EBITDA came in at €512m and operating profit at €207m, both below expectations. This is mainly due to the particularly low electricity prices in Q2 20, due to weather conditions – but the group was partly protected by its hedging strategy. This confirms that keeping its financial strength (with a minimum BBB rate) is the first short-term target. A FY20 guidance has still not been mentioned (due to the consolidation of Uniper and the COVID-19-related uncertainties).
Companies: Fortum Oyj
Comparable EBITDA was flat at €543m, and comparable operating profit was down by 4% to €393m. According to the group, COVID-19 had only a limited immediate impact on figures. The pay-out target of 50-80% is maintained, however, due to its M&A with Uniper, the group has not yet provided a full-year guidance, but it is pretty well hedged to the low electricity prices.
Adj. EBITDA increased by 17% to €552m, and adj. operating profit by 20% to €389m, both above the consensus and our expectations. This good operating result was mainly due to the Generation division (EBITDA was up 23% to €278m q-o-q), after favorable hydro conditions. The positive impact of the settlement of futures contracts helped to reduce the debt level. The dividend is €1.1, implying an attractive yield of c.5%. Positive view confirmed.
Satisfying Q3. Hydro conditions were back to average, thus generation was the main growth driver. On the other hand, City Solutions’ earnings were particularly disappointing, but hopefully had only a limited impact at the group level. The group escaped the drop in the Nordic electricity price thanks to its good hedging strategy, but the coming years look less positive. Moreover, the low current level of hydro reserves is not a good sign for Q4.
After weak Q1 figures, Fortum released a solid set of results for Q2, beating our estimates and the market’s expectations. Results increased in all divisions and higher achieved prices and good hydro and nuclear volumes were the two major growth contributors. Thanks to strong cash flow generation, the group was able to reduce its debt ratio and to reiterate its ambitions to strengthen its balance sheet.
Fortum released a weak set of Q1 results. The poor hydro production (-25% to 4.8TWh yoy) due to low reservoir levels at the beginning of the year almost entirely offset the positive effect of the higher achieved price during the quarter. Consequently, Generation’s EBITDA (half of the group’s EBITDA), remained broadly flat and, therefore, the group’s EBITDA as well, missing the consensus.
Fortum released a good set of Q4 results, marked by the positive impact from higher power prices in the Nordics, although partly offset by currency headwinds in Russia and continued low inflows and low reservoir levels in the Hydro generation business.
Fortum released a rather weak set of Q3 results, marked by the lower production of the group’s hydro-power plants following the dry weather, which was only partly offset by higher achieved prices.
Fortum released a mixed set of Q2 results, marked by the consolidation of Hafslund and the strong performance of the Generation division, which was helped by higher achieved power prices, although partly offset by weaker results in the City Solutions and Russian divisions due to unfavourable weather effects, weaker waste activities and currency headwinds in Russia.
Fortum released a robust set of Q1 results, driven by the consolidation of Hafslund’s retail business as well as stronger Generation on a higher achieved power price (+€1) and hydro volumes while the weather was favourable with cold and dry weather supporting power prices. The group expects to close the Uniper deal by mid-2018.
• Higher than average water levels support Q4 results
• Improvements in electricity and CO2 prices also positives
• Uniper transaction should conclude the capital redeployment process
The Q3 results showed improvements as expected with adjusted EBITDA reaching €210m (+39%) and operating profit reaching (+62%). In addition, the group profited from a sales gain from the Hafslund restructuring transaction with the City of Oslo, which improved reported profits to €387m and a reported EPS of €0.40/share. Adjusted for this, EPS in Q3 17 reached €0.04/share.
Along the same lines, operating cash flows in the third quarter improved by 83% to €185m as the group has benefited from the improvement in electricity prices and higher hydro volumes. Russia continues on its upward trend due to higher CSA payments which is also a positive.
Fortum continues with the process for the purchase of E.On’s Uniper stake at €22/share, as it has received the approval from US competition authorities and has submitted the offer documents to the German Financial authority (BaFin).
The group has reported an EBITDA that has increased by 13% to €642m, but this is short of expectations as earnings in the second quarter were weak. As a result, net income was negative for the second quarter at €-70m due to higher income taxes paid. This has pushed the first half net profit to far below expectations to €271m (€0.30/share). Adjusted EPS is below forecasts at €0.33/share.
The group maintains its outlook that demand will grow 0.5% on average for the Nordic region. The group has hedged 45% at €30MWh for 2017 and 45% at €28/MWh for 2018. This is a positive as it has increased its hedging price by €1/MWh, which improves profitability.
Fortum has published a good start of the year with Q1 results confirming the expected recovery as revenues increased by 24.5% to reach €1,232m. Following the same path, adjusted EBITDA increased by 18.5% and operating profit by 13.8%. However, a lower minority interest and higher taxes pushed net profit to a 2.7% increase and an EPS of €0.38/share.
Operating cash flows on the other hand decreased by 24.8%, mainly due to €58m foreign exchange losses in hedging contracts to Russian and Swedish subsidiaries (compared to a €128m gain in the last quarter).
The operating profit target in Russia of RUB18.2bn, which was expected to be reached in 2017-18, has already been reached in the last 12 months, which is a positive as this is ahead of expectations.
The company maintains its guidance of 0.5% growth in demand. Production has been hedged 55% at €29/MWh for 2017 and 45% at €27/MWh for 2018.
The group has published its FY results with revenues better than expected, reaching €3.63bn with a 5% yoy increase. The improvement mainly came from City Solutions and the performance in Russia. However, on the earnings side, the generation business bites as the divisional performance pushes the group’s results below expectations with an EBITDA decrease greater than expected at -7.9% yoy. Despite a lower effective tax rate (20%) and lower financial expenses (EPS was also behind consensus, reaching €0.56 which is 11% below expectations.
Cash flow from operating activities was highly impacted as it decreased by 50.5% yoy to €607m, driven by lower earnings, higher taxes paid, lower FX gains, and a €131m increase in working capital. Due to this and the many acquisitions, net debt decreased more than expected as it had already burnt up its excess cash position.
Despite the results, the dividend proposed is above expectations at €1.1/share.
Concerning the outlook, the group still expects 0.5% growth in electricity demand and an operating profit in Russia of RUB18.2bn should be reached over the 2017-18 period.
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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
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
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
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
We release prudent FY20E and FY21E forecasts as Xpediator continues to gain momentum and operations revert to pre-COVID levels. The Group has made strategic progress year to date. It has implemented a strict cost reduction programme which should drive annualised cost saving of over £0.5m, restructured and strengthened its management team and further integrated acquisitions. Additionally, it is in the process of consolidating its site portfolio, driving further costs out of the business. We believe the market continues to undervalue Xpediator's geographically diverse revenue base, flexible low fixed cost operating model and positive financial outlook. Accordingly, we move our recommendation from Under Review to Buy.
Companies: Xpediator Plc
Directa Plus has announced that in the October collaboration agreement with NexTech Batteries, it has achieved above 400 Wh/kg (watt-hours per kilogram, the usual measure of energy density) in a practical system. NexTech produced several full-scale pouch format cell prototypes using its proprietary cathode and electrolyte materials (with Directa plus graphene) producing 410Wh/kg of specific energy at a weight only slightly below 30g. For comparison, standard Lithium-Ion batteries have an energy density of 100-265 Wh/kg.
Companies: Directa Plus Plc
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.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
The group has released a positive trading update, signalling a strong H2 and performance ahead of expectations. The new guidance points to a 6.7% upgrade to revenues and a 10.5% upgrade to EBITDA. Cash generation has been notably strong, at about $26m, which will drive an increase in supplemental dividends with a dividend yield of 7.1%. We raise our TP from 255p to 285p, based on a target P/E of 14x, giving decent upside to the current 11.6x.
Companies: Somero Enterprises, Inc.
Xpediator has delivered a healthy trading update, breaking several revenue records during H2 2020. Furthermore, the outlook for FY21 remains promising, reflecting recovery to more normal levels in Transport Services, a full-year impact of the Nidd acquisition, the turnaround of underperforming businesses, and new ventures. The £6m PBT forecast for FY20 highlights an improving margin, albeit this represents a shortfall from FY18. In our opinion management actions, plus recovering markets, can take the Group to peak margins over the next 18-24 months: delivering a marked increase in profitability.
Brick and concrete products group Forterra has raised its guidance for FY 2020E to above the current consensus range and reinstated dividends following trading in Autumn which exceeded its previous expectations and which has continued strongly despite the second lockdown. We have increased our FY 2020E revenue, EBITDA and EPS estimates by 3%, 14% and 46% respectively, and cut our net debt projection. We have introduced FY 2021E estimates showing further strong expected growth.
Companies: Forterra 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
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.
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
Seeing Machines has announced its FY20 results which show a steady underlying improvement in financial performance with the company surpassing our expectations set in May despite a highly challenging operating environment for the transportation sector. Looking forward, whilst the ongoing pandemic is continuing to affect the business, and we have tweaks to our divisional expectations to account for this, visibility into the path to profitability is increasing and the funding of this has been significantly de-risked by the recent US$20m placement to Federated Hermes Inc. With the risk reducing and the macro environment improving and considerable upside left in our numbers from Aftermarket, Aviation and further technology license deals, we reiterate our Buy and increase our DCF valuation to 8.6p.
Companies: Seeing Machines Limited
Macfarlane has released a strong trading update for the 4 months to October 31 2020 highlighting second half revenue and PBT to date being ahead of 2019 and the expectation that 2020 PBT will be broadly in line with 2019, a strong recovery from the uncertain position at the interim results. Separately, the Group has announced that CFO John Love will be stepping down from his role and the Board to be replaced by Ivor Gray, current Group Financial Controller and Company Secretary. We expect this to be a seamless transition given Ivor's experience in the Group and represents very well managed succession planning by the Board. Reiterate buy rating.
Companies: Macfarlane Group PLC (MACF:LON)Macfarlane Group PLC (5K6:FRA)