da Intermonte – EMAK Company Research Report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a EMAK a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendano Grassini

M. +39 3381313854

3Q in Line, NWC Optimization Measures Put in Place

• 3Q in line. Emak 3Q results were broadly in line with our expectations, with a YoY drop in turnover but an improvement in margin trends. Specifically, revenues came to Eu124.1mn, broadly in line with our estimate of Eu124.8mn, down 5.5% YoY as OPE (- 26% YoY) suffered from a gardening season that was hit hard by drought in Europe, while Pumps (+2.7%) and Components (+8.8%) continued to perform well. As for operational trends, adj. EBITDA came to Eu14.6mn, in line with our Eu14.7mn estimate. In margin terms, the YoY dilution was minimal (20bp, from 12.0% to 11.8%), marking an improvement on previous quarters, as margins fell by 180bp/110bp in 1Q/2Q, thanks to the price increases passed this year and finally fully effective. Below the line, net profit closed at Eu5.1mn, higher than our estimate of Eu4.4mn, mainly due to ForEx gains and higher financial income. Finally, net debt came down QoQ to Eu182mn (from Eu192mn), with the first signs of a stabilisation in NWC, even if the level reached is still not ideal.

• NWC optimization measures put in place. Management affirmed that based on the sales trend in October, the expectation of closing the year with turnover higher than the record values recorded in 2021 is confirmed; this is in line with our estimates, which point to a 2.8% increase in turnover in 2022. Moreover, despite a particularly complex market context, the Group has taken action aimed at progressively normalising the value of net working capital, which, as seen in the first 9 months, is still not yet at an optimum level: incidence on sales, which we estimate to be close to 40% of sales in 2022 vs 33.7% in 2021, means ~Eu50mn of cash absorption.

• EBITDA ‘22/’23 +5.1%/-3.1%. We are revising our 2022 estimates upward: following 9M22 results, the 4Q implied in our old estimates appeared overly cautious in terms of profitability. Our forecast sees 4Q slowing further (-9.3% YoY), mainly due to the business most exposed to retail spending and thus most likely impacted by the inflationary environment. Regarding 2023, we incorporate a degree of caution into our estimates, basically estimating flat organic revenues (+Eu5mn from the recent Trebol Maquinaria acquisition) and 20bp EBITDA margin dilution due to lower operating leverage and higher energy costs. As for cash generation, we have increased NWC absorption leading to net debt of Eu177mn as at year end, a trend that we expect to start reverting from 4Q, leading to Eu3.3mn of release in 2023. We have then increased D&A and financial charges as a consequence of rising interest rates and higher net debt.

• OUTPERFORM reaffirmed; target Eu1.90 from Eu2.05. We remain positive on the stock, which we expect to benefit in the mid-term from the growth forecast for core markets and the recovery of profitability at the OPE business. The continuous investments in R&D aimed at creating new products to respond to customer needs in terms of safety, comfort and emission reductions should enable the company to approach the market with a wider product range and therefore potentially gain market share. We are trimming our TP from Eu2.05 to Eu1.90 to reflect the cut in estimates and the updated Intermonte risk-free rate (from 3.0% to 4.0%).