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,                                      
Lucrezia Pisani

M. +39 347 6732 479

Growth Expected To Accelerate in 3Q22

• Strong double-digit organic top-line growth rate expected on top of new M&A contribution. We expect Reply to post 3Q22 revenues of Eu466mn, up 29.3% YoY or 17% YoY in organic terms (i.e., net of ForEx and M&A contributions), even exceeding the excellent trend experienced in 2Q22 (16.3%). In more detail: we expect Region 1 (64% of quarterly sales, mainly generated in Italy but also including US activities) to have risen 31.8% YoY (of which 20% organic) and Region 3 (15% of quarterly sales, mainly generated in the UK) to have risen 13.6% YoY, mainly thanks to organic growth. Region 2 (Germany), forecast up 35.6% YoY to Eu98.5mn – 21% of quarterly sales – should also have witnessed sound 11.5% organic growth coupled to the contribution of newly acquired Fincon.

• EBITDA margin forecast flat QoQ but down YoY due to greater investments in start-ups and M&A dilution. Quarterly EBITDA should have come to Eu76.5mn, up 20.1% YoY, with a 16.4% margin on sales that should be in line QoQ but below the unusual 3Q21 levels due to the consolidation of new acquisitions (which have lower margins than the group, mainly Fincon in Germany) and the impact from increasing start-up activity, mainly in Italy, to develop know-how in selected innovative market niches. Italian activities should report margins broadly in line YoY (17.8% vs. 17.9%) as should the UK business (12.5% exp. from 12.3%), while the German business (expected at 14.0%) should have witnessed a normalisation of the extraordinary 20.2% margin recorded in 3Q21.

• Estimate upgrade ahead of quarterly results. In this report we not only factor the acquisition of Wemanity into our estimates (we assume consolidation from 1 October 2022), but also adjust 2022 organic assumptions slightly upward (from 12.4% to 14.0%). At the same time, our new group-wide estimates now assume a 16.7%/16.2% EBITDA margin in 2022/23 (down 13/33bp from our previous forecasts), representing a normalisation towards the 16% that the company indicates as a sustainable long-term target. The recent acquisitions, Fincon and Wemanity, are initially slightly margin dilutive, but we expect steady improvements in coming years. All in all, we are upgrading 2023 and 2024 EPS by 2.8%. It is worth noting that Reply, even after the Wemanity acquisition, has a net cash position well in excess of Eu200mn and management is seeking new targets in the US, France, Germany and UK.

• OUTPERFORM confirmed; target Eu135.0 from Eu143.0. 3Q22 results should show a continuation of Reply’s excellent business momentum. The recent announcement of new M&A deals supports 2023 outlook. The new target reflects a 100bp increase in our risk-free rate assumption (from 3.0% to 4.0%), partly offset by the change in estimates. We expect Reply to stand out in the current deteriorated macro scenario because it represents a high-quality name in the digital sector that should remain relatively well-protected from a downturn in GDP (Reply is engaged in business[1]critical innovative projects with a diversified customer base) and negative implications from inflation. The strong brand reputation among IT students and professionals represents a solid competitive advantage in an industry fighting to attract and retain talent.