da Intermonte – Company Research Reports IEG, ESPRINET, EL.EN., ALKEMY

Buon pomeriggio,

di seguito e in allegato inviamo i company research reports relativi a IEG, ESPRINET, EL.EN. e ALKEMY a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Federica Guerrini  

IEG

Record 1Q23 Revenues Lift FY23 Expectations

n 1Q23 results beat expectations. On 10 May, IEG reported 1Q23 results that exceeded our expectations at all levels. In detail, revenues closed at Eu77mn vs. Eu71mn expected, adj. EBITDA was Eu24.7mn vs. Eu23.6mn, EBIT came to Eu8.4mn, the adj. bottom line came in at Eu14mn vs. Eu11.8mn, and the NFP (including non-cash items) was Eu91mn vs. Eu93mn expected.

n Very positive performance from both core and new events. Management pointed out that the Vicenza Oro exhibition fully booked out the Vicenza headquarters, making it the most successful edition of the last 70 years (setting a historical attendance record, +11.5% compared to the pre-pandemic edition in Jan 2020). My Plant & Garden saw a successful integration after IEG’s acquisition as the event delivered excellent results both financially and from a business stand point, surpassing targets (we estimate Eu3.3mn of revenues and Eu0.6mn of EBITDA with a lower-than-average margin due to rental costs for the space at Fiera Milano).

n FY23 outlook: Against a macroeconomic forecast for 2023 that is still marked by uncertainty, the Group is confident of achieving the 2023 operating margin targets set out in the business plan, improving sales volumes and consolidating cash generation to support investments.

n Other messages from the conference call: More details on 2023 guidance: on turnover, the company aims to improve by several percentage points (low single-digit), keeping margin forecasts unchanged, while net debt is expected to be slightly below the level communicated last summer at the time of the Strategic Plan presentation (revenues at Eu182mn, EBITDA at Eu38mn, total NFP at Eu99mn); Congress centres: despite a very positive start to the year, management noted that the Rimini centre has reached its capacity, so growth prospects are linked entirely to the qualitative mix, with a greater number of international events (in contrast, the Vicenza site is not equipped to host international events).

n Change in estimates and target price. In light of stronger-than-expected 1Q23 results and positive sector momentum, we are broadly confirming our FY23 top line estimates while lifting EBITDA/EPS numbers by 5% and 12% respectively. Please note that we are currently 7% ahead of the old 2023 targets on the top line but just 3.5% above on EBITDA. Our target price remains at Eu3.50 on the back of a substantial confirmation of estimates beyond 2023.

n OUTPERFORM (target Eu3.50). 1Q23 results showed stronger-than-expected progress and management’s comments on the group’s outlook were very constructive. At the moment, visibility remains lower than normal, as the company’s performance will partly depend on the impact of the current economic slowdown; having said that, we think potential headwinds are already embedded in the share price, with the stock trading at 6.6x and 5.5x EV/EBIT for 2023E and 2024E respectively, vs. 14.6x and 12.1x for the peer group, and 1-year/2-year forward multiples of c.9.0x and 8.5x before Covid-19.

ESPRINET

Weaker start to the year leads to a cautious guidance

n Sales slightly better than estimate, but down -11% YoY. Turnover was Eu1.02bn, down -10.6% YoY, slightly better than our Eu0.97bn, highlighting an improvement of the mix: as expected, high volume/lower margin divisions, namely Screens (-21% YoY) and Devices (-6% YoY) saw negative performances, mainly due to a pronounced slowdown in market demand, while higher margin divisions (Solutions +23%, Services +25%) recorded double digit growth. By geography, revenues in Italy (€623mn) and Spain (€358mn) were down -10% and -14% YoY respectively, both underperforming individual markets, while revenue in Portugal kept growing at a sustained pace (+20% YoY).

n Improving mix led to a gross margin up 5.34%. Gross profit at Eu54mn (-5.5% YoY), with the margin at 5.34%, up 30bps YoY, benefited from the rebalancing of the revenue mix, with solutions and services at c. 23% of total sales (up from 17% in 1Q22). Adj. EBITDA was Eu15.5mn (-22% YoY) with the margin at 1.52%, down c. -20bps YoY, with a negative impact from operating leverage.

n  Net debt at €341mn almost in line with estimate, an increase of €260mn above the figure as at year-end, resulting from the greater seasonal incidence of WC (lower payables despite the level of inventories improving QoQ) amid the pronounced slowdown in market demand for PCs and smartphones. Cash conversion cycle at 32 days vs 25 in 4Q22, the 5th consecutive QoQ increase. ROCE at 9.6%, down vs 13.3% in 4Q22 due to higher WC and lower earnings.

n Guidance on FY EBITDA in the €85mn-95mn range. During the call, management indicated that the low-end of guidance embeds a worst-case scenario featuring a low single-digit decrease in revenue; however, visibility remains good, even though market conditions for consumer electronic are still very challenging. As of now, revenues are seen stabilizing or increasing slightly, while on cash flow, management still expects WC to normalize during the year.

n Unexpected litigation with the Italian Tax Office. The tax office alleges that the company did not carry out adequate checks on the eligibility of counterparties for VAT exemption. While the tax office is not accusing Esprinet of acting fraudulently, it is demanding Eu77mn in VAT (€220mn considering fines and interest). Esprinet has initiated negotiations to reach a settlement that proposes payment of just under 14% of the total claim (spread over 5 years with quarterly payments).  The company envisages that a settlement may be reached by end-May. As for the “unfair clients”, during the call management announced the PRT has not collected any revenue since 2017. The company will provide more details once the settlement is finalized.

n Change to estimates. We have left our revenue estimates unchanged, while lowering our estimates on the gross margin and adj. EBITDA to take into account a slightly worse revenue mix and higher OpEx (as stated by management). At the bottom line, we include a €31mn one-off for the settlement (to be recognized entirely on the P&L, but the cash-out will occur on a quarterly basis) and higher financial charges.

n BUY confirmed, new TP a €10.5 (from €12). 1Q results were consistent with the company strategy of maintaining the focus on growing the higher margin segments and avoiding unprofitable revenue in the high volume but low margin business. The unexpected tax litigation has triggered market uncertainty that should die down as soon as the settlement is finalized, likely over the next weeks. We adjust our DCF-based valuation which factors in lower FCF and the additional liability due to the claim.

EL.EN.

Mixed S/T Outlook Confirmed, Strong M/T Opportunities

n Both divisions grew well in 1Q23. El.En. reported a set of results substantially aligned to our estimates, with revenues coming to Eu161.4mn, up +11.8% YoY (vs. Eu158.3mn and +9.6% expected), thanks not only to ongoing strong growth in the medical business (+11.3% YoY), but also an acceleration in the industrial business after a weak 4Q (+12.8% vs. +3.2% in 4Q22), an impressive result considering that the contribution from the Chinese market remained negative (-31.8%). A decrease in the gross margin at the Industrial business due to weakness in the Chinese market coupled to rising marketing and staff costs, as well as D&A, led to EBIT of Eu17mn, basically unchanged YoY. Finally, the NFP was lower QoQ at Eu56.7mn (vs Eu85 exp.) as a result of ~Eu27mn of working capital absorption (vs. Eu10mn estimated), as a consequence of  business seasonality and the company’s focus on keeping high inventory levels in order to avoid any difficulties caused by slow supply of some components.

n The Cutting business IPO remains a potential positive catalyst, but not to happen in the short term. Management confirmed that the lower-than-expected results of the Chinese business in recent quarters (largely due to covid implications) have held back preparatory activity on the listing, for which most of the necessary steps have already been done. Before arriving at the formalization of the listing process, for a successful IPO it will be necessary to see a recovery of results in China as well as an improvement in the outlook. Order intake in China has recently started to improve and the effects should be seen starting from 2Q and a solid volume recovery is expected to continue in the remainder of the year. Management appeared willing to wait for the publication of FY23 results before filing for the IPO, thus implying it may take at least 12 months.

n Outlook reaffirmed. Guidance for 2023 has been confirmed, indicating EBIT in line with 2022, with consolidated revenues growing due to the contribution of both the Medical and Industrial sectors. The indications are based on order intake that has remained satisfactory in recent months at both divisions, with intake in the Medical business cooling a little after a very strong 2022 while Industrial, as mentioned before, is benefitting from the reopening of China. As a potential positive catalyst in the short-medium term we highlight the start of the early adoption program of the Accure Acne treatment (material contribution expected not before 2024), offering interesting growth prospects in a promising market where only one competitor is operating with a similar technology, even if the go-to-market will differ (the Accure device should have a higher unit cost, while rival Cutera adopted a pay per use approach).

n Estimates substantially confirmed. At this stage we confirm our estimates, acknowledging that on the one hand there could be some upside on the Industrial business top-line estimates based on when China’s full recovery will materialize, but, on the other hand, more pressure on the gross margin could counterbalance this upside.   

n Outperform confirmed, target kept at Eu14.50. We confirm our positive view on the stock, as we believe the recent stock correction offers an interesting entry point for a story that combines exposure to visible macro trends (aging population, focus on physical appearance in Medical; product traceability and increasing power in Industrial) and potential corporate action (listing of the Cutting business).

ALKEMY

1Q23 Operating Results in Line with Forecast; FY23 Prospects Confirmed

n 1Q23 results: adj. EBITDA in line, net profit and NWC impacted by one-offs and NWC respectively. ALK reported revenues of €28.0mn (vs €27.3mn exp.), up +20% YoY, driven by external growth thanks to the consolidation of InnoCV (closed in 3Q22) and organic growth at existing clients (~+8%). Adj. EBITDA was €2.5mn (vs €2.5mn exp.), up +10% YoY for a 9.0% margin, down 0.8ppt on 1Q22. This was due to the increase in personnel (926 units, +23% YoY, costs +29%) amid the consolidation of InnoCV and investments in the go-to-market, only partly offset by a less-than-proportional increase in the cost of services thanks to the in-sourcing of activities. Reported net profit was €0.6mn (vs €0.9mn exp.), down -40% YoY, burdened by one-offs, while adj. EPS was essentially in line. Net debt was €34.8mn (vs €30.5mn exp.), a slight increase on €34.1mn as at end-4Q22 due to unfavourable timing of invoicing and faster payment terms to suppliers reflecting the in-sourcing of activities.

n 2023 outlook: growth and margin expansion confirmed. ALK confirmed its expectations of continuing organic growth of turnover and margin. The more pro-active approach by new customers and renewed go-to-market should drive organic growth to HSD (vs MSD prev.), though not yet at full potential. The increase in personnel costs should carry over into 2H, but at a slower pace, supporting the return to margin expansion.

n Change in estimates. In light of 1Q23 developments and indications for the reminder of the year, we broadly confirm our operating forecast on slightly stronger growth, offset by slightly higher personnel costs and D&A. Finally, we lower adj. EPS on slightly higher financial charges.

n OUTPERFORM, TP to €16.6 from €16.8. ALK reported 1Q23 operating results that were in line with our estimates, while cash generation was impacted by temporary factors as explained above. As clients are adopting a more proactive approach and the investments in the go-to-market are starting to bear fruit, overall confirmation has been given of FY23 outlook that points to double-digit growth (incl. M&A) and margin expansion. In the highly dynamic digital transformation market, we believe ALK has the right portfolio of services and go-to-market strategy to exploit growth opportunities, while enhancing profitability thanks to actions by management. OUTPERFORM confirmed; TP to €16.6 from €16.8 reflecting the change in estimates.