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,

Chiara Cattaneo

M: +39 344 2756238

A Convincing Set of Results and a Promising Outlook

• A strong set of 2Q24 results. On 1 August, Reply reported 2Q24 revenues of Eu560.0mn, in line with our estimates and up 8.0% YoY, or +7.7% organically, i.e. excluding a minor ForEx contribution, marking an acceleration compared to the 1Q24 performance (+6.1%). In more detail: Region 1 and Region 2 (63.7% and 19.4% of quarterly sales respectively) outpaced 1Q24, posting +9.9%/+12.6% organic growth. On the other hand, Region 3 (16.9% of quarterly sales, mainly generated in the UK and France) was down 2.3% YoY organically. EBITDA was a positive surprise, up 27.6% YoY to Eu93.2mn and 4.9% better than expectations. The surprise was mainly achieved thanks to improvements in Region 1 (from 17.1% to 20.6% on sales) and in Region 2 (from 8.0% to 9.7%) while Region 3 was weaker (from 8.4% to 7.4%). Below EBITDA, 2Q24 saw Eu2.4mn of one-off expenses and Eu3.2mn of losses on investments, another non-recurring item. Pre-tax profit therefore closed at Eu73.2mn, just 2% better than expectations, but 42% YoY higher regardless. Net liquidity as at end-June 2024 was Eu364mn, improving by Eu136mn YoY but almost Eu45mn lower than expectations: the gap was related to higher cash taxes (+Eu35mn) and payments of some earn-outs (Eu11mn).
• Quarterly trends and outlook. The outlook appears supportive: since the beginning of the year, Reply has seen increased interest in applications related to the use of artificial intelligence, an area where it has gained a leading position on the market. The 3Q24 performance should be in line with 1H24; they see a strong pipeline. In terms of M&A, at the moment they are in advanced discussion with a UK company, while another possible deal in Germany is at an earlier stage. At the same time, they have a pipeline of discussions in the US.
• Updating our estimates. We believe market conditions will remain positive and we consider Reply to be well positioned to continue to outperform the industry. As for 2024, we confirm our assumptions that foresee 10% organic growth in Region 1 and Region 2, while we are trimming the organic forecast in Region 3 from 3.0% to 1.5%. For FY24, we are raising our EBITDA margin assumption slightly, staying on the safe side (16.1% margin expected in 2H24E, in line with 1H24).
• Outperform, confirmed, target Eu153 unchanged. We appreciated the results, both in terms of organic revenue growth, achieved in a rather challenging market, and in terms of margins. Management appeared confident of business opportunities coming from the AI revolution, a technology where Reply can continue to capitalize on its early investments, and which is being embedded in a large number of new solutions. Finally, it is worth noting that the Reply board has approved a proposal to go before the EGM scheduled for 17 September 2024 to amend the articles of association in order to enable enhancement of the loyalty voting scheme in line with new Italian legislation. This decision may not please some investors, but it remains an understandable choice by the controlling shareholder to have the option in the future to evaluate paper acquisitions in relevant markets such as the USA or manage any generational transitions in the controlling holding company (the Rizzante family controls 51% of the Alika holding company).