Is the peak of the cycle already in the rearview mirror?

CNH has slashed its FY23 revenue and FCF guidance on sliding volumes in its Agriculture segment in LATAM. This raises concerns that the negative trend could spread to regions other than LATAM, which is acting as a harbinger of the cycle downturn. CNH has initiated a commendable cost-cutting programme to counter these volume headwinds. However, we believe that investors will focus on the scale of the risk to demand through to 2024, when the cycle downturn is still in its early stages. We will cut

Attention focused on the cycle turnaround

CNH’s Q2 23 results were again supported by a strong price-mix. Breaking this down, the price effect reduced as inflation slowed but the robust product mix compensated the overall impact on the margin. The operating margin climbed to record levels, helped by the cost efficiency programs that started to pay-off. However, investors do not seem to care that much about the latter and are instead focused on the approaching turnaround in the Ag cycle.

CNH’s high horsepower Q1 results

CNH’s Q1 23 results were all about strong pricing accompanied by a surprising guidance upgrade and/but… investors’ increasing prudence on the approaching agricultural cycle turnaround. The management is comfortable with the precision Ag development set-up built in the recent quarters implying a slowdown in external growth. “Normalization” was the key word on the conference call, prompting uncertainties as to what is the new normal? And whether the downward trend will stop at so-called normal lev

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.

Renold - Strong end to FY24: EPS up 11%. Robust FY25: EPS up 27.6%

The FY24 year-end update is very upbeat signalling trading being materially ahead of expectations, with a better-than-expected profit out turn and stronger cash generation. It continues to strengthen margins through efficiencies and investment in modern equipment. The order book remains close to record levels providing a robust view of future forecasts. In FY24E we upgrade EPS by 11% and in FY25E a significant upgrade of 27.6%. It looks capable of declaring a dividend in FY25 as well as manageme

Morning Note – 16 April 2024

Billington Holdings - Record result boosts dividend; forecasts upgraded

FY23 results show very strong growth over FY22, driven by strong Structural Steel activity, with results slightly ahead of upgraded profit expectations, while stronger than expected cash flow resulted in an unexpectedly generous dividend of 33p (offering a FY23 yield of 7.0%). The group now has net cash of £22.1m and is debt free and is therefore in a strong position for potential M&A activity. Following the recent £90m of new orders to increase the order book to record levels we conservatively

Plant Health Care - China distribution with AMVAC

Plant Health Care announced it has signed a distribution agreement with AMVAC, an American Vanguard Company, to support commercialisation of novel fertiliser products incorporating Plant Health Care's Harpinαβ in China starting in 2024. The novel product combines Harpinαβ technology with an AMVAC fertiliser and is expected to help growers improve crop quality and yield as part of an integrated and environmentally responsible crop production programme. AMVAC continues to evaluate Plant Health Car

Morning Note – 15 April 2024

Warns on brine supply costs

SP Angel . Morning View . Copper prices hold higher as China processing fees fall below $0/t amid low feedstock availability

PROGRESSIVE: Severfield: Targeted acquisition strategy aids growth path

Acquisitions have been an important element of Severfield management’s growth strategy, with the aim of adding new products, sectors and regions to what we have identified as exciting long-term organic opportunities. In this Spotlight report, we focus on the group’s targeted M&A approach, highlighting three significant deals.

Severfield - Multiple positives should excite investors

Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appear

Invinity Energy Systems - Update on Strategic Investment

Invinity’s update on discussions with strategic investors reveals interest from multiple parties. While this has slightly delayed finalising an agreement it increases the potential for a better outcome. Although details are unknown at this stage, we think there is enough in the statement to be comfortable that any agreements will be consistent with the company’s strategy of growing market share in core markets and using a licencing and royalty model in other markets.

LIBERUM: Severfield: Erratum: Better EPS and cashflow, and buyback

PROGRESSIVE: Severfield: Step change in European and Indian outlook

Severfield’s full-year results to March will be ‘slightly above’ the Board’s expectations, according to today’s trading update, with net debt significantly better. We maintain our PBT estimates for both forecast years, which are ahead of consensus, but reduce our net debt for FY24E. Record orders were boosted by the steel specialist’s European operations, after last year’s Voortman acquisition, while the Indian JV has seen ‘another step up in profitability’. The group has also launched its first

FY results: strong cash flow

Clean and competitive fertiliser

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no