da Intermonte – Company Research Report SEAS GETTERS, REPLY, FINE FOODS

Buon pomeriggio,

di seguito e in allegato inviamo i company research report relativi a SEAS GETTERS, REPLY, FINE FOODS a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendaño Grassini

SAES GETTERS

Some softness in 1Q23. Focus on saving shares conversion

n 1Q23 results in line, with some softness at industrial (ex Nitinol) businesses. SAES 1Q23 results showed some softness at industrial businesses ex Nitinol (in particular Chemicals, Packaging), partly anticipated by the weak sales trend of Jan-Feb already disclosed (+4.4% YoY and +0.7% ex ForEx). In 1Q23, sales were Eu60mn vs. Eu61mn expected, rising +1.7% YoY or -3.8% ex ForEx. Gross profit was Eu27mn with the margin up 30bps YoY to 44.3%. EBITDA was Eu11mn (18.1% margin) vs. Eu12mn expected and includes Eu2mn in one-offs related to the announced transaction with Resonetics at the Medical business; on a clean basis, the EBITDA margin was stable YoY at 23%. Net profit of Eu5mn (Eu4mn expected) vs. Eu2mn in 1Q22 includes Eu2mn of non-cash income from mark to market of financial investments. The net cash position was stable vs. FY22 at Eu64mn after a Eu7mn increase in working capital, mainly at the Medical business. The company provided the following pro-forma figures for SAES’s 1Q23  perimeter ex Nitinol: sales Eu28mn (-10% YoY), EBITDA at breakeven, EBIT loss Eu3mn, net loss Eu2mn.

n Confidence on improving trends. In 1Q23, sales at SAES Medical were up 14% (+9% organic) to Eu32mn, while the industrial perimeter ex Nitinol (SAES Industrial, SAES High Vacuum, SAES Chemicals, SAES Packaging) reported a 10% YoY decline in sales to Eu28mn. This was driven by Chemicals (-44% YoY to Eu2mn) and Packaging (-56% YoY to Eu2mn), while SAES Industrial was up 4% to Eu19mn (strong industrial SMAs), and sales of SAES High Vacuum were stable at Eu7mn (consolidation of SAES Rial compensated lower sales vs. a particularly strong 1Q22). Management expressed confidence on improving operating trends in coming months. We note exposure to defensive businesses and growing industrial SMAs at SAES industrial, the positive outlook (and exposure to fusion energy) of High Vacuum (ca. Eu40mn sales in FY24e from ca. Eu30mn in FY22), the expected improvement at Chemicals, and the slow take-up at Packaging. We think SAES’s industrial perimeter has significant growth potential.

n Estimates unchanged. Our estimates point to FY23 sales of Eu266mn (+6% YoY with SAES ex Nitinol growing ca. +4%), EBITDA of Eu64mn (before costs associated with the transaction with Resonetics) vs. Eu57mn in FY22, adj. net profit of Eu33mn. 

n Focus on saving shares conversion. Management said it was working hard to complete the extraordinary transaction on saving shares (voluntary partial tender offer on 18.5% of savings at Eu29.31 per share and 1:1 mandatory conversion into ordinary shares), with an EGM and a special meeting of savings shareholders to be held on 31 May. We think the transaction is a valuation catalyst for the stock (rationalize the capital structure, standardize the right of all shareholders, increase the free-float, EPS accretive). No additional info on the transaction with Resonetics on the Nitinol business, expected to close by year-end. 

REPLY

Double-Digit Organic Growth, Strong Cash Generation

n Double-digit organic top-line growth continued in 1Q23. Reply posted 1Q23 revenues of Eu520.6mn, up 18.1% YoY or 10.5% in organic terms (i.e. net of ForEx and M&A contributions) above our 10.0% forecast. Specifically, in Region 1 (61% of quarterly sales, mainly generated in Italy but also covering US activities), organic growth was 12.7% YoY: Italian activities performed strongly, offsetting a less brilliant US performance (US accounts for about 20% of Region 1 turnover); in Region 2 (20% of quarterly sales generated entirely in Germany), organic growth was 11.2%, while the contribution from newly-acquired Fincon was about Eu15.7mn; finally, in Region 3 (19% of quarterly sales, mainly generated in the UK but also in France and other regions), organic growth was just 2.8%, lower than expected, partly because the UK business faced a very tough comparison and partly because some industries, such as retail, experienced some volatility; on the other hand, turnover from newly acquired Wemanity was worth Eu20.9mn, higher than expected.

n EBITDA margin at 15.6%, as expected, strong cash generation. Quarterly EBITDA came to Eu81.0mn, bang in line with our estimates and up 14.3% YoY, a 15.6% margin on sales that corresponds to a 50bp YoY contraction, reflecting the dilutive impact from the consolidation of the recent acquisitions of Wemanity and Fincon (net of which the EBITDA margin would have stayed flat YoY). Below EBITDA, D&A were Eu0.9mn higher than expected, taking EBIT to Eu65.6mn, up 13.7% YoY. Net financial charges (Eu3.5m) were also higher than expected because they include Eu2.3mn related to the negative exchange rate difference from the translation of non-euro denominated balance sheet items. The net financial position was the most important quarterly surprise: net cash, excluding the impact of IFRS16, stood at Eu317mn as at the end of March 2023 after positive quarterly net cash generation of Eu121mn linked to favourable working capital seasonality.

n Change in estimates. In light of 1Q23 results, we are leaving our 2023-2025 forecasts unchanged, implying 10% like-for-like growth (with a minor rebalancing between Region 1 and Region 3) and an EBITDA margin consistent with the top end of management’s indication for an EBITDA margin of 14-16%. It is worth noting that Reply, even after the important acquisitions announced in 2022, still has a net cash position and management is seeking new targets in the UK, US and Germany.

n OUTPERFORM confirmed; target Eu136.5 unchanged. 1Q23 results showed a continuation of Reply’s convincing business momentum, highlighting sustainable organic double-digit revenue growth. Recent months have been characterized by huge growth in demand for new applications related to the use of artificial intelligence, an area to which Reply has been committed for a long time and has acquired a market-leading position. After the recent weak share performance, we strongly reiterate our positive view on the stock: in our view it trades at an unjustified discount to Accenture.

FINE FOODS

Food back to Growth, Pharma Still Strong, Impressive Margins

n 1Q23 results. Superior top-line growth (+29% vs >25% hint provided at end-March along with FY results, with Foods BU back to growth, Pharma BU still strong, softer Cosmetics BU) and an unexpected jump in profitability (12% vs. our 9.1% forecast) leading to a 37% EBITDA surprise, which amplifies scrolling down the P&L (adj. EBIT and net profit both > 2x our expectations). Total sales €65.6mn (+3% vs our exp. €63.6mn), up 29.2% (4Q: +9.6%) supported by a balanced mixed: (++) Food at €40.7mn (our exp. €37.8mn), up 38% (4Q: -4%; back to growth thanks to the effectiveness of commercial actions taken); (++) Pharma at €16.8mn (our exp. €16.0mn), up 42% (4Q: +30%; increased volumes of existing products and new production); (-) Cosmetics at €8.1mn (our exp. €11.1mn), -14% YoY (temporary production slowdown due to restructuring of Trenzano production site and integration operations of Pharmatek, which just merged into Euro Cosmetic). Adj. EBITDA at €7.9mn (+36% vs our exp. €5.8mn), c. 2x YoY thanks to deployment of timely commercial actions, production efficiency and cost-control initiatives. As a consequence, the EBITDA margin strengthened to 12.1% (+3pp vs our exp. 9.1%), +4.3pp YoY, +6.5pp QoQ. Excluding the rise in energy costs (1pp YoY), 1Q margin would be c. 13% (9.7% in 1Q22). Net profit turned positive at €2.9mn (our exp. €1.3mn) vs €2.5mn loss in 1Q22. In 1Q23, Parent Company’s asset securities management showed positive FV of €1.1mn (1Q22: €-2.4mn). Finally, net debt was €51.5mn (in line with our exp. €51mn), up on end-2022 (€43.6mn), mainly due to NWC absorption (€8mn due to the increase in sales and inventories) and CapEx (€5mn).

n Extraordinary CapEx cycle for Pharma BU to support an additional (and meaningful) layer of growth. Management expects the Pharma BU to grow significantly due to the multi-year agreements signed with important customers that will require a production plant expansion (c. €30mn CapEx spread over about 2 years).

n Updated estimates. We confirm FY23 top line, reflecting a different mix (softer Cosmetics offset by stronger Food BU) and a mixed comparison base for the coming Qs (easier for Food, tougher for Pharma); we raise the margin by c. 0.5pp while leaving the same margins for the next 2 years, leading to a 9% rise in adj. EPS for 2023 and neutral changes for 2024-25. Net debt increased to capture the €30mn CapEx (mostly in 2024 and 2025) which should materialise in a higher Pharma top line from early 2026.

n OUTPERFORM confirmed; new target at €12.7 (from €12.3). We confirm our positive view on the stock: a re-acceleration of growth in the coming months fuelled by ongoing business recovery and lower energy costs might rekindle interest in the equity story and allow the stock to benefit from a significant re-rating in the short term, even without any material upgrade to current expectations. On our new estimates, we raise our target price from €12.3 to €12.7. Fine Foods is well placed to outperform peers, having grown notably faster than its core end markets in the last decade. It enjoys solid operating trends through leveraging its critical mass as the largest Italian CDMO, as well as highly visible customer demand (resulting in enduring relations and an increasing share of wallet), additional capacity secured through investments, and the ability to seize further M&A opportunities for quality assets in adjacent markets or to act as a natural aggregator.