In our view, ElringKlinger has severe problems with survival in the new electric environment of the auto industry. The company delivers components that go overwhelmingly into vehicles with combustion engines and, although these are likely to be in demand for possibly more than a decade, the company’s turnover is likely to shrink in the years to come.
Companies: ElringKlinger AG
ElringKlinger’s earnings have been falling year after year since 2015. Management has blamed huge demand in different regions and the lack of production capacities for this dismal performance in the past and has done so again in Q1 19.
ElringKlinger was able to increase revenue by 2% to just below €1.70bn (+7.4% organically), but profits were again under severe pressure. Consequently, the company will not pay any dividend. These numbers were in line with our projections. However, earnings fell considerably short of our forecasts. EBIT fell by 30% to €96m and net earnings by 37% to €44m. We had anticipated respective earnings numbers of €108m and €72m.
Management had to release preliminary numbers for 2018 and an outlook for 2019 which are a disaster. While the revenue number of just below €1.70bn (+2.0% reported and +7.3% organic) was reasonable, profits again collapsed and are expected to fall further in the current year. Because of this dismal outlook, it proposes to pay no dividend at all for 2018.
While management had projected a margin of 7% for 2018, the preliminary number suggests that it fell to 5.9%. In fact, it was down to 2.8% in Q4 18. This year’s EBIT margin is expected to come in between 4% and 5%.
ElringKlinger’s Q3 revenue was about unchanged at €406m, which brought the 9M number to almost €1.27bn (+1.8%). In spite of this almost reasonable number, the group’s profits collapsed. Q3 EBIT and net earnings each fell by 33% to €23m and €11m, respectively. As a result, the respective 9M numbers were €86m (-21%) and €45m (-24%). We had expected 9M EBIT and net profit numbers of €99m and €53m, respectively.
ElringKlinger has decided to sell new enerday GmbH, in which it acquired a 75% stake in 2014 and in which it controlled 80% earlier this year. This activity concentrates on the development of high-temperature fuel cells for stationary applications. ElringKlinger intends to concentrate on the development of low-temperature fuel cells for mobile applications.
Like past years, management blames production bottlenecks for the poor profit performance. We wonder just how much longer investors will continue to accept this excuse, but this possibly needs some dramatic changes on the Supervisory Board.
What ElringKlinger released during recent years is odd. Rising demand typically leads to higher revenue and profit numbers for most other companies, but not so in case of this company. It has had production bottlenecks in Europe in the past and it is now complaining about too strong demand in Nafta which leads to ‘consistently high follow-on costs’. In addition, management underestimated the raw material price hikes for polyamide, steel, and aluminum.
As a result, it has given a new profit warning (the last one stemmed from early March). It sees the EBIT margin at around 7.0%, but this excludes purchase price allocation costs. while we currently see it at 7.3% including all costs.
ElringKlinger’s margin was above 14% in 2011 and clearly above 10% at the beginning of the current decade. It is unknown how much of the margin squeeze is the result of the cartel fine the company had to pay in 2017. It was then convicted of having fixed component prices with others for deliveries to VW.
The Supervisory Board’s proposal for the long-time Chairman of the Supervisory Board of NORMA Group AG, Dr Stefan Wolf, to be re-elected to the Supervisory Board for a further term of office failed to get the required majority of votes at today’s Annual General Meeting of NORMA Group SE. The voting result was 49.59% to 50.41%.
Stefan Wolf is the CEO of ElringKlinger. It is unknown whether this blow is the consequence of ElringKlinger’s poor performance of recent years or the fact that one NORMA Supervisory Board member (Rita Forst) is simultaneously a member of ElringKlinger’s Supervisory Board. This latter suggests that he is indirectly ‘controlling’ her at NORMA and she controls him at ElringKlinger.
Thanks to a sizeable disposal gain, ElringKlinger’s profits were about unchanged from Q1 17. However, excluding this one-off gain, the numbers were more than dismal. FX changes were one reason for this but it is our impression that the sub-optimal production logistics is another problem.
Management’s excuses for rather poor profits in 2017 are:
negative currency movements, unexpectedly high demand from US clients, rising input costs, and additional costs associated with the implementation of a group-wide ERP system.
Management’s proposal of an unchanged dividend of €0.50 is understandable based on last year’s earnings, but it might also be an indication that earnings will not be significantly up in 2018.
While production bottle-necks resulted in poor profits in the past, management now blames stronger than expected North American demand for poor 2017 earnings. It sees this profit pressure continuing in 2018.
Disposal of Hug Engineering is likely to lead to a disposal loss which is to be booked into the 2017 accounts.
The German car components producer and Chinese Chengfei Integration Technology (CITC), a subsidiary of state-owned Aviation Industry Corporation, have set up a joint-venture to develop, produce, and distribute lithium-ion battery modules for e-mobility projects in Asia, Europe, and the USA.
Consolidated sales increased by 8.2% to €1.24bn whereas EBIT was up by 11% to €108m and net earnings reached slightly less than €60m, an increase of 1.3%. Our respective projections were €1.25bn, €110m, and €66m.
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Boohoo has delivered strong results over the peak trading period for the four months ended 31 December 2020. Group revenue is +40% YOY, with robust growth seen across all brands and regions. The Agenda for Change programme is progressing at pace, demonstrating the Group’s commitment to setting a new standard for ethical supply chains in the fashion industry.
Companies: boohoo group Plc
Today's news & views, plus announcements from JET, PSN, SONG, HWDN, MSLH, PAGE, WMH, ASC, BGO, CUSN, CAY
Companies: Bango plc (BGO:LON)Persimmon Plc (PSN:LON)
Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Following forecast upgrades in December, Gleeson’s H1 update is again stronger than expected. Gleeson Homes will report volume growth of 17% in H1 to 951 completions. This represents 56% of our FY forecast. In a normal year, this probably would have prompted further forecast upgrades but we make no changes at this stage. This is a prudent position just one week into lockdown 3 but we note that (unlike in lockdown 1) building and sales can continue. The full year outturn is therefore likely to be at least in line with expectations. Gleeson Strategic Land, meanwhile, has completed its first transactions since the onset of the pandemic, which is an encouraging sign with medium and large housebuilders returning to the market. Next year’s 2,000 home target has been reiterated and we remain highly confident in growth prospects thereafter.
Companies: MJ Gleeson PLC
Cenkos Securities plc has terminated coverage of RA International Group Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
Please contact Cenkos for further information.
Companies: RA International Group Plc
A positive Y/E trading update from Portmeirion this morning with the full year outcome comfortably ahead of market expectations. There is a c7% revenue beat vs our forecast which flows through to us upgrading our FY20 PBT from £0.2m to £1.2m - a highly pleasing outcome in the context of our deep value/recovery/new management thesis. The outperformance was led by the UK/USA where trading proved robust in H2 despite lockdown due to strong online momentum. We keep our outer year profit forecasts unchanged at this stage given the CV19/macro backdrop, but understand current trading is positive with both factories open and the order-book healthy. Management is fully focused on executing the strategic growth plan outlined at the time of the June’20 fund raise and we expect a fuller update at the March finals. Overall, today’s update is a step in the right direction in building confidence in the growth / online plan and should be well received by investors
Companies: Portmeirion Group PLC
Accrol has delivered strong H1 results, with underlying EBITDA +69% YOY driven by stronger than expected gross margins as mix benefits continue to come through. We maintain earnings forecasts for now, albeit believe these to be well underpinned by margin improvements, synergies and growth. We believe Accrol is well positioned to emerge as a £35-40m EBITDA business over the medium term, in what we see as an exciting period for the Group.
Companies: Accrol Group Holdings plc
Recent news has been positive. Notably, the Group announced a ground-breaking £27.5m contract award with a new OEM customer in mid-September. Trading has been more resilient than we expected at the start of the Covid-19 pandemic, demonstrated by the positive full year pre-close update issued today. Revenue for the year to 31 December (£2m) is in-line with our forecast but gross cash is better, by c.£250k. Operational developments continue apace, and reflecting a healthy pipeline and expanding workforce, a dedicated HR executive has been hired. Confidence in the medium-term demand for the Group’s products has improved with recent contract wins; management now believes its Knowsley factory, when fully built-out, will be able to generate £75m of revenue each year against £50m, previously. Our estimates are unchanged pending the full May statement but with a stronger medium-term outlook, we lift our valuation to 65p from 57p.
Companies: Surface Transforms plc
Victoria has issued a trading update highlighting that the strong performance it announced in H1 has continued, with the Group achieving record revenue and operating profit for Q3 to end December. Group revenue was ahead by more than 10% in Q3, in part due the acquisition of the business and assets of Ascot in February 2020. We see the statement as reenforcing the positive messages made at the time of the interim results at the end of November that demonstrated the resilience of the Group. Performance is benefiting from strategic investment in logistics and service in 2019, operational efficiencies, consumers focusing on refurbishing their homes and maintained production and deliveries to satisfy demand. As in November, there will be a UK lockdown impact in Q4, albeit the Board believes Victoria is well placed to meet this headwind. We have no formal forecasts and will initiate In due course.
Companies: Victoria PLC
Boohoo has announced meaningful progress in its Agenda for Change Programme, to deliver long lasting change to its supply chain and business practices. Sir Brian Leveson PC has been appointed to provide independent oversight of the programme, with KPMG engaged to provide additional resource, expertise and independence, working alongside the Group’s internal responsible sourcing and compliance team, as well as with external supply chain audit specialists Bureau Veritas and Verisio. We believe the calibre of the appointments reflects the Group’s unwavering commitment to implementing in full, and with complete transparency, all recommendations of the Independent Review.
Tern plc* (TERN.L, 7.1p/£23.5m) Portfolio update: Strong business momentum (12.01.21) | Audioboom plc* (BOOM.L, 276p/£43.3m) Expanded content network (15.01.21)
Companies: Tern Plc (TERN:LON)Audioboom Group PLC (BOOM:LON)
Games Workshop Group’s (GAW’s) H121 trading update highlights that it has enjoyed a stronger end to the period than expected by management: H121 PBT will be not less £90m (y-o-y growth of c 54%), £10m higher than indicated in the 7 November trading statement (see our recent update note). Therefore, GAW’s PBT in H121 is greater than that for the whole of FY20. The strong performance leads to a 40% increase in the year-to-date dividend, as the company continues to distribute truly surplus cash. We upgrade our PBT forecasts for FY21 by a further 6%. Following the relative weakness in the share price in recent weeks, and the upgrade to our forecasts, the P/E multiple of 28.9x for FY21e is back below recent highs.
Companies: Games Workshop Group PLC
Real progress towards significant value generation
Companies: Tern Plc
We initiate on Portmeirion and argue that it is in a better position than the current market valuation suggests. It has delivered a resilient first half and, following a strategy reset under the new CEO, it has much more enhanced capabilities with an improving model and profit outlook. Furthermore, Portmeirion is well funded with no balance sheet concerns. The shares trade on low spot multiples of 10x FY21 P/E with and 5x EV/EBITDA with a 9% FCF yield. A SOTP analysis based on peer/corporate deal metrics shows fair value towards 650p. Patient deep value investors should take a much closer look.
Although CV19 rounded off a disappointing year, BAR was just profitable in FY20 and ended the period with £21m cash. After a challenging transition post the disposal of manufacturing, a new and experienced leadership team is now in place which has laid out clear future growth plans. Through a combination of organic growth, brand focus, productivity gains and selective acquisitions, BAR aims to grow sales to £50m over the medium term. The business model is inherently high margin and cash generative and, if these characteristics are borne out, future value could increase several fold compared to today’s £20m.
Companies: Brand Architekts Group plc