da Intermonte – EMAK company research report

Buon pomeriggio,

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

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Un caro saluto,

Ludovica Bertola

M: +39 347 1667538

Mixed 2Q, but Improving Top Line Momentum Confirmed

• The company reported mixed results. While on the one hand, EM recorded solid top line growth (+10% YoY), thanks above all to the rebound of the OPE business (+16.9% YoY) and sound cash generation, on the other, margins have come under heavy pressure due to some cost increases, most notably labour, transport and commercial costs.
• Mixed 2Q results: EM closed 2Q with turnover of Eu175.3mn, broadly in line with our estimates and up 10% YoY thanks to growth in all 3 businesses: OPE was up 16.9% YoY, Pumps was up 3.3% and Components and Accessories up 13.7% (4.6% organic). However, this considerable top line growth did not translate into a similar increase in profitability, as rising labour, transport and commercial costs took their toll, driving margins down by 1.9pp YoY (from 15.1% to 13.2%), with adj. EBITDA closing at Eu23.1mn, lower than our estimate of Eu24.6mn. Down the line, higher-than-expected financial charges and ForEx losses brought net income to Eu6.4mn, lower than our Eu8.9mn estimate and down compared to last year’s Eu10.4mn figure. Finally, despite lower operating results, cash generation remained rather healthy, with net debt improving by c.Eu20mn QoQ and closing at Eu213mn.
• Sales trend expected to continue in 3Q: 1H unfolded within a challenging macroeconomic environment, prompting customers and consumers to adopt a cautious stance. This, combined with disruptions in international logistics due to tensions in the Red Sea area, dented sales during the period. Nevertheless, the Group still achieved YoY sales growth. Looking ahead to 3Q, despite the persistence of these external challenges, management anticipates that the sales growth trend will continue, leading to a further increase in cumulative revenue compared to 2023.
• Estimates: in light of 1H results, our estimates on the second part of the year appear somewhat challenging, above all in terms of profitability, while debt appears to be on track to reach our estimate of Eu190mn. We are therefore revising our 2024 estimates to incorporate slightly lower turnover growth (+8.5% YoY from +10% previously) and a lower margin YoY (11.5% from 12.0% in 2023). Our estimates nevertheless still incorporate a YoY margin improvement in 2H24, which we believe is feasible keeping in mind the weak profitability posted in the second half of last year, when margins were already affected by rising costs and low volumes hindering operating leverage.
• OUTPERFORM confirmed; target €1.60. We confirm our positive view on the stock as we believe that 2024 will mark an inflection point with a return to growth after a transitional 2023, albeit at a slower rate compared to previous expectations. On top of this, the expected improvement in FCF generation (c.€20mn expected in 2024), should enable Emak to continue to invest in its product offering, seek bolt-on acquisitions, and remunerate shareholders, while also de-leveraging its balance sheet. Our valuation, based on the average of a DCF and a SOP, yields a TP of €1.60, down from Eu1.85 following the cut in estimates operated in this report.