da Intermonte VE company research report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a LU-VE a cura di Intermonte.

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Un caro saluto,

Chiara Cattaneo

M: +39 344 2756238

Cost Management to Protect Margins and Cash Generation

• 2Q24 revenues penalized by heat pumps, orders improving. On 11 July, LU-VE published key results to 30 June 2024: turnover from products in 2Q was Eu151.5mn (-10.4% YoY), -2.5% vs our estimates, while the order book as at end-June amounted to Eu170.9mn, up +9.4% compared to 31 December 2023. Once more we note that in 1Q23 and 2Q23, heat pump revenues were very strong (ca. Eu20mn and Eu22mn respectively), while the contribution in 2H23 was significantly weaker (ca. Eu20mn).
• Cost savings to protect EBITDA, excellent cash generation. As already seen in 1Q24, we expect LU-VE to be able to maintain adjusted EBITDA, in absolute terms, stable YoY thanks to effective cost control. In detail: 2Q24 EBITDA should come in at Eu23.1mn, -1% YoY, with a 15.2% margin on sales, up almost 200bp YoY. Below this line, after slightly decreasing D&A but higher financial charges and taxes, we expect quarterly net profit at Eu10mn. Notably, we expect net debt as at the end of June 2024 to amount to Eu120mn, down Eu40mn YoY after a Eu9mn dividend payment.
• Business outlook. In a recent interview group CEO Matteo Liberali said that the company sees 2024 closing with revenues down slightly, but EBITDA “equal to or above 2023 due to action on structural costs”. Among the most promising businesses, the CEO mentions: cooling plant for data centres, which LU-VE is pushing, above all in the USA and China with the aim of taking revenues from 6-7% to 15% in two years; heat exchangers for supermarket counters; and those for high-efficiency tumble dryers. A new important stream of revenues will come from cooling systems for emergency generators at nuclear power stations: thanks to subsidiary Refrion (acquired in 2022) LU-VE has won an order in the United Kingdom for the new generation plant at Hinkley Point C, in Somerset, built by French firm Edf; the project, whose first lots will be delivered in 2025, is worth Eu27mn for LU-VE and could pave the way to other important contracts (negotiations on two other projects by Edf and one with Ansaldo Energia are in progress).
• Change in estimates. We factor more cautious forecasts on the heat pump business into our 2024 estimates (FY24 revenues expected at Eu25mn from Eu45mn). In 2025, visibility remains low but we still expect the business to reach Eu35mn in revenues (+Eu10mn). In 2025, we also expect the nuclear business to contribute Eu15mn in revenues. Finally, the core traditional business should grow 3.7% YoY in 2024 to Eu565mn and by 4% YoY in 2025. Conversely, in terms of margins, we are improving our 2024 and 2025 estimates by 40bp and 20bp respectively. All in all, having also trimmed financial charges, we are making minor changes (+2.8%/+2.0%/+3.2%) to 2024/25/26 EPS. In terms of cash flow, we expect 2024 and 2025 CapEx at Eu35mn (from Eu40mn). Thanks to effective NWC management, we are improving net cash generation.
• OUTPERFORM confirmed; target Eu31.0 from Eu28.9. Our new target has been set to reflect improved net cash generation estimates. We appreciate the excellent positioning of the group and its major diversification into promising areas. The group has been able to respond promptly to the deterioration of outlook for the heat pump business, making cost savings that safeguard profitability this year and will improve operational leverage in the next years.