Cenit has reported Q3 results showing 12.8% y-o-y growth in EBIT after a 2.9pp gross margin gain that offset the impact of a 4.5% sales decline. The results support the company’s full-year guidance of stable revenues and an 8-10% increase in EBIT, and have led us to increase our 2016 EBIT forecast by 1.5%. We believe that the recently announced acquisition of Coristo, a SAP product structure management specialist, should add value to the group by strengthening Cenit’s product offering and potentially leading to the creation of new proprietary software.
PLM revenues, which make up 81% of total sales, rose 0.8% y-o-y in Q315 but a greater than expected 22% fall-back in EIM revenues resulted in total sales contracting 4.5%, which undershot our revenue estimate by 5.3%. Management’s focus on the bottom line, which has seen it avoid taking on some low-margin business, was reflected in the 2.9pp expansion in the gross margin to 61.5% in Q315, which flowed down to a 1.4pp gain at the EBIT margin.
Cenit recently announced the planned acquisition of Coristo, a small German software house that has expertise in SAP product structure management – broadening Cenit’s product range. The company will bring seven professional staff and Cenit is looking at the potential to develop some of its existing components into proprietary software to expand the group’s existing range.
Cenit’s order inflows during the third quarter fell 33% to €21.2m, but the company finished the quarter with a €33.2m order book, down 3.7% y-o-y. We have cut our revenue expectations for this year (3.5%) and next (1.9%) on this slowdown and the likely more difficult German auto sector in 2016. Nevertheless, we have left our 2015 EBIT forecast broadly unchanged and increased the 2016 number by 1.5% on the recent positive margin trends and the Coristo acquisition.
On a current-year prospective EV/EBITDA multiple of 11.0x, Cenit trades above the median multiple of its sector at 10.0x. Potential upside catalysts are the ongoing growth of own software sales and further potential acquisitions while staff shortages and difficult conditions in the German auto sector are potential downside catalysts.