Thanks to the High Voltage business (especially Subsea HV), revenue contraction (brought by Building & Territories and Industry & Solutions) is limited. Furthermore, the company can count on a solid liquidity position of €1bn (not including the potential €280m loan guaranteed by the French State).
- The top-line in H1 19 confirms the positive trend seen in Q1
- Margins are on the rise, with the first benefits of cost-cutting
- The transformation plan is deployed, successfully so far
- FY19 net income will be negative, owing to the one-off costs due to the plan
- Net debt up, but almost only on IFRS16 (no cash outflow)
- FY19 revenues came in line, despite a weak High Voltage & Projects
- In particular, Low Voltage for the building sector and Telecom/Data were both up
- Q1 19 also benefited from a low comparison basis
- All in all, no major change to our numbers/valuation even if the latter remains low. In short, more needed (i.e. the first results) on the implementation of the plan announced last November.
Nexans reported FY18 results in line with the company’s last guidance.
Sales reached €4.41bn in 2018, corresponding to a -0.8% organic change.
EBITDA reached €325m, in line with November’s lowered guidance (and versus €411m in 2017).
Attributable net profit of €14m versus €125m in 2017, taking into account €53m of restructuring costs.
Net debt reached €330m, flat versus last year.
Proposed dividend is €0.3 per share.
Nexans reported Q3 revenues and again adjusted lower its FY18 guidance.
Nexans reported Q3 revenues of €1,613m (versus €1,544m in Q3 17), corresponding to +1.9% organic growth.
Excluding the High Voltage & Projects segment (-16% yoy), the organic growth figure for cable sales was +6.1%.
Due to persistently high commodity prices, Nexans expects the FY18 operating income to reach around €185m, corresponding to an EBITDA of around €325m (versus €350m initially forecasted)).
The company announced a new transformation plan and targets an EBITDA of €500m by 2021.
Nexans reported its H1 18 results, which came as no surprise after the warning issued on 18 June. The company’s margin posted a yoy decline amid project phasing issues in HV projects and cost pressure in the LAN Telecom business. However, this looks like a phase in the transition which will not necessary put the mid-term targets in question. The company has a new CEO, adding some visibility.
Nexans reported a weak start to the year, including a 4.6% organic sales decline driven by HV Cables. The decline was also due to the IFRS implementation and the context of a challenging comparison basis. H2 18 should be better for HV Submarine and the order books point toward a gradual improvement. We consider a lack of visibility should prevail in the following months, due to management change, while the 2018 guidance (according to the strategic plan) now looks more challenging.
Nexans reported solid FY17 and H2 17 figures, boosted by strong Project Activities including the High Voltage business. The margin improvement (50bp) reflected a more disciplined approch on cost actions coupled with a strong contribution from growth activities (HV cables and telecoms). The transformation is well on track and well illustrated by the ROCE which reached 12.5% in 2017, compared with a 5.8% in 2014. The company’s mid-term prospects look attractive, and the potential for further margin improvement is significant.
During its Capital Markets Day, Nexans reported ambitious 2022 targets that imply EBITDA margins will grow twice as much as the pace of revenue growth, confirming the expansion margin story. At the same time, the mid-term plan looks rather on the offensive side, as the company aims to acquire €1.5-2bn in revenue coupled with organic capex. We also appreciate the ROCE target of a minimum 15% which should boost value creation.
Organic sales growth was 6.7% in Q3 17, led by submarine high-voltage operations coupled with stable sales for non-project-related business (up 0.6% year on year).
High-voltage operations posted a sharp increase, with overall sales climbing 40% yoy on an organic basis (35% for the first nine months of 2017) and sales of submarine cables surging 63% (46% for the first nine months).
Sales for non-project-related business – which contracted by 3% in H1 17 – stabilised in Q3, edging up 0.6%. This was mainly due to the combined impact of growth in Europe and the MERA region (where sales rose 4.1% and 27.1% respectively) and ongoing weakness in North and South America (which posted sales declines of 7.4% and 19.2% respectively).
The downward sales trend for the Oil & Gas sector’s activities slowed during the period, with the decrease coming in at 7.3% compared with 25.8% for the first 9M 2017, while the sales of telecom infrastructure cables increased 7.2% on an organic basis, following on from a strong 12.5% rise in H1.
The group continues to put its recovery plan into action and will present is new strategic plan for 2018-22 on 13 December.
Nexans reported a solid H1 17
Organic sales growth of 2.4% driven by a strong increase in submarine high-voltage operations (c. 40%) and despite the sharp decline in the Oil & Gas sector activities.
•Operating margin of €140m, slightly above H1 16 (€135m) but up 36% on the second half of 2016 (€107m).
• Net income reached €92m versus €29m in H1 16 and the net debt was €423m (versus €373m at 30 June 2016).
The CEO is confident for 2017: “our current order books and business volumes augur well for a higher second-half performance than for the same period in 2016”.
Nexans reported Q117 revenue of €1137m at constant metal prices, representing +1.2% organic growth and +5.5% sequentially.
Sales generated by submarine projects were up by 32% yoy following production start-ups for 2 major projects (Nordlink and Beatrice) while, at the other end, revenue from industrial cables to the O&G sector were down by 38.7%. Telecom infrastructure cable revenue jumped by 22% while LAN decreased by 11.8% due to an unfavourable comparison basis. In the other cables business, excluding Automotive, 2017 revenue got off to a slow start in line with the trends seen in H216.
The company confirmed that it expects the Group’s operating margin to continue to improve in 2017.
Nexans reported a strong increase in the 2016 FY results
- Sales for 2016 came to €4,431m at constant metal prices, representing a 1.2% organic decrease compared with 2015.
- EBIT totalled €242m, up €47m from the €195m recorded in 2015.
- Operating margin for 2016 represented 5.5% of sales at constant metal prices versus 4.2% in 2015.
- Back to profit with €61m in net income for the year versus a €194m net loss in 2015.
- Proposed dividend of €0.5 per share.
Nexans reported its Q3 16 sales figures:
Q3 16 revenues reached €1,071m at constant metal prices, representing an organic decrease of 3.3% yoy. For the first 9M16, revenues were down 0.9% on an organic basis.
After a good start to the year, general demand in Europe showed signs of weakening for both cables for the building sector and cables for energy operators.
The slowdown observed in Europe during Q3 16 leads to an expectation of rather flat organic sales in 2016.
The company remains focused on implementing the strategic initiatives currently under way, and is confident it will significantly improve the operating margin for both 2016 and 2017.
In a call with the company, we received an overview of both the short-and long-term issues which comforted us in our investment case and positive recommendation.
The short-term catalyst (12-18 months) definitely and unsurprisingly relies on the strategic plan aimed at deleveraging the company, and restoring margins and ROCE by the end of 2017e. The plan has already begun to bear fruit as seen in H1 16, while 50% remains yet to be accomplished. However, the strong execution so far confers visibility on the targets in our view. The second leg looks mainly cyclical, as the company’s business relies highly on cyclical businesses such as construction, energy and automotive, essentially in Europe. The improvement in these markets is however mainly macro-driven and subject to volatility.
The third leg, probably the main and more structural catalyst, relies on growth potential coupled with margin expansion based on the most value-added businesses, especially HV submarine transmission used for interconnections, with strong traction coming from renewables, a trend which looks sustainable in the long run and that will help to achieve the transformation towards a more growth-oriented story.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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The announcement that Avon Rubber is to sell milkrite | InterPuls, its dairy division, to DeLaval Holding for £180m gross proceeds is strategically logical and financially compelling. The fit of dairy and defence has always looked slightly anomalous and the terms of the deal show that the opportunity to augment dairy through value-accretive deals is difficult given the scale of the business and opportunities. Management must now recycle the cash balances that will be created into Avon Protection, where there are a greater number of potential investments.
Companies: Avon Rubber
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Brick and concrete products manufacturer Forterra has raised c. £55m gross in an equity placing in order to maintain its strong balance sheet and support the Group's continued investment programme. It was accompanied by, in our view, a reassuring trading statement which we believe is backed by yesterday’s brick industry data and comments from housebuilders, which suggest that demand has been recovering from its lockdown lows, before the PM’s promises to “build, build, build” housing and infrastructure.
Resilient Trading Update
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Revenue for FY 2020 is ahead of expectation and we adjust our forecast accordingly. Sales are growing at an impressive rate; >50% pa despite COVID-19 and the virus had no effect on the company’s ability to deliver projects with 23 new customers live in Q4. We note COVID concerns are causing some delay on contract decisions, and sales would have been even stronger but for that. These delays do lead to caution on FY 2021, and we ease back our forecasts on more prudent management guidance. However, with the recent £5m equity placing, PCIP has plenty of cash to continue to invest in rolling out its exciting secure payments proposition. This cloud-based solution can be deployed remotely and assists call centres in moving agents to WFH and still collect payments securely. The outlook remains very bright with continued rapid growth expected.
Companies: PCI Pal
As flagged in the April trading update, Solid State’s FY20 results showed a 19.7% growth in revenues and 34.3% jump in adjusted profit before tax. Demand from the medical and food retail sectors is strong but weakness in the oil & gas and commercial aviation sectors related to the coronavirus pandemic is likely to result in lower year-on-year sales during Q2 and early Q321. While management sees potential for a Q4 recovery, the current range of FY21 profit outcomes is wide, so it is not providing guidance.
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The Norcros operating companies largely performed relatively well in challenging market conditions (in both the UK and South Africa) in FY20 though year end trading was affected by COVID-19 lockdowns, as flagged previously. The group’s financial position appears robust following management actions (including foregoing an FY20 final dividend) and well-placed to both contend with weaker near-term markets and the pursuit of market share gains from a position of relative competitive strength. Our estimates remain suspended at this time.
Full year results ahead - robust position against uncertain near-term backdrop
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has released full year results with PBT and EPS slightly better than our upwardly revised forecasts had assumed and reflecting a strong margin performance in the year. As previously flagged, cash generation was particularly strong. The group entered FY 2021E with a strong order book, which is reported to have stood at £37.9m as at 31 May 2020, an increase of some 5.6% from a year earlier. With little in the way of cancellations or deferrals of orders, Q1 2021E revenue has held up well, whilst order intake has been just under 15% lower than the prior year, which suggests a weaker revenue performance in Q2/Q3 but with the tender pipeline implying a potentially stronger Q4. Reflecting the present uncertainty, we leave our forecasts under review for the time being. Fundamentally, and backed by a strong balance sheet, we believe that Solid remains well positioned to come through the current crisis and will emerge as one of the winners when normal service resumes.
discoverIE reported FY20 results ahead of our forecasts for underlying operating profit and EPS. Looking through short-term COVID-19-related disruption, the company has set new strategic targets for the next five years. These are a continuation of the strategy to grow the Design & Manufacturing business organically and via acquisition and include the target to increase the group operating margin from 8.5% (pro forma) to 12.5%. We maintain our normalised operating profit and EPS forecasts.
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Smart Metering Systems (SMS) has announced that it has emerged from the recent Covid-19 uncertainty in a strong financial position and taken the decision to return funds received from the Government under the Coronavirus Jobs Retention Scheme. Current net cash of £48m (not including furlough grant) is ahead of previous expectations and underlying profitability for the year to 31 December 2020 is expected to be in line with expectations prior to lockdown, despite the obvious interruptions to meter installation activity that it has caused. During lockdown essential emergency field engineering work continued and SMS completed the sale of a proportion of its meter asset portfolio for a gross cash consideration of £291m (£282m net). In March 2020, SMS announced that it would rebase its dividend to 25p (prospective yield 4.3%), index linked to FY24 and commencing payments in October 2020, quarterly thereafter. A phased resumption to meter installation activity commenced on 1 June 2020.
Companies: Smart Metering Systems
Successful K3 Capital placing to raise £30.45m (gross) at 150p to fund the £9.3m acquisition of Randd UK Ltd, an R&D tax credit specialist with an LTM EBITDA of c.£2.0m, with a margin of c.50% and revenues typically contracted for 5 tax years with many recurring thereafter, followed by future potential deals in SME exposed markets. K3 has established itself as an innovative company that is able to effectively gather, generate and mine large quantities of data in order to scale up M&A services to SMEs. Transferring these lead generation capabilities to adjacent SME markets can allow rapid growth from proven models, at scale.
Companies: K3 Capital Group
The Smart Zones customer base is expected to reopen, to a large extent, this weekend. The reopening of pubs will bring forward a revised billing profile and markedly improve the Smart Zones revenue base. Smart Machines continues to operate profitably and the group's Business Interruption Loan should buttress the balance sheet through this year. While our forecasts remain withdrawn we can see an encouraging pathway to normalised trading next year.
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Salt Lake Potash has received commitments to raise A$15m through the placement of unsecured zero-coupon Convertible Notes to Equatorial Resources (ASX:EQX) and institutional investors. The Convertible Notes have been structured as deferred equity with zero coupon and mandatory conversion into equity at the lower of 45c/share or a 5% discount to any future equity raising of at least A$10m. These funds will enable Salt Lake Potash to continue to develop Lake Way to the project schedule through July as they finalise debt financing. Plant practical completion and first SOP sales remain on schedule for the March 2021 quarter. The debt financing process in its final stages and with an agreement expected to be executed within weeks.
Companies: Salt Lake Potash