The group’s results continue to suffer from low oil prices
The pandemic has not helped and the group is under pressure
The issue of its refinancing is getting more worrying by the day
We are still very sceptical about the group’s communication
Q1 20 revenues were in line but the outlook is quite uncertain with the combination of the pandemic and very low oil prices (the former accelerating the latter). Cash is needed to avoid breaching covenants given the negative free cash flow we expect for the full year, which explains why the group intends to proceed with the €800m capital increase as soon as market conditions allow. We expect the share price to remain volatile.
FY19 showed a degree of improvement but from a low FY18 basis
A massive capital increase (€800m planned in Q2) as we long expected (contrary to management, as usual caught by surprise)
The market development, seen as positive in EAMEA, could be more favourable in FY20
It remains that management’s credibility is hurt once again
The retirement of Mr Crouzet could, hopefully, give room for more transparency/ less self-satisfaction (we may be a bit optimistic here).
Q3 19 was slightly under consensus but no drama
North America (shale) and Brazil have slowed down, with EAMEA improving.
The recovery is underway, but quite slow.
The group refuses to indicate the (huge positive) impact of iron-ore sales on results. Iron-ore outout to raise to c.8Mt by 2022 (vs 6Mt today).
We will slightly reduce forecasts and target price.
We still do not like the (leaving) CEO’s communication.
- H1 19 showed an undeniable improvement in profitability
- Net debt has been contained so far, making a capital increase less likely
- The balance sheet still remains stretched and any market set-back would reinitiate speculations on yet a new issue
- We will revise our valuation upwards, but do not underestimate the positive impact of iron-ore on the group’s numbers, which management refuses to detail (!)
- Q1 19 results were decent on the P&L front
- Volumes, prices and savings have helped
- However, cash consumption thus net debt still a worry
- Management reaffirmed no issue to take place in FY19
- We are less confident and any market downturn would leave no other choice
- In short: not bad but still some way to go
- Q4 shows a rebound in volumes (particularly in EAMEA).
- EBITDA substantially better in Q4, as expected and even better.
- FCF positive in Q4 (first time since… 2015).
- Outlook quite confident (to be slightly mitigated by our view on top management).
- Management reasserts they can live without a share issue in FY19.
- No big change to our numbers. We will reconsider after Q1/H1 if we sill believe in a capital increase.
There is no real fact to trigger this Latest, other than the very sharp correction of the share price in the past few days and our thoughts on a potential capital increase.
Revenues reached €961m (-0.3% yoy and +5% at CER), EBITDA €43m (vs €9m), EBIT €-29m (vs €-88m) and net income €-92m (vs €-119m). Net debt at the end of Q3 18 reached €2,097m vs €1,934m in H1 €1,783m in Q1 and €1,542m at year-end 2017. Over 9 months, revenues were up 4.7% to €2,805m, EBITDA up from €-9m to €61m and operating profit up from €-277m to €-234m. The group had targeted a positive outlook for H2 with EBITDA higher than in H1, and now indicates Q4 EBITDA should be above that of Q3 (€43m). Demand should be softer in the US (after inventory build-up anticipating section 232) and stable in Brazil, while activities should benefit from higher volumes and prices elsewhere.
Despite the recovery in the US and the “transformation plan”, forex and higher input costs make the H1 18 P&L very similar to last year’s. Although demand is well oriented in North America and should improve in EAMEA, investors are required to be patient before margins become healthy again.
Vallourec released Q1 18 results. Revenues reached €862m (+10.1% and +22.1% at CER, EBITDA €-5m (vs €-21m), EBIT €-130m (vs €-111m) and net income €-170m (vs €-126m). Net debt at the end of Q1 18 reached €1,783m vs €1,542m at year-end 2017 (or +€241m). The group confirms its “positive outlook for the year with EBITDA in the second half of 2018 targeted to be significantly higher than in the first half”. Altogether, the group indicates EBITDA in the current year should improve over FY17’s.
FY17 inline and rather weak still. The outlook is not detailed and still uninspiring, with Vallourec’s exposure to the US “quite small”. The 2020 targets definitely look out of reach. We will most likely cut our forecasts and target.
Vallourec’s Q3 17 results: sales reached €964m (+39.1%, +29% comparable), EBITDA €9m (vs €-52m), EBIT €-88m vs €-143m and net income €-119m (vs €-160m). Net debt at the end of Q3 stood at €1,645m (vs €1,287m a year ago, €1,533m in Q1 17 and €1,613m in H1), with free cash flow in Q3 reaching €-72m. Over 9 months, sales reached €2,680m (+26%, +11.1% comparable), EBITDA €-9m (vs €-156m), EBIT €-277m vs € -561m and net income €-396m (vs €-612m) and free cash flow of €-397m.
In H1, the group had upgraded its guidance for FY17, targeting a €125-175m improvement in EBITDA (vs €50-100m previously). This would have implied an EBITDA of c. €-95m/€-45m for FY17. After Q3, the group re-upgraded its target for FY17, now targeting an EBITDA of €-30m/€-10m.
Vallourec’s H1 17 results: sales reached €1,716m (+19.7%), EBITDA €-18m (vs €-104m), EBIT €-189m (vs €-418m) and net income €-254m (vs €-415m). Net debt at the end of H1 stood at €1,613m (vs €1,287m a year ago and €1,533m in Q1 17), and free cash flow in H1 reaching €-325m. The group upgraded its guidance for FY17, now targeting a €125-175m improvement in EBITDA (vs €50-100m previously). This would imply an EBITDA of c. €-95m/€-45m for FY17.
Revenues in Q1 17 reached €783m (+16.7% and -1.5% comparable at CER, EBITDA €-21m (vs €-72m), EBIT €-111m (vs €-290m) and net income €-126m (vs €-284m). Net debt at the end of Q1 17 reached €1,533m vs €1,287m at year-end 2016. The group indicated that the improvement in EBITDA for FY17 should be “in the upper part” of a €50-100m range, thus suggesting an EBITDA level of c. €-120m.
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Strix has announced the strategic acquisition of LAICA a family owned business in Vicenza, Italy for €19.6m in a mixture of cash and shares. It will be earnings accretive in FY21 and is scheduled to complete by the end of FY20, with just Italian government approval outstanding. ZC operating profit estimates are unchanged in FY20 but increase by c. 8% in FY21 to reflect the contribution from the deal, the impact on earnings is smaller due to the issue of shares and higher tax in Italy. Management believe significant synergies, both cost and revenue, will be derived from the deal over the next 2-5 years. The interim results had been well flagged in the comprehensive trading update in late July and today’s statement confirms that profitability remains in line with the guidance of achieving a flat performance yoy in FY20. The interim dividend of 2.6p is in line with last year and in keeping with the commitment to at least meet the 7.7p paid in FY19. Unlike most peers, Strix has maintained guidance as well as its commitment to pay a dividend and today’s acquisition unpins the continuing strategy of diversifying the business into areas offering greater growth.
Companies: Strix Group Plc
Augean has reported interims to 30 June 2020. With the first half bearing the full impact of Covid-19, adjusted PBT decreased by 11% to £8.5m, which is in line with our expectation. With radioactive wastes, biomass for EfW and construction impacted by lockdown and depressed activity levels in its North Sea services, due to the low oil price, the results demonstrate the resilience of the Group and also the benefit of its key position in its markets with strategically located hazardous waste treatment and disposal facilities in the UK. Whilst the statement highlights that full year results are expected to be broadly in-line with market expectations, we have conservatively reduced forecasts. Nevertheless, with strong cash generation and sustained growth EV/EBITDA falls to 5.3x and 4.1x for FY21E and FY22E, a level that is substantially below sector constituents and transaction valuations.
Companies: Augean Plc
Strix has published reassuring interims and announced the acquisition of LAICA, conditional upon approval from the Council of Ministers in Italy. Against a backdrop of global disruption caused by COVID 19, Strix’s H1 performance is in line with expectations. Net sales down 21% YoY, with a much smaller impact on net profits on the back of strong cost management. Encouragingly, FY 20 profit expectations are now underpinned, at around £28.9m PAT. Taking into account the LAICA deal, we provisionally upgrade FY 21 PAT/EPS by 6%. The shares are already up materially YTD, but the Strix growth story remains compelling.
Judges Scientific is focused on acquiring and developing companies in the scientific instrument sector. Given the backdrop of H1, and the global nature of Judges' customer base, we see this morning's results as a significant achievement when set against the backdrop of significant COVID related headwinds. Revenue decreased by 6.8% (organic -12%) to £37.4m (H1-19: £40.2m) which, after the sensible management of the cost base, yielded an adjusted pre-tax profit of £6.4m (H1-19 £8.4m), a 22% reduction, and adjusted fully diluted EPS of 82.5p (H1-19: 107.0p). However, reflecting a commitment to its progressive dividend policy, and confidence in the business, the interim DPS is increased by 10% to 16.5p. With respect to H2, COVID related business risks remain, none of which are unique to Judges. However, given the relative strength of H1 (albeit at some expense to the order book), management flag ‘cautious confidence' in achieving full year market expectations. As such, our FY 2020E adjusted PBT and EPS estimates are unchanged this morning.
Companies: Judges Scientific Plc
Byotrol’s FY 2020 full-year results are inconsequential, given the dramatic and positive impact that the COVID-19 pandemic has had to product sales since the year-end. However, year-end cash was £0.1m above forecast at £1.7m and when combined with positive cashflow since year-end, Byotrol is well-resourced to finance its ongoing operations and steady growth. With the order-book remaining strong (c.£1.1m at 31 August), despite summer lull, and demand likely to persist for some time, given the emerging second wave of coronavirus, we upgrade EBITDA to reflect lower costs and higher licensing income. If, as we suspect, the demand curve has shifted sustainably to the right, this leaves room for further upgrades. Consequently, we raise our target price to 11p, at which level the stock would trade on EV/Sales and EV/EBITDA of 4.1x and 26.9x, respectively. Future revenues and milestones from licensing deals will be largely additive.
Companies: Byotrol Plc
Billington is a leading structural steel and construction safety solutions specialist. The Group has this morning announced that its structural steel division, Billington Structures, has been awarded three contracts with a combined value of £21 million, the largest of which is for a UK power based project (Midlands) that will add significant visibility (at good margin) to FY 2021E. The other two contracts, in the manufacturing and commercial office sectors, are for delivery in Q4 2020 and through 2021 respectively.
Companies: Billington Holdings Plc
Directa Plus is a commercially proven graphene supplier with a unique production process that creates high quality materials that are already used in a wide array of products internationally across multiple verticals. We expect the company to reach EBITDA positive in FY22 with existing cash reserves, leaving material upside in our expectations from some of its recently developed products such as the Co-Mask and Gipave.
We see Directa Plus as an underappreciated, undervalued and more mature and lower risk play in the UK listed graphene and speciality nanomaterials space and initiate with a Buy recommendation and 122p target price.
Companies: Directa Plus Plc
Today’s AGM Statement highlights further progress during H1. As anticipated at the final results on 6th August, trading has now returned to pre-COVID levels, with a particularly strong recovery in housing market activity. As at 31st August, the order book has increased by 5% to £69.4m from £66.2m at 31st, with contracts secured across the Group’s end markets. The Company has invested in its sales team and back office functions in order to support the recovery, though management continues to monitor costs given the near term uncertainty presented by COVID-19. In the absence of more restrictive lockdown measures, we would expect activity to continue to improve in the near term and the medium term prospects of the Group remain encouraging, supported by the UK’s net-zero target, which will require substantial investment in the UK’s utility networks. Fulcrum has also announced the appointment of Jennifer Cutler as CFO from 19th October, whose most recent role was Direct of Finance at Harworth Group Plc. The shares have justifiably outperformed since the full year results and today’s statement is supportive of this increase. Forecast guidance continues to be withdrawn given near term COVID uncertainties, but we anticipate reintroducing forecasts at the interim results.
Companies: Fulcrum Utility Services Ltd.
We initiate coverage on AFC Energy and see this as a significant long-term growth opportunity. We have only focused on the UK potential in EV Charging and Distributed Power in this note but believe the application will be far wider both in geography and application. Following a transformational 2019, we can see a clear near-term intrinsic value of 68p based on UK EV Charging and Distributed Power alone.
Companies: AFC Energy Plc
Billington provides structural steel and safety solutions to the construction industry. After record results in FY 2019, Billington's interim results to June 2020 reflect the anticipated disruption of Covid-19. However, the Group remained profitable in the period (revenue £32.8m, adjusted PBT £0.6m) and the balance sheet retained its significant cash backed strength. Further, although pricing pressure is still a significant feature in the market, as the announcement of £21m of orders yesterday demonstrated, there is still plenty of business to be won in less competitive segments. Our FY 2020E estimates remain suspended, but all other things being equal, it is not beyond the bounds of possibility that Billington could deliver a similar performance in H2 as reported in H1. The present order book is supportive of such a scenario. The outturn for FY 2021E is harder to determine, but there again, Billington is exposed to a number of verticals where investment continues and where competition is less pronounced. With its strong balance sheet likely a significant comfort to clients, the medium-term prospects for Billington, in our view, continue to be strong.
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE
SIMEC Atlantis has materially de-risked the Uskmouth conversion project with a framework agreement to fund 100% of phase 1 with a secured loan. Together with the recently announced investment in the fuel supply company, SIMEC Atlantis is now well placed to move towards financial close on the Uskmouth project in line with our expected timetable. We have updated our forecasts for the new investment and the recent results. Our central case valuation now reflects these and an assumed 100% debt financing for Uskmouth and rises to 68p from 55p.
Companies: SIMEC Atlantis Energy Ltd.
Spectra Systems, a leading provider of advanced technology solutions for banknote and product authentication markets, has announced a solid set of interim results. Moreover, significant H2 visibility, notably from central banking customers, yields upgrades to our FY 2020 and FY 2021 estimates with adjusted PTP increasing 17% and 16% to $5.8m and $6.1m respectively. In terms of H1 numbers, revenues increased marginally to $6.5m (H1-19: $6.4m), and adjusted pre-tax profit came in flat at $2.3m. The balance sheet retains its robust state which, even after the $4.1m FY 2019 dividend, distributed June 2020, still holds $10.9m (H1-19: $11.1m) of net cash (excluding restricted cash of $1.3m, H1-19 $1.1m). Our Sum-of-the-Parts valuation indicates a risked fair value more than 200p.
Companies: Spectra Systems Corp.
Who would have thought when reporting pre-tax losses of £10m after the first half to end June that Breedon would emerge so strongly from lockdown to trade through July-August (and into September) with LFL revenues ahead of comparative 2019 and expected H2 EBIT broadly in line with the equivalent 2019, resulting in a reinstatement of guidance ahead of current FY20 consensus. That is a mark of confidence as much in the group's operating capabilities as market recovery itself – a feature of Breedon's management quality over a consistent period of time. Investors will be impressed by the short-term recovery but also encouraged that the longer-term outlook remains positive with an emphasis to infrastructure markets in GB and Ireland plus, of course, its unrivalled ability to utilise its asset base very efficiently and to add to that platform with accretive acquisitions. The shares hit a COVID ‘low' of 63p but were trading as high as 100p in February. We would see that upper level as the more likely direction of travel for the shares with 90p justified by a forward 2022E rating of 7.5x EV/EBITDA, c14x PE, commencement of dividends and significant deleveraging through high net cash flow generation.
Companies: Breedon Group Plc
2G Energy’s product portfolio of CHP systems positions it to benefit from the transition from coal and nuclear-powered electricity generation to increasing use of wind and solar sources augmented by natural gas to balance supply and demand. In the longer term, 2G has proven technology to address the potential switch from natural gas to hydrogen. However, there still will be significant demand for 2G’s bio-gas and natural gas powered systems if adoption of hydrogen as an energy storage medium is delayed or derailed.
Companies: 2G Energy AG