da Intermonte – THE ITALIAN SEA GROUP Company Research Report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a THE ITALIAN SEA GROUP a cura di Intermonte.

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Diana Avendano Grassini

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3Q22E Key Figures To Confirm Solid Momentum

Results out on 10 November: The Italian Sea Group will release key figures for 3Q22 (sales, EBITDA, NFP and backlog) early in the afternoon of 10 November, with an analyst conference call at 4.30 PM CET via Zoom (link). At the release of full 1H22 results in mid[1]September, the company provided positive indications on short-to-medium-term prospects, with a constructive tone during the conference call: the CEO was confident of reaching the upper end of the guidance range, both on revenues (Eu280mn-295mn) and profitability (Eu43mn-46mn).

We expect the company to report another solid quarter, well on track to meet FY guidance. On the back of previous company indications and the ongoing momentum of the industry as a whole, confirmed by the outcomes of major Yacht Shows in Europe and US as well as industry trend data – we expect another solid quarter, with the net backlog growing by c.Eu50mn QoQ (based on company and press indications on new contracts signed, plus Tecnomar for Lamborghini run-rate) to c.Eu540mn; the order book (full value of contracts signed) should have grown by the same amount (we are not aware of any deliveries during 3Q22) to Eu922mn, very close to the Eu1bn mark. 3Q22 sales up c.+60% YoY with margin expansion.

3Q22 sales are therefore expected to have risen 58.7% YoY to Eu74.3mn, accelerating from +40% in 2Q22 and bringing 9M22 sales to Eu207.9mn, up +62.7% YoY. Based on our FY22 forecast of Eu294mn (in line with guidance) this would imply 4Q22E sales of Eu86mn, up +49% YoY with the slightly “softer” YoY growth rate justified by a very tough comp base: 4Q21 recovered some revenues that had been delayed in the preceding quarters for Covid-related reasons (the weight of 4Q21 on FY sales was 31%, vs. a more normalised 29% expected in 4Q22). As for profitability, we expect EBITDA to have come to Eu11.5mn with a margin on sales at 15.5%, up 30bp vs. the record 3Q21 margin last year. 9M22 EBITDA would have come to Eu31.4mn, a 15.1% margin, up +150bp YoY thanks to higher pricing and cost management, specifically on energy (coverage of sheds with photovoltaic panels should now be almost complete).

Higher visibility on FY22: our expectations, if confirmed, would provide greater visibility on FY22 guidance, providing some leeway to surpass targets. We are already aligned with company indications and therefore stick to our estimates for this year. Going forward, we are applying the same approach as for our overall stock coverage, with an additional degree of caution in light of the wider macroeconomic environment. We are also factoring in the presentation of the new Perini fleet in January 2023 vs. November 2022.

BUY confirmed; target Eu8.5 (from Eu9.5). Thanks to its positioning among the leading players at the very top end of the yachting industry, its unique, all-round business and facilities, as well as high visibility on prospects and cash generation, TISG looks very well placed to exploit the full potential of a steadily-growing industry. The clear opportunity of further broadening its capacity and exploiting the sailing yachts opportunity through the Perini Navi acquisition as well as the new serial projects adds further upside to the story. The DCF model now yields an equity value with a target price of Eu11.2 (Eu12.5 before: risk-free rate raised to 4% vs. 3% before and new estimates factored in), to which we add an execution risk discount of c.25% (unchanged) pending further visibility on the evolution of the business and the integration with Perini. The stock is trading at a depressed 6.1x/4.7x EV/EBITDA ’22/’23, a notable discount to Sanlorenzo (-25%/-33%) which in our view definitely does not recognise TISG’s value in full in light of the increasing visibility on results and prospects.