da Intermonte – REPLY company research report

Buon pomeriggio,

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

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto

Laura Morreale

M. +327 3435530

Margins and Cash Generation Beat Expectations

n Revenues in line with our estimates with 6% organic growth. Reply posted 3Q23 revenues of Eu509.1mn, in line with our forecasts and up 9.3% YoY or 6.0% YoY in organic terms (i.e. net of ForEx and M&A contributions). This marked a slight deceleration on 2Q23 (+8.5%), mainly due to a tougher comparison (organic growth peaked at +18% in 3Q22 vs. 16.3% in 2Q22 and +15.9% in FY22). In more detail: Region 2 (20.5% of quarterly sales, generated in Germany) posted revenues of Eu106.6mn, up 7.4% YoY, entirely organic, slightly up on the +3.8% witnessed in 2Q23. On the other hand, Region 1 (60.5% of quarterly sales, mainly generated in Italy but also including US activities) rose 7.1% YoY, showing 8.2% organic growth, a bit softer than in previous quarters but still solid. Finally, Region 3 (19.0% of quarterly sales, mainly generated in the UK and France) was up 22.4% YoY, entirely thanks to the consolidation of Wemanity, while the organic performance was negative by 0.5%, mainly because of a very tough comparison (organic growth was +29.4% in 3Q22).

n 3Q23 EBITDA margin at 16.1%, better than expected, net cash much better. Quarterly EBITDA came to Eu81.8mn, up 10.3% YoY and 7.5% ahead of our estimates, with a 16.1% margin on sales that corresponds to a 20bp YoY increase, but, even more remarkably, 200bp better QoQ. Region 1 activities reported margins at 17.9% (vs. 17.4% in 3Q22) while the German business reached a 15.6% EBITDA margin compared to 8.0% in 2Q23, therefore showing excellent QoQ recovery, almost reaching the extremely high level recorded in 3Q22 (16.5%). Finally, the EBITDA margin in Region 3 came to 9.2%, again improving on 2Q23 (8.4%). Below the EBITDA line, Reply booked Eu1.6mn of non-recurring costs, Eu11.6mn of losses from investments (likely to be the write-down of some participations) but also net financial income of Eu4.4mn. All in all, profit before taxes came in at Eu56.8mn, in line with our estimate. Importantly, net cash (excluding IFRS16) at the end of September stood at Eu316mn, more than Eu60mn above our estimate and an Eu88mn improvement compared to the end of June 2023.

n Change in estimates. We believe market conditions will remain supportive for the group in the years to come because its niche positioning in the most innovative segments of the IT market should continue to prove resilient, even when the macro picture is witnessing softer trends. For 2023 alone, we are raising EBITDA by 1.7% to reflect the positive quarterly surprise, but we are also factoring in slightly higher non-cash charges below EBITDA. Our current estimates assume 4Q23 revenue and EBITDA growth of 7.1% and 5.5% YoY respectively (net of Eu37.8mn positive one-off booked in 4Q22). As for 2024, we confirm our 10% organic growth assumption and forecast of a 15.7% EBITDA margin, up 30bp YoY. Finally, we are lifting our YE23 net cash forecast by about Eu40mn.

n OUTPERFORM confirmed; target from Eu124.0 to Eu125.0. Compared to the performance recorded in 2Q23, the group was able to win back sound profitability. The group continues to seek M&A opportunities, although we do not believe there are any deals ready to be announced any time soon. We believe the group is perfectly positioned to exploit the wave of investments related to the artificial intelligence revolution and, more generally, to digital innovation. Our marginal target revision is to reflect the stronger-than-expected cash generation.