da Intermonte – SERVIZI ITALIA company research report

Buon pomeriggio,

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

Rimaniamo a disposizione per ulteriori informazioni.

Un caro saluto,
Lucrezia Pisani

M. +39 347 6732 479

Good EBITDA Resilience to Energy Cost Hikes

3Q22 EBITDA more resilient than expected. On 14 November the group published 3Q22 results that showed revenues of Eu68.5mn, up 3.7% YoY and 1.4% better than expected. Revenues from wash-hire services came to Eu52.3mn, broadly in line with our estimates and up 1.9% YoY; revenues from linen sterilisation services (Steril B) came to Eu4.3mn, 3.2% lower than expected but up 4.2% YoY; finally, revenues from the sterilisation of surgical instruments (Steril C) rose 12% YoY to Eu11.9mn, a positive surprise. Regarding margins, despite falling 7.3% YoY, EBITDA closed at Eu16.2mn, 7% better than expected. Thanks to the recognition of positive fiscal items on the P&L for Eu0.5mn, net profit closed at Eu2.1mn for the period, down 21.6% YoY but much better than our estimate of Eu0.4mn. As for cash flow, net debt came to Eu126.1mn as at the end of September, more or less in line with our estimate of Eu123mn.

2022 company outlook points to positive results, albeit with particular attention on energy cost volatility. Despite the continuing uncertainty in the market, the Group expects positive results in 2022 in Italy and Brazil, while the situation is still difficult in Turkey (just 2.5% of Group turnover). In addition to government subsidies, management envisages action in the coming months to recover margins as well as temporary accords with clients on price adjustments in order to cope with the exceptional energy prices. Moreover, the Group anticipates an organic consolidation of its position of leadership in Italian and foreign markets and continues to strive for optimisation and efficiency. In a tougher financial environment, Servizi Italia retains solid relationships with banks and good access to financing.

Changes to estimates. We have raised our revenue estimates by 0.2% for 2022/2023, while we have trimmed our EBITDA margin estimates. All in all, we apply a 10.0%/8.1% downward revision to 2023 and 2024 EPS in order to be more prudent on the benefits from margin recovery actions. We note two elements that should provide support for our estimates: 1) contracts in the North-East area reaching full capacity and fostering growth of the top line and margins; and 2) updating of benchmark prices in the healthcare sector for linen wash-hire, cleaning, and catering, which should safeguard profitability starting from 2023.

OUTPERFORM confirmed, TP Eu2.50 unchanged. Results showed a good revenue trend and a better-than-expected ability to reabsorb rising energy costs at EBITDA level. Indeed, it is worth nothing that in 3Q22, utilities costs rose 83% YoY, amounting to 10.1% of revenues vs 5.8% in 3Q21 (+430bp), while the EBITDA margin came down by 280bp. In the coming quarters, the contraction of margins should be mitigated by adjustments to existing contracts with major clients. Looking ahead, we expect the company to further strengthen its leadership in Italy and to show the validity of its strategy abroad, regaining an attractive FCF yield in 2024