da Intermonte – SESA company research report

Buon pomeriggio,

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

Rimaniamo a disposizione per ulteriori informazioni.

Un caro saluto,

Chiara Cattaneo

M: +39 344 2756238

Stock Overreaction, Group Positioning Remains Healthy

• 4Q24 EBITDA margin in line YoY but a bit lower than expected. On 20 June, Sesa announced revenues for the full-year to 30 April 2024 of Eu3.21bn, up 10.4% YoY. Looking at 4Q (1 February – 30 April 2024), revenues were Eu814.3mn, up 11.4% YoY. In 4Q, all the business lines reported positive growth: VAD, at Eu582.9mn, was up 9.5% YoY, SSI, at Eu213.5.mn, +6.3% YoY, and Business Services, at Eu30.8mn, +23.6% YoY. Quarterly group EBITDA came in at Eu59.2mn, up 10.7% YoY thanks to a stable margin but 8.6% lower than expected, mainly because of a lower profitability of the SSI segment. Below this line, D&A were below our forecast, while financial expenses (almost doubling YoY) and the tax rate were both higher, taking quarterly adjusted net profit to Eu22.2mn, 4.7% below our estimate and 13.6% lower YoY. Notably, at the end of April 2024, the net financial position was positive to the tune of Eu2.7mn (after a Eu-48.1mn impact from IFRS16 and Eu-160.2mn from the future M&A earn-out and put options), better than expected. The group will pay a Eu1.00 dividend per share, corresponding to a 20% payout ratio.
• Management guidance for FY24/25: revenues are seen up +5%/10% YoY and EBITDA up +5%/12.5% (+8.75%, in the mid-range vs. a previous indication of +12.5%). Management preferred to adopt a slightly more prudent stance in light of a comparison that remains tough on the VAD segment, of slightly tougher market conditions, and assuming a purely inertial contribution from M&A. Adjusted net profit is expected to grow between 2.5% and 7.5%, still impacted by significant financial charges. Factoring has become more expensive but management has confirmed the usual prudent approach on securitized receivables, mainly in the VAD business. Cash flow generation should remain healthy.
• Change in estimates. We have adjusted our estimates to management guidance, trimming our revenue forecast by 1.3% (now pointing to 5.9% YoY growth) and our EBITDA forecast by 6.2% (now pointing to 8.1% YoY growth, close to the mid-range of guidance). Below EBIT, we are increasing financial charges (expected at Eu35.1mn, in line with FY23/24), yielding EPS growth of 7.3%, consistent with management guidance. The expected improvements in financial charges, starting from 2H, are driving an acceleration of EPS growth starting from next year. All in all, compared to our previous forecast, we are reducing our EPS assumptions by 10.9%.
• BUY; target Eu152 from Eu175. In our view, the stock market overreacted to softer guidance on profitability. We expect that, starting from 2H, the group will regain a strong earning momentum, also enhanced by a normalization in financial charges. In recent years, the business has been evolving from the traditional VAD segment into more added-value activities (SSI and Business Services) that are expected to support profitability growth in the years to come. The group enjoys a strong market positioning thanks to a clear focus on technology, with revenues that are well diversified across a large customer base. Our valuation has been updated to take into account the new estimates and the recurring impact of factoring.