Veolia has made an offer to acquire 29.9% of the Suez share held by Engie at €15.50/share, representing a substantial 50% premium. The two companies are similar concerning their activities and complementary in terms of their geographical footprint, and this transaction will almost double Veolia’s exposure to Asia. From Engie’s point of view, this would be a major step forward in its plan to refocus its activities on gas and the development of renewables.
Companies: SUEZ SA
Figures are broadly in line with expectations. EBITDA was slightly down due to the lower volumes of waste and water, on the back of the slowdown in industrial activity and tourism. In view of the first figures for March and April, the group estimates that the impact on EBIT should be in the order of €60m (or c.4%). Figures in China indicate an upturn in industrial activity.
Revenue increased by 3.6% in organic terms to €18bn and EBITDA by 3.9%, to €3.2bn, both slightly higher than our expectations. Growth was mainly supported by the Recycling and Recovery Europe division on the back of a positive price effect. The net debt/EBITDA ratio remains flat at 3.2x but was down to 3.0x at constant accounting standards. The proposed dividend is in line with expectations (€0.65). FY20 guidance is promising, the impact of 2019-nCoV is not substantial.
Following a smooth H1, Suez posted a solid set of results at the close of 9m19. The sustained strong top-line performance in Recycling & Recovery, the resilience of Water Europe and the continued delivery of revenue synergies in WTS led to a modest upgrade in the group’s revenue guidance, now targeting the upper end of the 2-3% organic growth range, and set a solid starting point for the execution of the new strategic plan.
The long-awaited autumn revelation of Suez’s strategic plan has addressed many of the concerns raised by shareholders, with a focus on profitability (EPS being the word of the day) and smarter growth focused on international markets, servicing industrial clients and offering technology-focused/value-added solutions. However, key questions remain unanswered, particularly regarding the ambitious €3-4bn asset rotation programme. Investors will be eagerly anticipating Suez’s next move.
Suez posted a satisfactory H1 19 set of results, with all divisions contributing positively to revenues and group EBIT in organic terms. While the operational performance was solid and the group is on track to fulfilling its 2019 guidance, all eyes remain on the highly awaited strategic plan. Mark your calendars for the 30 October presentation date.
Suez reported solid Q1 19 revenues of €4,210m (+3.7% organic growth vs +1.7% in Q1 18), mainly driven by WTS (+8.5%) and R&R Europe (+4.7%). EBIT saw a +3.3% increase, reaching €293m thanks to strong activity in the International division, particularly in China and Australia. Net debt remained relatively stable (lfl) at €9,031m (3.26x EBITDA) versus €8,954m in 2018. A resolution was finally reached on the Buenos Aires concession dispute, resulting in the collection of a €220m settlement from the Argentine government.
Suez released FY18 results. Sales reached €17,331m (+9.8% and +3.6% organic), EBITDA €2,768m (+7.4%, +3.4% organic), EBIT €1,335m (+10.2%, +7.5% organic), net income €335m (+13.4%). Free cash flow reached €1,023m and net debt at year-end was €8,954m (vs. €8,470m a year ago). The dividend proposed is €0.65 (unchanged). In terms of outlook, the group expects organic growth of +2-3% topline for FY19 and +4-5% at EBIT level, +7-8% for FCF and a net debt/EBITDA ratio of c.3x (3.2x currently), with the ambition to lower it until FY20. Also, the soon-to-leave CEO, Mr. Chaussade, will be appointed as Chairman, as expected, when Mr. Camus replaces him in May (see our comment dated 21 December 2018).
Suez’s 9m 18 results: €12,697m (+3.8% organic, +13% reported, +15.8% at CER), EBITDA €2,048m (+3.9%, +6.7% +10.4% respectively), EBIT €963m (+7.5%, +4.4%, +9.7%). Net debt at the end of Q3 was €9.3bn (€9.3bn in H1, €8.8bn in Q1, €8.5bn at year-end 17). The group confirmed its full-year targets (Revenue growth at constant exchange rates of c.9%, EBIT growth of c.10% at CER before recognition of the impact of PPA for the acquisition of GE Water, FCF of c.€1bn, net debt/EBITDA ratio of close to 3x, dividend of at least €0.65 per share.
Acceleration of growth in Q2. Disposal of 20% of WTS to a pension fund. FY18 guidance confirmed. Expect a slight revision upwards of our estimates/target.
Suez’s Q1 18 results: €4,058m (+1.7% organic, +9.1% reported, +13.8% at CER), EBITDA €635m (+2.6%, +3.4% +8.8% respectively), EBIT €289m (+5.5%, +2.8%, +10.2%). Net debt at the end of Q1 was €8.8bn (€8.5bn at year-end 2017).
Suez released a weak set of full-year results, marked by the negative Q4 one-offs flagged in early 2018 and the confirmation of the revised 2018 targets (post January warning).
Suez reported a disappointing set of FY17 trading figures and FY18 guidance.
Revenue up 1.5% organically, at c.€15.8bn
EBITDA down c.2% organically, at c.€2,640m
EBIT down c.2% organically, at c.€1,280m
Net income at c.€300m
Leverage down to 3.2x
FCF above €1bn, in line
Dividend stable at €0.65, in line
Suez held an investors presentation yesterday in Paris concerning the recently-acquired GE Water and the broader Water Technology and Services (WTS) division.
Suez released a decent set of 9M 17 results, marked by the step up of the International activities, higher revenues in Recycling due to higher secondary material prices, and flat prices in the European water division.
Revenue up +1.3%, at €11,301m
EBITDA down 1%, at €1,924m
EBIT up 1.4% at €926m
As a reminder, GE Water was consolidated on 30 September. Consequently, the 9M 17 results do not include any contribution from GE Water. However, net debt was €1bn higher than at end 2016 (3.4x EBITDA) as it included an impact of €856m related to the finalisation of the acquisition of GE Water and a forex impact of €-346m.
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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
H1’20 was a period of significant revenue growth (+200% to €2.8m), driven by the Setcar acquisition, now fully integrated. Underlying progress was constrained by COVID, but the Group rose to the challenge, exemplified by the launch of the G+ enhanced Co-Mask (orders of €400k received to date). Good commercial progress has also been made with Gipave during the period, with three installations now in place. In our view, Directa is well positioned to deliver strong growth over the medium term as awareness of the performance and value of its technology continues to build.
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.
Seeing Machines has announced plans to deliver a fully supported, integrated Driver Monitoring System (DMS) kit to the global automotive industry. This will be in the form of embedded software (e-DMS) for the Qualcomm® SnapdragonTM Automotive Development Platform (ADP) from Qualcomm Technologies. The kit is expected to be available before the end of this calendar year for use by select automotive Tier 1 suppliers and OEMs and will support a full stack Seeing Machines DMS solution on the Snapdragon™ ADP targeting integration into either infotainment or centralized ADAS systems, and includes an optimized DMS reference camera, ADP interface board and the company's FOVIO and Occula software.
Companies: Seeing Machines Ltd.
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.
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
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
Companies: BDEV BWY BKG VTY COST CRST BBY FERG GLE KLR KIE MSLH MER MTO NXR PSN RDW RNWH SFR SHI MGNS TW/ CTO TEF TPK GFRD