Reassuring guidance includes the impact related to Russia/CIS risk

Adidas announced a reassuring outlook including the impact related to the Russia/CIS risk despite the consensus-missing Q4 21 performance. The challenging trading environment in Greater China, the lingering COVID-19-related restrictions and industry-wide supply-chain disruptions have weighed on the group’s year-end performance. However, the group is confident that the strong full-price sales, the progressively eased supply-chain disruptions and the gradually normalised trading environment in C

China will continue to be the driver

Adidas upgraded its FY21 guidance (again) on the back of the strong accelerations in Europe and North America in Q2 21. On the back of good top-line momentum, the ongoing supply chain challenges and normalised marketing spending will put pressure on the margin progression. The sales contraction of 16% in Greater China was worse than weexpected, however, the trading environment has started to improve, and the group continues to expect strong growth in the country for FY21.

Adidas still expects strong growth in China for FY21

Adidas slightly upgraded its guidance for FY21 after a better-than-expected first quarter. The group has experienced healthy growth across all markets despite the prolonged lockdowns in some markets, highlighting the strong 156% sales growth in Greater China. The strong growth in China and the group’s very encouraging guidance for Q2 21 have confirmed our view on the “boycott on Xinjiang cotton matter”. We believe that smaller, easily replaceable brands will be affected more than well-position

Cautious about the resurgence of Coronavirus

The group has published better-than-expected figures for Q3 20. The encouraging improvement in Russia/CIS, Europe, and North America has been slightly offset by the sales contraction in the franchise in China. The relatively less exposure to North America and the footwear business make the group still lag behind its industry peer. The updated conditional outlook for FY 20 was broadly in line with current consensus and below our estimates, showing an uncertain year-end trading environment.

Reassuring Q2 figures, remain cautious for FY20

The group has reported better-than-expected sales and gross margin in Q2 20. The higher exposure to Asia, notably to China, and accelerated growth in e-commerce has not only limited the top-line contraction but also led the group to give an encouraging expectation for Q3 20. However, the piling up of inventory has weighed on the margin, which may result in heavy price-discounting in the after-season, thus putting pressure on the margin for the rest of the year.

Currency-adjusted 2020 revenue growth of 6% expected ...

… but this excludes the COVID-19 impact. This virus has reduced Chinese revenue by 80% from 25 January to the end of February and management expects this to have a €0.4-0.5bn negative impact on EBIT in APAC/Greater China in Q1. Up to now, the company does not see any (severe) sourcing problems, but this might eventually impact revenue in other parts of the world.

Profits fell in Q3 19

The last time the company‘s quarterly EBIT number fell was in 2014. Ever since, Adidas has achieved phenomenal profit growth. This has clearly not been the case in the most recent quarter.

Operating earnings were slightly disappointing

The group’s Q3 and H1 bottom lines benefited from gains from discontinued operations (€70m and €72m, respectively) and from much-lower-than-expected tax rates, down by 3.2pp to 25.6% and by 2.7pp to 25.5%. Consequently, net earnings were higher than anticipated. The outlook is somewhat uncertain and depends on potentially more US import duties for Chinese goods.

Revenue growth moderated in Q1, but profit margin increased strongly

After 16% in 2017 and 8% in 2018, currency adjusted revenue growth moderated to 4% in Q1 19. Sales of the Adidas brand were up by 5% but Reebok sales fell by 6%. Nevertheless, the profit margin improvement was stronger than expected.

Good 2018 numbers, but we had expected slightly more

Adidas increased its turnover by 3.3% to €21.9bn (+8% currency-adjusted) while EBIT was up by 14% to €2.37bn and net earnings by 55% to €1.70bn. These numbers are very much in line with consensus expectations while our profit projections were slightly higher. Management proposes a dividend of €3.35 compared to our projected €3.30 vs. the previous year’s €2.60.

2018 outlook raised but new guidance is short of our projections

The group’s turnover increased by 3.2% to €16.7bn through to September and, as the gross margin continued improving, EBIT was up by 16% to €2.24bn and net earnings by 40% to €1.59bn. We had expected the following respective numbers: €16.6bn, €2.21bn, and €1.51bn, i.e. the company delivered slightly more.

Adidas prolongs its sponsoring contract with DFB

The current contract expired in 2022 and the two have now extended it to 2026. According to media speculations, Adidas is willing to continue to pay €50m annually to the German Football Association, an amount that is similar to what it pays to the French Association. According to these sources, Nike is paying €40m to the English, €35m to the Spanish, and €34m to the Brazilian Association. DFB has come under pressure after the disastrous performance of the German team at the Russian World Champi

Superb H1 18 numbers

The group’s revenue numbers (+4.4% to €5.26bn in Q2 and +3.1% to €10.8bn in H1) fell short of our expectations, but all profit numbers were higher. H1 EBIT was up by 17% to €1.34bn and net income from continuing operations by 19% to €960m. Management continues expecting full-year revenue to increase by some 10% before FX changes and the gross margin to improve by 0.3pp to 50.7%. The latter is, in our opinion, too cautious as the margin was up by 2.2pp in the last quarter and by 1.8pp in H1.

Lower than expected revenue but much higher profits

At a glance, the 8pp gap between currency-adjusted revenue growth of 10% and the reported growth rate of 2% looks like a threat. However, Adidas and its peers are sourcing almost all of their products in Asia and purchase prices are typically denominated in US dollars. As a large share of their revenue is generated in countries with strong currencies (e.g. Western Europe, almost 30%), the gross margin has increased considerably.

Good 2017 numbers plus share buy-back announced

Adidas delivered good 2017 numbers all the way down to pre-tax earnings and it announced a share buy-back programme going all the way through to May 2021. Net earnings were negatively impacted by the US income tax reform and a higher than expected loss from the disposal of TaylorMade and CCM Hockey. Consequently, management’s dividend proposal of €2.60 is lower than our anticipated €2.75.

Shoe Zone plc (SHOE LN) - Interim results

H1 trading in line with expectations and ZC forecasts: Group revenue of £76.5m is +1.5% YOY (H1 23: £75.4m), which we see as a strong performance in the context of ongoing consumer uncertainty; reflective of the appeal of the Group’s competitively priced product range. Gross margin of 19.3% is +120bps YOY (H1 23: 18.1%), driven by a higher product margin of 62.7%, +260bps YOY (H1 23: 60.1%) benefitting from lower container prices, partly offset by increased wage costs, and higher energy prices.

Spectra Systems - Banknote Conference 2024 – significant interest in SPSY polymer

Last week's global Banknote Conference 2024, taking place in Forth Worth, Texas, was a near-perfect sales opportunity for Spectra (SPSY) given (1) an exceptionally strong new product to offer in the banknote arena, (2) an expanded and highly experienced sales team post the recent Cartor acquisition and (3) patent appetite among the Central Bank client base for a new polymer substrate supplier in this market. Spectra, a leader in machine-readable high-speed banknote authentication and brand prote

PROGRESSIVE: Watkin Jones: Guidance unchanged as investment rekindles

Watkin Jones has maintained its FY24E guidance following today’s results for the six months to 31 March, which showed operating profit more than doubling. The group continues to expect a heavy H2 weighting as it has focused on operational performance while the forward-funding market has remained largely on hold, pending further clarity on the direction of interest rates. Sentiment is now gradually improving, according to the group.

LIBERUM: CT Automotive: Return to strength underpinned by efficiencies

Surface Transforms (SCE): Open Offer

Surface Transforms (SCE) has announced the raising of £6.5m new equity and is launching an Open Offer to shareholders. It is raising capacity and quarterly revenue but has needed to address the two sets of production constraints it faced: scrappage and process-line pinch points. Pinch points have been much reduced through capital expenditure and expert maintenance teams. Major capital expenditure is ongoing and unaffected by the fund raise. The scrappage from the fast ramping up of volumes is re

Hybridan Small Cap Feast - 21 May 24

21st May 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced, or it is a rumour Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: ITF announced: 7th May: Time To ACT plc, an engineering business focused on technology for the energy transition sector, has announced its intention to seek Admission to t

Dowlais Group - Motoring forward

Dowlais Group’s first set of results were ahead of our expectations, with positive cash generation a highlight despite restructuring and demerger costs. Softer automotive markets will limit margin progress in FY24 towards the double-digit target. Despite this, margins of c 6.5% are still ahead of automotive peers, although the shares trade at a significant discount to our implied generic peer-based valuation.

Spectra Systems - Sustained growth, enhanced momentum

Spectra Systems (SPSY) has an excellent record in growing profits through its highly regarded technology and relationships with key clients, which include a prominent global central bank. Now, the company is ready for the next stage, and we see the acquisition of Cartor Security Printers as a game-changer in enhancing its ability to continue, and potentially accelerate, this momentum, even as it continues to benefit from a near-term, multi-million-dollar sensor refresh programme with a long-term

Spectra Systems (SPSY) - Solid FY results, cash on the balance sheet and a record FY24E beckons

Encouraging FY23 results from SPSY this morning show profits and cash a touch ahead of expectation and position the company well for a year of strong growth in FY24E. SPSY leads the market in machine-readable high speed banknote authentication, brand protection technologies and gaming security software. The company grew the business robustly in FY23 (PBTA +6%, EPS pared by increased tax payments, progressive DPS), building on a decade of double digit CAGR; and closed the year with the transfor

PROGRESSIVE: IG Design Group: FY24 results well ahead of expectations – on course to hit operating margin target for FY25E

IG Design Group’s trading update for the year ended 31 March 2024 has exceeded market expectations in terms of both profitability and, most significantly, cash generation. The FY24 results confirm the progress the group has made on its strategic journey to simplify the business and improve operational efficiency. Notwithstanding ongoing uncertainty on the economic backdrop and consumer expenditure, the group remains confident of delivering its target of returning to its pre-Covid adjusted operat

STCB: 1Q Review: Building for the Future; Reiterate Buy, Price Target

We are reiterating our Buy rating and price target for Starco Brands, but lowering our 2024 and 2025 projections to primarily reflect higher marketing costs to support multiple newly announced door expansions for each of the company's key brands beginning in 2Q24 and concentrated in 4Q24. We believe Starco's offerings are poised to take highly material leaps, with major expansions at over 10,00 doors in 2024, which we believe will position the company for material, multi-year top line growth and

Dowlais Group - Firmly on track despite the UAW strike headwinds

Dowlais Group’s positive trading update, with growth ahead of the market and continued margin expansion, provides another marker in delivering on the stated strategy. Management intends to drive profitable growth through the EV transition and expand the underlying operating margin to 11% (FY22: 6.6%). Delivery on these targets will highlight the quality of the operations and valuation discrepancy.

Allenby Capital TMT Update - 13.05.24 - MIRI.L, MBT.L, PPS.L, CSFS.L, LST.L, DNM.L

Please find below our weekly update covering themes that we feel that are of interest to investors and participants in the small and mid-cap TMT sector as well as commentary on recent newsflow.

PROGRESSIVE: Sanderson Design Group: Strategic growth drivers show their value in challenging trading conditions

Sanderson Design Group (SDG) has announced its FY24 full-year results, which are in line with the headline figures from its February trading update. A record year for Licensing and a strong performance in the key North America market helped to offset a challenging consumer environment in other geographies, most notably the UK. While this backdrop is set to persist in FY25E, the group will continue to focus on its strategic growth drivers, notably North America and Licensing, to deliver sharehold

FY24E margin, profit and cash beat, FY25E on track