SOMEC-Company-Research-Report-220930.pdf