Although the Q4 sales numbers came in ahead of the management’s guidance, likely driven by the consumables business, they missed our expectations. No doubt the equipment-led business is taking time to recover due to a slim order pipeline. Given the high-margin nature of the consumables business, the operating margin improved sequentially although it was down yoy possibly due to continued investment in digitalization. Given the current trend of COVID infections, the management expects a slow start to FY20/21.
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Impacted by the temporary closure of clinics and the deferral of elective procedures, CZM’s Q3 sales were down 30.2% – ophthalmic devices as well as microsurgery witnessed a decline of similar magnitude. Operational deleverage and continued investments into R&D pressurised the adjusted operating profit further (-84.4%). However, with the gradual resumption of elective procedures, a recovery is expected in Q4 with consumables likely to fare better than equipment. The launch of new product (video laryngoscope) also bodes well for the coming quarters.
Companies: Carl Zeiss Meditec AG
Revenue growth slipped into the red in Q2 as temporary closures of clinics and postponements of non-acute surgical treatments weighed on the Ophthalmic Devices segment. While the cash-cow Microsurgery segment managed to stay in the black, it couldn’t prevent significant erosion in the operating margin, which was further pressurised by higher R&D spend. Q3 has got off to a weak start, nevertheless, if the early encouraging signs seen in China are visible in the US and Europe, Q4 could see some improvement.
FY19/20 started on a positive note with double-digit sales growth for both Microsurgery and Ophthalmic Devices segments, backed by robust demand in the US and Asia-Pacific. Operating profit was also up in double-digits, though the benefits of the favourable product mix were partly offset by higher R&D investments. While FY19/20 EBIT margin guidance was reiterated, management has turned slightly cautious with its sales growth outlook. The outbreak of the corona virus also poses a temporary headwind, particularly on the high-margin consumables business.
Sales growth was at a record high in FY18/19 on the back of new product launches in the ophthalmic devices and microsurgery segments. While the EBIT margin also touched new highs, driven by operational leverage and favourable product mix, profitability was partly held back by higher investments in R&D/digitalisation. As the addressable market offers significant growth opportunities, management would pump substantial money into R&D, along with increased sales and marketing spend. Ergo, margin expansion could slow down in the mid-term.
Sales momentum accelerated significantly in Q3 led by broad-based growth across the ophthalmology segment, particularly in Asia. Growth in adjusted EBIT was even higher on the back of the increasing proportion of high margin recurring revenue in the total sales mix. Post the robust show ytd, FY18/19 sales and profitability guidance has been raised. Nonetheless, given the planned investments into R&D in the next year, we foresee limited margin expansion in FY19/20.
Despite the deceleration in revenue growth (+7.7%), the adjusted EBIT margin snowballed 25.5% in Q2, benefiting from an improvement in the product mix, a favourable currency environment and effective cost management. As the recently-launched products have the potential to put the business back on track, the revenue guidance has been reiterated. Given the robust development in earnings in H1, the FY18/19 EBIT guidance has been upgraded.
The year started well for CZM with revenue growing 9% (at CER) in Q1, led by robust growth momentum in Ophthalmology and Microsurgery. Geographically, APAC and EMEA reported double-digit growth, while the Americas traded in the red. While operating profit surged 23.1%, due to temporarily reduced R&D expenses, higher financial and tax expenses meant that the EPS was flat yoy. Given CZM’s robust product portfolio, the company remains on track to meet its revenue and profitability targets for FY18/19.
although sales in the Ophthalmic Devices segment missed expectations in Q4, the fourth consecutive quarter of double-digit growth in the Microsurgery division ensured that FY17/18 revenue targets were met. Moreover, robust operational leverage in Microsurgery and a favourable product mix in Ophthalmic Devices took the adjusted operating margin towards the higher end of the guidance range for FY17/18. Given the strong traction for newer products in both the businesses, we expect the positive growth trajectory to continue in FY18/19 as well.
CZM reported a robust acceleration in sales in Q3 17/18 with broad-based growth across regions and business segments – momentum was driven by the strong traction for recently-launched products. While Microsurgery recorded a third consecutive quarter of double-digit growth (led by the US), the Ophthalmic Devices segment also entered double-digit territory (fuelled by the US and Asia-Pacific). Along with margin expansion of 140bp during the quarter, CZM remains on track to meet its revenue and profitability targets for FY18.
With broad-based growth across all businesses and regions during the quarter, CZM reported a 9.6% upsurge in the top-line on an underlying basis. However, currency played spoilsport and lowered the revenue growth to 3.7%. Profitability was also under pressure, impacted by unfavourable product mix and increased investments into R&D. However, with a growing proportion of high margin recurring revenue in the total sales mix, we expect the margin to improve from here on.
Carl Zeiss Meditec (CZM) released a mixed set of Q1 17/18 results, in which sales came in above our estimates but profitability was a tad below expectations. Revenue at CER increased by 9.5% driven by strong growth momentum in the Microsurgery segment (+13.4%; accounts for c.27% of sales). Robust demand for recently-launched products bolstered growth during the quarter (neurosurgery platform KINEVO 900 and dental microscope EXTARO 300). The Ophthalmic Devices segment also performed well (+8.2%; accounts for c.73% of sales), benefiting from the launch of CLARUS 500 fundus imaging system in the diagnostics space and market share gains in the intraocular lenses business (premium offering ‘AT LARA’ received well by the markets).
Geographically, the Americas region was the principal growth contributor (+11.8%; accounts for c.32% of sales) aided by the robust performance in the US diagnostics space. The EMEA region surged 10.8% (accounts for c.31% of sales), benefiting from the uptick in demand in Germany, France and Spain. On a tough prior year comparable (+22.9%), the APAC region was up 6.6% (accounts for c.37% of sales) as the strong growth in China, South Korea and Australia was slightly offset by a subdued performance in Japan.
After taking into consideration currency headwinds of 4.2%, the reported revenue increased by 5.3% in Q1 17/18. The adjusted EBIT margin improved 10bp to reach 13.5% as the benefits of a favourable product mix were offset by higher R&D spend and adverse FX impacts. Management has reiterated its FY17/18 revenue and profitability guidance.
Carl Zeiss Meditec ‘CZM’ released its Q4 17 results which were above our estimates as well as market consensus. Revenue at CER surged 15.3% (c.4% above the street’s estimates) led by higher than expected sales in the lynchpin Ophthalmic Devices segment (+19.7%; accounts for c.74% of Q4 17 sales). Within the segment, momentum was driven by the refractive lasers and intraocular lenses/IOL businesses while the diagnostic division also performed well despite stiff competition. The Microsurgery segment grew 4.3% (accounts for c.26% of Q4 17 sales) with both the visualisation and intraoperative radiotherapy businesses contributing to the growth.
Geographically, the growth was broad-based, wherein the APAC region grew 16.6% (accounts for c.36% of Q4 17 sales) on the back of strong demand in China (particularly in the private sector), South-East Asia, Korea and India (Japan recorded low single-digit growth in FY17). The EMEA region surged 16.4% (accounts for c.32% of Q4 17 sales) with Germany, Italy and the Benelux region being the key contributors (Spain, the UK and the Middle East continued to face challenging market conditions). The Americas advanced 13.6% (accounts for c.32% of Q4 17 sales) led by strong growth in the refractive laser and diagnostics businesses in the US (the US accounts for c.80% of the Americas’ sales).
After taking into consideration currency headwinds of 3.1%, the reported revenue increased by 12.2% during the quarter. However, with increased investments in new product launches, the adjusted EBIT margin declined c.90bp yoy to reach 15.1%.
For FY17, the reported revenue came in at the upper end of the guidance range (€1,190m vs. target: €1,150-1,200m) with the adjusted operating margin advancing 10bp yoy to 14.8% (in line with guidance of 13-15%). In addition, higher financial income (mainly forex gains) and a lower tax rate (vs FY16) underpinned the c.30% growth in earnings (EPS €1.57 per share vs. €1.21 in FY16). Management has proposed a dividend of €0.55 per share for FY17 (pay-out ratio: c.36%).
For FY18, management anticipates revenue to grow at least in line with the industry (low to mid single-digit growth at CER). Moreover, the adjusted EBIT margin is expected to be in the 14-16% range in the mid-term (+100bp vs earlier guidance).
Carl Zeiss Meditec (CZM) reported a decent set of Q2 17 results, wherein organic revenue came in marginally below our estimates but profitability outperformed. Revenue at CER was up 8.7% (vs AV’s estimate: +10%; Q1 17: +5.4%) on the back of sustained growth in the ophthalmic devices segment (+10.9% vs AV’s estimate: +12.5%; accounts for c.73% of Q2 17 revenue). Within the segment, the growth was driven by the refractive laser and the cataract business (intraocular lenses ‘IOL’ and consumables). In the microsurgery segment, the growth momentum accelerated to +3.3% (vs AV’s estimate: +3%; accounts for c.27% of Q2 17 revenue) led by increased demand for new applications/upgrades in the neuro/ENT division.
Geographically, the APAC region was once again the primary growth contributor (+14.8%; accounts for c.39% of Q2 17 revenue) driven by the robust performance in China, India and South-East Asia. The Americas was up 4.7% (accounts for c.31% of Q2 17 revenue), benefiting from the positive development in the US (Latin America was flat yoy). During the quarter, the EMEA region returned to growth (+5.6% vs Q1 17: -6.6%; accounts for c.30% of Q2 17 revenue) on the back of good performance in Germany and the Benelux area.
Total revenue increased by 10.5% (vs AV’s estimate: +10.8%), reflecting a 1.8% currency tailwind. The biggest positive was the beat in the operating margin, benefiting from a favourable product mix (16.8% vs AV’s estimate: 15.2%). For FY17, management expects total revenue to be in the €1,150-1,200m range and the underlying operating margin to be within the mid-term target range of 13-15%.
Carl Zeiss Meditec ‘CZM’ released Q1 FY17 results ahead of our estimates as well as the market consensus. Revenue at CER increased by 5.4% (vs AV’s estimate: +4.8%), largely driven by positive growth momentum in the ophthalmic devices segment (+7.4% vs AV’s estimate: +6.2%; accounts for c.74% of Q1 17 revenue). Within the segment, robust development in the refractive laser business and market share gain in the surgical ophthalmology division were the key growth contributors. The momentum turned positive in the microsurgery segment (+0.2% vs AV’s estimate: +1%; FY16: -0.9%; accounts for c.26% of Q1 17 revenue) with modest growth in the Neuro/ENT division.
Geographically, the growth momentum accelerated sequentially in the APAC region (+22.9% vs Q4 16: +11.3%; accounts for c.38% of Q1 17 revenue), driven by robust performances in China, India and South Korea. After four quarters of negative growth, the Americas region entered into positive territory (+0.7%; accounts for c.32% of Q1 17 revenue) during the quarter, on the back of a good performance in North America. The dismal performance continued in the EMEA region (-6.6% vs Q4 16: -6.4%; accounts for c.30% of Q1 17 revenue) due to weak market trends in the UK, Southern Europe and the Middle East.
Total revenue increased by 6.6% (vs AV’s estimate: +3.3%), reflecting a +1.2% currency impact. The adjusted EBIT margin came in at 13.4% (+80bp yoy; AV’s estimate: +13.6%), on the back of a favourable product mix. Moreover, better than expected financial income (led by hedging gains) nudged the adjusted EPS to €0.29 per share (vs AV’s estimate: €0.28; reported EPS: €0.38 including a positive special effect from asset disposals).
In March 2017, CZM increased its authorised share capital by 10% (8,130,960 new shares were issued at a price of €38.94 per share), generating cash proceeds of €317m. As CZM’s parent ‘Carl Zeiss AG’ didn’t participate in the share issue, the company’s free float increased to 41% (vs 35% previously).
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Tekmar’s H1 results were well flagged in the 30th October update. Revenue was slightly lower YoY at £15.2m (H1’20: £17.1m), with EBITDA of £0.8m (H1’20: £2.0m), reflecting the impact of COVID-19. Whilst there continues to be some short term disruption, the COVID-19 backdrop is improving and we believe Tekmar is well placed to return to growth as its markets recover. The balance sheet is robust, with net cash of £0.7m, and demand is strong, with the enquiry book increasing by 21% YoY to £225m. Industry forecasts point to significant long term structural growth in Tekmar’s end markets and new CEO Ally MacDonald is conducting a strategic review focused on positioning the Group to capitalise on this. N+1 Singer has been appointed joint broker and we will initiate coverage in due course. We believe the historic EV/EBITDA rating of 7.7x is undemanding and see the current share price as an attractive entry point given the scale of the growth opportunity and strong recovery prospects.
Companies: Tekmar Group Plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
Trading to date in FY 2021 has been positive, with no sign of an adverse impact from the second national UK lockdown. Net new business across both divisions is described by management as encouraging and the new business pipeline remains very healthy. With volumes better than expected and margins improving DX is on track to perform materially better than market expectations and we have, consequently, upgraded FY 2021 EPS by 29% and FY 2022 by 15%, driven by stronger assumptions in DX Freight. We have also raised our FCF-based target price from 29p to 33p and reiterate our view that the group is in a strong position to rebuild profitability by winning new business and improving efficiency, productivity and margins.
Companies: DX (Group) Plc
Ince has announced excellent interim results with promising trends for the near and medium term which bode well for the Group's earnings and cash progression. First half revenue has grown 6% YoY, a strong result considering the impact of COVID during the period.
Companies: Ince Group plc (INCE:LON)Ince Group plc (W1G1:BER)
Management is delivering right on cue to its resumed guidance as per the 1 October trading update. H2 revenue recovery is back close to pre-pandemic levels and operating margins have returned to target 3% in quick time – and are sustainable at that level too. Having upheld dividends through this challenging period and actually extended the order book (up 17% YoY and also c3% higher than last reported), TClarke is firmly re-establishing a growth trend on arguably more solid foundations. The share price is 10% higher since the last trading update but in our view remains significantly undervalued against a prospective FY21E EV/EBITDA ratio of 3x, a PE of c6x, yield 4.6% and double-digit FCF yield.
Companies: TClarke plc
Checkit has emerged from a period of corporate activity as a pure-play business focused on driving the adoption of its connected SaaS software, in particular its workflow management application. Checkit’s software is designed to enable smarter operations management, exploiting Internet of Things technology to connect people, processes and assets. With a proven ability to sign up blue-chip customers across a number of target verticals, growth in recurring revenues and an expanding customer base should help to close the valuation discount to software peers.
Companies: ECKTF CKT EKC
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
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The Group's cash generation and profitability remained robust in H1/21A despite the onset of COVID-19. This enabled the Group to pay down a further £8.2m of term loan principal, resulting in net debt declining 44.6% to £34.9m. In light of improving visibility in industrial electricity demand we release prudent FY21E and FY22E forecasts. We believe OPG is undervalued, trading at a c50% discount to its peer Group. We move our recommendation from Under Review to Buy.
Companies: OPG Power Ventures Plc
SThree has released a brief update ahead of the scheduled Q4 trading update expected on 12th December. The key headline is that an improving trading backdrop over the last few months has driven a better than expected profit performance. Market consensus was clearly too light with the company now guiding for an FY’20 outcome above the top end of the range of expectations. We have updated our forecasts accordingly and now look for FY’20 PBT and EPS of £28.1m / 13.3p respectively – a PBT upgrade of +53% on our previous estimate. Although the company has not formally reinstated full guidance, we are taking this opportunity to publish our estimates for FY’21. SThree has shown good resilience through this pandemic. The combination of STEM industry specialism and the inherently higher short term visibility of the contract focus has afforded SThree management a greater degree of flexibility when it came to aligning the necessary cost actions with the strategic ambitions of building market share in the key, global STEM markets. Costs and headcount have been cut, but they have been targeted and selective. The net result has been an increasingly positive tone in trading commentary, culminating in yesterday’s explicit upgrade. Has this been fully priced in by the market? To an extent yes, with the shares now standing +57% above the May 2020 lows and outperforming the peer group year to date. However, despite this outperformance (share price and operational) SThree still stands at a material valuation discount to its peers. We continue to find the extent of this valuation gap hard to justify.
Companies: SThree plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
H1F21 revenue was £107m, down 14.8% y/y (H1F20: £125.6m) and down 11.9% sequentially (H2F20: £121.5m). Q2F21 revenue was up 5.3% y/y, indicating a trend to recovery in the post-lockdown period across both, Ireland and the UK. The strength of LTHM's business model is supported by the diversity of its customer base and the expanse of its product offering, allowing it to withstand fluctuations in demand across market sectors. We believe LTHM stock is a relatively low risk investment given the strong cash position (131.6p/share), no debt and a stable yield. The stock trades at 8x EBITDA, compared to its peer average of ~11.1x, on what are more compelling metrics.
Companies: James Latham Plc
We highlight this morning’s profit warnings from IQE (no coverage) and Nanoco (no coverage) as further support of: (1) our Year Ahead 2019 thesis to avoid hardware exposure as the most likely source of downgrades, and gain exposure to high-visibility recurring revenues and stronger balance sheets; and (2) the apparent end of the smartphone supercycle. We reiterate our Buy ratings on CloudCall* (CALL LN, PT 270p), Vianet (VNET LN, PT 142p) and Kape (KAPE LN, PT 120p) as our preferred names to exploit our key themes for 2019.
Companies: CALL VNET KAPE
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
Today's news & views, plus announcements from AV, BVIC, PZC, RQIH, PMI, MUL, AEXG, INCE
Companies: AEX RQIH INCE