Buon pomeriggio, di seguito e in allegato inviamo il company research report relativo a ELEN a cura di Intermonte. Rimaniamo a disposizione per ulteriori informazioni. Un caro saluto, Lucrezia Pisani M. +39 347 6732 479
Continuation of Strong Demand Trends Fuels Better Guidance
* Continued strong sales growth and solid margins in 2Q, as expected: sales rose +16% YoY to €183mn (our estimate €182mn/+15%). Medical segment sales grew +21% to €96mn (vs. our €96mn/+20%), primarily driven by strong Surgical sales (+47%) and another great performance outside Europe (ROW +26%), but ongoing weakness in Japan. Industrial sales also grew +11%, with Italy & EU (+48%) offsetting Covid-hit China (ROW -8%). EBITDA was in line with our forecast at €27mn (+15%), a 14.9% margin (flat) as cost inflation and the normalisation of marketing activities drove fixed costs up, offsetting the better sales mix; higher growth in Medical activities drove a +0.9pp YoY gross margin gain. 2Q EBIT (€24mn/+1.9pp margin YoY) and 1H net income (€28mn/+9% YoY) were also in line with our forecast.
* Efforts to ensure steady component supply magnify seasonal 2Q cash burn: NFP shrank markedly in 2Q to a still-positive €44mn (vs. €86/116mn in 1Q22/FY21). ELN invested heavily in WC in 2Q (€-32mn total) to ensure continuity of production by stockpiling components (raw mat. inventories up €15mn) and ensuring priority in sourcing (€14mn impact in 1H of higher advances paid to suppliers and lower advances from clients, mainly in China). Tax (€7mn impact on WC in 1H), dividends (€17mn) and higher CapEx (€5mn net in 2Q) added to the cash burn, outweighing robust earnings. NFP does not include €21mn of liquid financial assets. WC should partly normalise as a % of sales in 2H (vs. the high 1H level), supporting 2H FCF.
* Sales guidance lifted amid as demand remains strong: ELN lifted its FY22 sales guidance, pointing to “over €660mn” i.e. >+15.5% growth (a c.+6% upgrade vs. previous guidance for “above +10%”). This was motivated by still-high backlogs (notwithstanding rising production) and a reiterated positive outlook on demand strength despite the macroeconomic environment and supply chain difficulties. The broad EBIT guidance was confirmed (up YoY), with the 2H22 margin seen just below 1H (12.7%). This reflects a continuation of Medical trends and still-lower activity in China, hindering ELN’s ability to fully tap into potential operating leverage. Any sign of a return to normal business conditions in China would increase the chances of a further guidance upgrade.
* Change in estimates: we are slightly lifting our FY22 sales forecast to €665mn in light of the strengthened positive outlook, while fine-tuning our EBIT margin to 12.1% (implying a 2H22 EBIT margin of 11.5% vs. 12.7% in 1H22, 11.4% in 2H21). We are lowering our NFP forecast to €95mn (from €124mn) reflecting higher CapEx and a partial recovery of the 1H cash burn in 2H22, amid some WC normalisation.
* OUTPERFORM; TP €15.7 (from €17.1) on higher risk-free rate: we remain positive as we appreciate the ongoing robust growth and re-affirmed positive outlook. The market has penalised the high 2Q cash burn (the stock fell -7.7% yesterday), ignoring i) the raised guidance, set to contribute further to earnings momentum as reflected in our new estimates, and ii) the expected (at least partial) WC reversal in 2H22. We are lowering our DCF-based TP to reflect a higher risk-free rate (+0.5pp). The stock trades at 18.0x/16.6x P/E ‘22/’23, a c.20% discount to 3Y average multiples following a c.40% de-rating since November 2021.
Continuation of Strong Demand Trends Fuels Better Guidance
* Continued strong sales growth and solid margins in 2Q, as expected: sales rose +16% YoY to €183mn (our estimate €182mn/+15%). Medical segment sales grew +21% to €96mn (vs. our €96mn/+20%), primarily driven by strong Surgical sales (+47%) and another great performance outside Europe (ROW +26%), but ongoing weakness in Japan. Industrial sales also grew +11%, with Italy & EU (+48%) offsetting Covid-hit China (ROW -8%). EBITDA was in line with our forecast at €27mn (+15%), a 14.9% margin (flat) as cost inflation and the normalisation of marketing activities drove fixed costs up, offsetting the better sales mix; higher growth in Medical activities drove a +0.9pp YoY gross margin gain. 2Q EBIT (€24mn/+1.9pp margin YoY) and 1H net income (€28mn/+9% YoY) were also in line with our forecast.
* Efforts to ensure steady component supply magnify seasonal 2Q cash burn: NFP shrank markedly in 2Q to a still-positive €44mn (vs. €86/116mn in 1Q22/FY21). ELN invested heavily in WC in 2Q (€-32mn total) to ensure continuity of production by stockpiling components (raw mat. inventories up €15mn) and ensuring priority in sourcing (€14mn impact in 1H of higher advances paid to suppliers and lower advances from clients, mainly in China). Tax (€7mn impact on WC in 1H), dividends (€17mn) and higher CapEx (€5mn net in 2Q) added to the cash burn, outweighing robust earnings. NFP does not include €21mn of liquid financial assets. WC should partly normalise as a % of sales in 2H (vs. the high 1H level), supporting 2H FCF.
* Sales guidance lifted amid as demand remains strong: ELN lifted its FY22 sales guidance, pointing to “over €660mn” i.e. >+15.5% growth (a c.+6% upgrade vs. previous guidance for “above +10%”). This was motivated by still-high backlogs (notwithstanding rising production) and a reiterated positive outlook on demand strength despite the macroeconomic environment and supply chain difficulties. The broad EBIT guidance was confirmed (up YoY), with the 2H22 margin seen just below 1H (12.7%). This reflects a continuation of Medical trends and still-lower activity in China, hindering ELN’s ability to fully tap into potential operating leverage. Any sign of a return to normal business conditions in China would increase the chances of a further guidance upgrade.
* Change in estimates: we are slightly lifting our FY22 sales forecast to €665mn in light of the strengthened positive outlook, while fine-tuning our EBIT margin to 12.1% (implying a 2H22 EBIT margin of 11.5% vs. 12.7% in 1H22, 11.4% in 2H21). We are lowering our NFP forecast to €95mn (from €124mn) reflecting higher CapEx and a partial recovery of the 1H cash burn in 2H22, amid some WC normalisation.
* OUTPERFORM; TP €15.7 (from €17.1) on higher risk-free rate: we remain positive as we appreciate the ongoing robust growth and re-affirmed positive outlook. The market has penalised the high 2Q cash burn (the stock fell -7.7% yesterday), ignoring i) the raised guidance, set to contribute further to earnings momentum as reflected in our new estimates, and ii) the expected (at least partial) WC reversal in 2H22. We are lowering our DCF-based TP to reflect a higher risk-free rate (+0.5pp). The stock trades at 18.0x/16.6x P/E ‘22/’23, a c.20% discount to 3Y average multiples following a c.40% de-rating since November 2021.
Intermonte-ELEN-Company-Research-Report-220914.pdf