Q4 22: strong FY23 ahead, uncertain FY24

CNH’s Q4 22 results beat estimates on the back of strong pricing, which (again) offset cost inflation. The company issued a shining guidance for 2023 with sales growing 6-10% mainly driven by pricing, while FCF generation is targeted slightly below FY22’s impressive level. However, management’s prudent comments on 2024 during the conference call confirms the industry is approaching the peak of the cycle, certainly capping the upside risk on CNH’s shares.

Good Q1 22 figures despite a weak cash generation, lively payroll negotiations

CNHI released inflation-proof Q1 22 results. Demand remains strong, with uncertainty relying on the development of the shortage of semiconductors. Confirmation of the FY22 target did not come as a big surprise, as FCF expectations call for a sizeable positive reversal on the inventory front. In our view, the ongoing workers strikes in the US are likely to end up with pay rises but the most interesting will be to watch the way the company manages the social crisis.

CNH’s harvest of cash to prolong into FY22

CNH released strong Q4 21 results, beating street expectations. A good delivery of semis in December helped to finish and deliver a larger number of units than anticipated. This resulted in a significantly better FCF generation than guided earlier. Prospects for FY22 are well oriented with further growth fuelled by a favourable market environment on top a remarkable price mix. The next catalyst is the “new” CNH CMD, which is likely to be focused on how to build better profitability with more tec

Impressive Q3 21 again; IVECO Group’s spin-off is well on track

The Q3 21 results were once again above expectations with impressive price realisation particularly in AG. This offset the impact of cost inflation during the quarter, but Q4 is likely to be less favourable. The backlog continued to increase with high demand across-the-board in the US and Europe, arguing for a prolonged up-cycle period. IVECO Group should be listed on 3 January 2022 and take with it a quarter of the FS business.

Q1 consensus topped; order book suggests a buoyant year ahead

Q1 21 results came in well above expectations thanks to a vigorous demand in all segments and regions. The favourable price realisation and capacity optimisation more than offset the headwinds in input costs and should keep doing so for the remainder of the year. In all, with a filled order book, CNH is more confident for FY21 and, thus, upgraded its top-line and FCF guidance.

FY21 at least at FY19's level

FY20 was saved by agriculture equipment, down by only 0.3%. The sharp rebound in demand, coupled with continued COVID-19 cost mitigations in H2 20, allowed for solid cash generation and paved the way for a consistent deleveraging. Confidence dominates for 2021, while the “On-Highway” segment’s spin-off should come by 2022.

Agriculture equipment set to continue outperforming in the short term

CHNI’s Q3 20 sales (+3% yoy) and net income (+95.2% yoy) came in above expectations. This recovery (9M 20 sales: -14% yoy vs. H1 20: -21.4% yoy) was driven by its two largest segments (agriculture: +10.9% yoy, and commercial and speciality vehicles: +1.7% yoy, in Q3 20). In line with the current market conditions, CNHI incurred higher risk costs. Lastly, the company expects its industrial activities’ sales to contract between 10% yoy and 15% yoy, with a positive FCF.

Agriculture leading the path, a long path, to recovery

CNHI released results which stated shrinking H1 20 revenue (-21.4% yoy), negatively impacted by its commercial and speciality vehicles segment (-26.6% yoy). This contraction translated into net income of €-1.3bn (vs. €654m in H1 19) and FCF of €-1.3bn (vs. €-541m in H1 19). For the outlook, the company expects FY20 revenue for its Industrial activities to reach €20.9-22.2bn, while keeping a negative FCF (despite its expectations of cash generating FCF in H2 20).

Commercial and Speciality vehicles derailing Q2 sales

CNH Industrial’s Q1 net sales declined by 15.3% yoy. Furthermore, the industrial activities fell by 16.8% yoy (to $4.99bn), significantly impacted by the March slowdown. As with most companies, management has not yet provided a renewed guidance for FY20, however, the company is bracing for a worse Q2 in most regions and segments. For the moment (and in line with the company’s current expectations for Q2), we see Q2 20 sales shrinking by about 30% yoy.

Turmoil at the helm

CEO Hubertus Mühlhäuser has resigned with immediate effect and CFO Max Chiara is leaving as well. It seems Mühlhäuser’s disappearance has come as a surprise, whereas Chiara will take up a new position outside CNHI.

2019 profits just short of our expectations

CNHI released some IFRS numbers, but not detailed accounts. While revenue was bang in-line with our projections, net earnings fell slightly short whereas the EBIT number was marginally higher. As the company reports in US dollars, the strength of this currency took its toll. It intends to pay an unchanged dividend of €0.18. Management sees revenue slightly down or flat at best in 2020 and ‘adjusted diluted’ EPS to range between $0.78 to $0.86 compared to $0.84 generated in 2019.

CNHI intends to buy back part of three outstanding bonds

The company including its Financial Services division is highly indebted. At the end of September 2019, consolidated net debt stood at $20bn, $4bn of this was the net debt of the manufacturing segments.

Revenue and profits almost in line, cash from operations very poor indeed

We have argued for quite a while that CNHI needs to pay attention to cash generation or it will need a sizeable share issue. In fact, cash from operations (based on management’s definition) was a negative $708m in 9M19 compared to a positive $164m last year. As a result, net debt increased by $1.5bn to more than $20bn since the beginning of this year.

CNHI acquires US ATI Inc.

Michelin acquired the Canadian rubber track producer Camso for an EV of US$1.7bn which represented about 1.7x revenue. Today, CNHI announces the acquisition of a US producer of rubber track systems. Unfortunately, no revenue number or purchase price are available.

CNHI to be split into two separately listed entities

Management has released its 2020-24 business plan which not only refers to splitting up the company but also to investing a huge amount into R&D. Revenue is expected to increase by 5% annually and the EBIT margin to reach 8% by 2022 and 10% by 2024 (we see it just below 7% through to 2021).

Hybridan Small Cap Feast - 21 Feb 23

21 February 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objec

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Hybridan Small Cap Feast - 21 Mar 23

21 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv