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.

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Un caro saluto,

Ludovica Bertola

M: +39 347 1667538

Good Results Net of Digital Green, Easier Comps Arriving

• 1Q revenues/EBITDA up 0.8%/1.5% YoY, as expected, impacted by normalisation of Digital Green business. Management has already clearly stated that the YoY comparison in 1Q was very tough for the Digital Green business, which has slowed notably since November 2023 due to the end of incentives. In details, Digital Green revenues and EBITDA were down 49% and 59% YoY (mainly due to lower prices). Net of this effect, VAS business revenues and EBITDA grew 0.5% and 7.3%, despite tough market conditions. Positively, the SSI and Business Services divisions, i.e. Group value-added areas of business, reported solid double-digit growth (+16.5% and +26.8%, respectively, 70% organically). SSI, in particular, performed better than expected in terms of revenues, but margins were lower: according to management this was due to front-end loaded investments, an effect that will be reabsorbed in the coming quarters. Business Services margins were very strong. Below EBITDA, pre-tax profit closed at Eu30.3mn, 18% better than expected thanks to lower net financial charges that came in at Eu7.8mn, higher than in 1Q23/24 (when they came to Eu7.3mn) but significantly lower than in 4Q23/24 (Eu11.0mn). At the end of July 2024, the net financial position was negative to the tune of Eu25.0mn (or positive for Eu184.1mn before considering the Eu43.9mn impact from IFRS16, and Eu165.2mn from the future M&A earn-out and put options), Eu5mn better than expected, thanks to good control on Net Working Capital.
• Management confirmed FY24/25 guidance: management confirmed the FY guidance provided in July that points to revenues up +5%/10% YoY and EBITDA up +5%/12.5%. Adjusted net profit is expected to grow between 2.5% and 7.5%, still undermined by significant financial charges. Digital Green is expected to report revenues of Eu180mn, down 26.5% YoY, therefore after a 49% fall in 1Q, the contribution for the remainder of the year is expected to fall just 14% YoY. Net financial charges are also facing an easier comp going forward, even though factoring costs are likely to remain quite high.
• Estimates confirmed. We are confirming our estimates (assuming FY revenues up 5.9% and EBITDA up 8.1% YoY), which are consistent with management guidance. We expect top line growth to improve in 2Q and then accelerate as of 2H. The very strong performances recorded in 1Q by SSI and Business Services segments are a positive indicator.
• BUY; target Eu152 unchanged. We expect that, as of 2H, the group will regain strong earnings momentum, enhanced by a normalisation in financial charges that already showed an encouraging trend in 1Q. In recent years, the business has been evolving from the traditional VAS segment into more added-value activities (SSI and Business Services) which are expected to support profitability growth in the years to come. M&A activity should remain a positive contributor and recently-announced deals (3 this week alone) are providing supportive newsflow. We consider the current valuation to be particularly attractive and confirm our positive view.