Q2 22: Hella’s lights unable to see through fog

Hella posted Q2 22 figures that were broadly expected after its usual preliminary release. Sales were down 11% yoy due to the Automotive division, while the Aftermarket and SA demonstrated more resilience. FCF took a hit on every front with lower profitability, soaring inventories and growing capex. FY22 guidance (cut two months ago) was reiterated with management hoping to reach the upper end, despite a seasonally weak Q3 ahead. Cost inflation should continue with energy and wages being the mai

Does Hella’s FY21 ambition have any basis?

Hella posted Q1 21 revenue down 10.6% yoy, driven by its OEM front (-12.6% yoy). Coupled with negative growth, a lower utilisation rate and restructuring costs (€171.7m) led to net income of €-87.3m (vs. €77.1m in Q1 20). Consequently, FCF fell to €-244.3m (vs. vs. €66.8m in Q1 19), exacerbated by a 2% yoy capex increase and unfavourable working capital. Lastly, the company confirmed its outlook with revenue of €5.6-6.1bn and an EBIT margin of 4-6%.

Are government subsidies enough to spark a recovery?

Hella posted FY19/20 revenue down 14.3% yoy, driven by its automotive segment (-14.3% yoy, and 84.4% of total sales). This translated into net income of €-431m (-168.4% yoy) and a -0.7% yoy FCF (favourable working capital and -21.7% yoy capex). As for the outlook, revenue is expected to be €5.6-6.1bn, and the adjusted EBIT 4-6%. We expect both metrics to land near the lower end of their respective ranges.

The last quarter before the COVID-19 outbreak outside China

Hella’s 9M revenue and profit numbers (29 February) were just below our projections and below last year’s numbers, whereas cash from operations was up. Management has reacted accordingly and reduced the headcount by 6% since February last year (APAC -11%; Europe -4.5%; Americas -7.1%). It is not giving any guidance for the current quarter as visibility has disappeared.

We had expected higher profit numbers

Hella sold a sizeable share of its Aftermarket division during the course of the last fiscal year. Based on adjusted 2018/19 numbers (i.e. excluding this de-consolidation), the company’s turnover was about unchanged in the last quarter after a slight fall in Q1. Simultaneously, most profit numbers were down slightly.

Q1 earnings about in line with our expectations

Falling car production in both Germany and China have taken their toll on Hella’s Q1 revenue which fell by 12% to €1.57bn. The company’s profit numbers were also down, but both EBITDA and EBIT numbers were higher than we had anticipated.

Good 2018/19 numbers plus special dividend but cautious outlook

Like other car component producers, Hella also experienced a profit margin decline but, excluding the gain from the disposal of a sizeable share in its Aftermarket business, the consolidated margin decline of 0.2pp to 7.9% was very modest. Automotive, the group’s bread-and-butter business, suffered a margin decline of 0.6pp to 7.9%.

Hella reduces workforce at a German plant

Price pressure seems to be intensifying for car component producers and Hella is reacting accordingly. It has relocated the production of lighting components in recent years and continues doing so.

Hella produces electric and electronic auto components

The company produces all kinds of lights for vehicles, whether for the exterior or interior. It delivers these components either directly to the production lines of car producers or to manufacturers of front-end or rear-end modules which then go into the cars. In addition to these electric components, sensors and radar equipment are produced.

Surface Transforms - New guidance – forecasts under review

Surface Transforms has issued new revenue guidance for FY24, with the company now expecting revenues in the range £17.5-22m. We are withdrawing our previous forecasts for FY24 and withdrawing our price target while we review the impact of the new guidance.

Surface Transforms plc (SCE LN) - Forecasts and valuation withdrawn

We note the regulatory announcement this morning from Surface Transforms and withdraw our estimates and valuation, pending conversations with management.

Morning Note – 16 April 2024

Robust margin and cash performance

Surface Transforms (SCE LN) - Obstacles removed for higher production

Surface has issued a brief Q1 update. Production will ramp-up this year as final new equipment is installed, and manufacturing teething problems recede.

Initial Equity Trading Comments - 19 February 2024

Hybridan Small Cap Feast - 16/04/2024

16th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radical Limited for

Dowlais Group - Motoring forward

Dowlais Group’s first set of results were ahead of our expectations, with positive cash generation a highlight despite restructuring and demerger costs. Softer automotive markets will limit margin progress in FY24 towards the double-digit target. Despite this, margins of c 6.5% are still ahead of automotive peers, although the shares trade at a significant discount to our implied generic peer-based valuation.

Morning Note – 9 April 2024

Zeus Top Picks for 2024 - 2023 review and outlook for 2024

On 9 January last year, we set out our ten top stock picks for 2023, for what turned out to be another relatively poor twelve months for UK equities due to two wars, stubbornly high inflation and further tightening of monetary policy. This was even as other major markets, such as the US, largely recovered in the year. In the 2023 calendar year, the AIM All-Share index fell 8.2% and is still 42% off its 2021 high. From the release of our 2023 top picks note, the average total return (assuming div

Morning Note – 4 April 2024

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

Hybridan Small Cap Feast - 17 April 24

17th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

Gooch & Housego (GHH LN) - A chink of light

Gooch has issued a positive update for H1. Trading has started to recover with stocking levels normalising at industrial and medical devices customers. The outlook is positive with growth returning, and management has confirmed our full year estimates (adjusted for the disposal of EM4). The order book and order flow appear healthy, and net debt is comfortable. Gooch clearly still has plenty to do to lift operating margins from a lacklustre 8.1%, but the transformation plan appears to be back on

Nexteq - FY23 adj EBITDA +4% ahead, FY24E upgrades of +1-10%

Nexteq’s FY23 results show adjusted EBITDA +4% ahead of the +6% upgrade at the January trading update, record FY23 EFCF of $17.4m, and a confident outlook that leads us to reiterate our FY24E revenue and upgrade FY24E gross profit, adj EBITDA, and EFCF by +1-10%. The strategic focus on higher-margin products and customers reducing elevated inventory levels led FY23 group revenue -5% yoy to $114.3m, with Quixant 6% lower at $69.3m and Densitron 2% lower at $45.1m. Effective supply-chain managemen