Reassuring guidance includes the impact related to Russia/CIS risk

Adidas announced a reassuring outlook including the impact related to the Russia/CIS risk despite the consensus-missing Q4 21 performance. The challenging trading environment in Greater China, the lingering COVID-19-related restrictions and industry-wide supply-chain disruptions have weighed on the group’s year-end performance. However, the group is confident that the strong full-price sales, the progressively eased supply-chain disruptions and the gradually normalised trading environment in C

China will continue to be the driver

Adidas upgraded its FY21 guidance (again) on the back of the strong accelerations in Europe and North America in Q2 21. On the back of good top-line momentum, the ongoing supply chain challenges and normalised marketing spending will put pressure on the margin progression. The sales contraction of 16% in Greater China was worse than weexpected, however, the trading environment has started to improve, and the group continues to expect strong growth in the country for FY21.

Adidas still expects strong growth in China for FY21

Adidas slightly upgraded its guidance for FY21 after a better-than-expected first quarter. The group has experienced healthy growth across all markets despite the prolonged lockdowns in some markets, highlighting the strong 156% sales growth in Greater China. The strong growth in China and the group’s very encouraging guidance for Q2 21 have confirmed our view on the “boycott on Xinjiang cotton matter”. We believe that smaller, easily replaceable brands will be affected more than well-position

Cautious about the resurgence of Coronavirus

The group has published better-than-expected figures for Q3 20. The encouraging improvement in Russia/CIS, Europe, and North America has been slightly offset by the sales contraction in the franchise in China. The relatively less exposure to North America and the footwear business make the group still lag behind its industry peer. The updated conditional outlook for FY 20 was broadly in line with current consensus and below our estimates, showing an uncertain year-end trading environment.

Reassuring Q2 figures, remain cautious for FY20

The group has reported better-than-expected sales and gross margin in Q2 20. The higher exposure to Asia, notably to China, and accelerated growth in e-commerce has not only limited the top-line contraction but also led the group to give an encouraging expectation for Q3 20. However, the piling up of inventory has weighed on the margin, which may result in heavy price-discounting in the after-season, thus putting pressure on the margin for the rest of the year.

Currency-adjusted 2020 revenue growth of 6% expected ...

… but this excludes the COVID-19 impact. This virus has reduced Chinese revenue by 80% from 25 January to the end of February and management expects this to have a €0.4-0.5bn negative impact on EBIT in APAC/Greater China in Q1. Up to now, the company does not see any (severe) sourcing problems, but this might eventually impact revenue in other parts of the world.

Profits fell in Q3 19

The last time the company‘s quarterly EBIT number fell was in 2014. Ever since, Adidas has achieved phenomenal profit growth. This has clearly not been the case in the most recent quarter.

Operating earnings were slightly disappointing

The group’s Q3 and H1 bottom lines benefited from gains from discontinued operations (€70m and €72m, respectively) and from much-lower-than-expected tax rates, down by 3.2pp to 25.6% and by 2.7pp to 25.5%. Consequently, net earnings were higher than anticipated. The outlook is somewhat uncertain and depends on potentially more US import duties for Chinese goods.

Revenue growth moderated in Q1, but profit margin increased strongly

After 16% in 2017 and 8% in 2018, currency adjusted revenue growth moderated to 4% in Q1 19. Sales of the Adidas brand were up by 5% but Reebok sales fell by 6%. Nevertheless, the profit margin improvement was stronger than expected.

Good 2018 numbers, but we had expected slightly more

Adidas increased its turnover by 3.3% to €21.9bn (+8% currency-adjusted) while EBIT was up by 14% to €2.37bn and net earnings by 55% to €1.70bn. These numbers are very much in line with consensus expectations while our profit projections were slightly higher. Management proposes a dividend of €3.35 compared to our projected €3.30 vs. the previous year’s €2.60.

2018 outlook raised but new guidance is short of our projections

The group’s turnover increased by 3.2% to €16.7bn through to September and, as the gross margin continued improving, EBIT was up by 16% to €2.24bn and net earnings by 40% to €1.59bn. We had expected the following respective numbers: €16.6bn, €2.21bn, and €1.51bn, i.e. the company delivered slightly more.

Adidas prolongs its sponsoring contract with DFB

The current contract expired in 2022 and the two have now extended it to 2026. According to media speculations, Adidas is willing to continue to pay €50m annually to the German Football Association, an amount that is similar to what it pays to the French Association. According to these sources, Nike is paying €40m to the English, €35m to the Spanish, and €34m to the Brazilian Association. DFB has come under pressure after the disastrous performance of the German team at the Russian World Champi

Superb H1 18 numbers

The group’s revenue numbers (+4.4% to €5.26bn in Q2 and +3.1% to €10.8bn in H1) fell short of our expectations, but all profit numbers were higher. H1 EBIT was up by 17% to €1.34bn and net income from continuing operations by 19% to €960m. Management continues expecting full-year revenue to increase by some 10% before FX changes and the gross margin to improve by 0.3pp to 50.7%. The latter is, in our opinion, too cautious as the margin was up by 2.2pp in the last quarter and by 1.8pp in H1.

Lower than expected revenue but much higher profits

At a glance, the 8pp gap between currency-adjusted revenue growth of 10% and the reported growth rate of 2% looks like a threat. However, Adidas and its peers are sourcing almost all of their products in Asia and purchase prices are typically denominated in US dollars. As a large share of their revenue is generated in countries with strong currencies (e.g. Western Europe, almost 30%), the gross margin has increased considerably.

Good 2017 numbers plus share buy-back announced

Adidas delivered good 2017 numbers all the way down to pre-tax earnings and it announced a share buy-back programme going all the way through to May 2021. Net earnings were negatively impacted by the US income tax reform and a higher than expected loss from the disposal of TaylorMade and CCM Hockey. Consequently, management’s dividend proposal of €2.60 is lower than our anticipated €2.75.

AFC Energy (AFC LN) - First modular ammonia cracker system

AFC has unveiled a groundbreaking modular ammonia cracker system demonstrating viable and scaleable production of hydrogen in the UK using this method. The cracker system is designed to deliver 140 tonnes of fuel cell grade hydrogen each year. Hydrogen from the plant will initially be targeted for sale into AFC’s UK H-Power Generator deployments, including those with Speedy Hydrogen Solutions. Along with the recent purchase of the mobile storage and distribution assets of Octopus Hydrogen, AFC c

Spectra Systems - Today's deal powers polymer banknotes and provides a big earnings lift

This morning's announcement that SPSY is to acquire Cartor Holdings provides the company with significant new firepower as it embarks on lucrative central bank currency bids with its powerful and innovative polymer banknote technology. Cartor is a global market leader in security printing with manufacturing sites in the UK and France, supplying a range of printed security products which are highly complementary with SPSY's core portfolio, and offering significantly enhanced capabilities in rela

CAP-XX - Tax rebate received and JV signed

CAP-XX has announced the Australian Taxation Office has approved the FY23 R&D grant and associated rebate of A$2.1m. The net proceeds of A$1.0m, after repaying the principal and interest associated with the revolving line of credit drawdown, were received by CAP-XX last week.

Solid State - Strong interim results – trading in line with FY24 expectations

The group delivered a strong set of interims, boosted by a full contribution from Custom Power (CP) and its large military contract delivery. Organic growth was over 35%, with an improvement in underlying margins, albeit with the margin mix diluted by the military contract delivered. As flagged, H1 order intake saw some customer destocking, although there may be some early signs this could be abating. Even so trading remains resilient. The outlook points to trading in line with recently upgraded

Gooch & Housego - FY23 results in-line with expectations, better cash flow

FY23 results are in-line with expectations, showing growth from strong underlying demand, coupled with improved operational delivery. Growth was seen in all three divisions. Trading is in-line with the recent upgraded FY24 forecasts. Prospects are underwritten by a strong order book and boosted by the recent acquisitions of Artemis and GS Optics, albeit with some customer destocking by certain industrial customers, offset by robust demand in growth areas. Self-help measures and the new CEO’s str

Solid State - Returning to trend growth

Solid State has confirmed the strong H124 performance, boosted by a full period contribution from Custom Power combined with the benefit of delivering the NATO contract. Despite the continuing challenges we expect organic growth to resume from the lower trend level of profit excluding the NATO uplift from H224. Following the recent 5% uplift for both revenue and PBT, FY24 guidance and market consensus estimates are unchanged.

Morning Note – 5 December 2023

Solid State - nterim results illustrate a strong trading performance; on track for the full year

Solid State is a specialist value added component supplier and design-in manufacturer of computing, power and communications products. This morning, the group has released interim results to 30 September 2023, illustrating strong growth at both the revenue and PBT levels, with the Board reaffirming confidence in meeting full year expectations. H1 2024 revenue increased by 48% to £88.1m, driven in part by a £23.4m contribution from specific contracts within defence and security, with adjusted PBT

LIBERUM: Frontier Developments: Back to basics

Initial Equity Trading Comments - 1 December 2023

The Joy of Techs - Cavendish Technology quarterly sector note

£23.3bn in enterprise value has been returned to AIM technology shareholders over the past six years in the form of 51 public to private takeouts, including 10 in 2023 alone with the takeovers of Smoove* and Tribal announced in early October. With UK valuations appearing cheap and looking more attractive to potential acquirers, we take a moment to reflect on the trends of corporate and private equity bidders targeting AIM-listed technology companies going back to 2017, through the uncertainties

PROGRESSIVE: IG Design Group: Strong profit growth, key strategy initiatives and quantified aspirations

IG Design Group delivered a 27% increase in adjusted PBT to $34.8m for H1 FY24 (to 30 September) with a significant reduction in net debt to $15.1m, as signposted in last month’s trading update. The adjusted operating profit margin was some 270bps higher at 8.6% (vs 5.9% in H1 FY23), the highest achieved since H1 FY20 ahead of the CSS acquisition. Management has provided more details on the key attributes and initiatives for its new growth-focused strategy. The group is on track to return to pre

Hybridan Small Cap Feast - 05 Dec 23

5th December 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment obje

PROGRESSIVE: Watkin Jones: FY23E outlook dips slightly; FY24E unchanged

Watkin Jones’s FY23E year-end trading update is broadly in line with our expectations, albeit with slightly higher costs than previously signalled but significantly better net cash and no change to the remedial works provision. Encouragingly, guidance for FY24E is unchanged, with progress in forward sales of student and private assets to institutional investors. Data from both student and private rental markets continues to show huge under-supply.

LIBERUM: Superdry*: Progress in resetting the business; tough year ahead