Another positive performance despite the Chinese slowdown and FX headwinds

Schindler’s Q3 results missed consensus estimates on revenues and orders but beat them on profits. Order activity tempered sequentially but grew yoy and the order backlog margin continued to improve. The Chinese market did slightly better sequentially but remained subdued. The nearly flat revenue growth was materially impacted by currency headwinds, whereas the EBIT growth was supported by positive pricing and better efficiency. With these results, Schindler presented a more precise outlook on r

Is the margin gap finally closed?

After Kone’s disappointing order intake figures, Schindler’s Q2 23 results appeared much better and confirmed our preference for the stock. The Q2 23 results came in above expectations and the company raised its FY23 top-line growth expectations. The EBIT margin especially reached 10.5% in H1 23 vs. 9.7% for Kone, as the group is starting to see the benefits of its cost-efficiency plans. However, we acknowledge that a significant re-rating won’t be possible without the help of the Chinese market

Wait-and-see outside China but profitability continues to increase

Schindler reported Q1 23 figures above consensus expectations on the top line and margin, but on missed order intake expectations and posted a mixed FCF generation weight by WC, while confirming its FY23 guidance. The better-than-expected performance in Q1 23 confirmed the turnaround of the negative margin trend seen in FY22. While the Chinese real estate market has yet to rebound, the market outlook for the Americas and EMEA was revised downwards on customer caution owing to the weakening econo

Profitability is looking upward, both in Q4 figures and order intake

Schindler posted consensus-beating Q4 results as the adjusted EBIT margin continued recovering from its trough in Q2. We also welcome the improving margin of the order intake. Despite a weak cash generation in FY22, Q4 showed improvements backing the dividend proposal on par with last year’s despite an implied 70.5% pay-out ratio. The FY23 outlook for revenue met estimates, while profitability is likely to be on the way up with better cost inflation being offset, restructuring benefits and easin

Q3 22: Caution above all

Schindler posted a better-than-expected set of Q3 22 results although FCF and order intake were laggards. A satisfying print though, compared to Kone’s second consecutive profit warning last week. The guidance was also confirmed on net profit and stipulated as towards the upper end of the previous range on top-line growth. However, the key takeaways from the management’s comments can be summed-up as: “caution”. This especially concerns the cost inflation and NWC topics, while the Chinese market

Expected fall in profitability happened in Q4 21

Schindler reported fully expected FY21 figures including a steep slowdown in the EBIT margin in Q4 21, as cost inflation accelerated and price mix in revenue is taking time to materialise. FY22 perspectives remain under cost and Chinese pressures, while management accelerated the phasing of the Top Speed 23 operational improvement programme without impacting its total amount. New guidance is unlikely to result in a drastic consensus revision.

Decent Q3 21 figures only hiding uncertainties on Chinese contribution to growth

Schindler released broadly positive figures for Q3 21 following the Evergrande debacle and the wave of downgrades. However, the 7% beat on EBIT was only the result of lower-than-expected non-operating costs. Order intake remained strong but likely to be inflated by higher ASPs to compensate for higher input costs. The CEO sees pressure in the Chinese property market over the next six months, at least. Uncertainties in China justify the mean-reverting trend on the P/E in our view.

Orders and net profit guidance surprised; a tougher H2 is coming

Q2 21 results portrayed a better performance than the mixed Q1 21. Order intake beat consensus, while revenues were back to their 2019 level despite a strong adverse FX effect. Guidance was confirmed on the top-line front and set above consensus on the net income front. H2 21 should be lower than H1 21, with the acceleration of input cost headwinds, also putting at risk the FY22 margin.

The strong Swiss franc burdens an otherwise-decent recovery

Schindler’s 9M 20 revenue contracted by -6.6% yoy, driven by weaker new installations and modernization, while a strong Swiss franc exacerbated the decline. Despite this decline, Schindler experienced a recovery vs H1 20. Net profit fell by 19.4% yoy. Due to Schindler’s cost optimization programme, the company expects to incur up to CHF130m in restructuring costs (including the reduction of c.2k staff over the next two years). On the back of the more optimistic results, FY20 guidance was raised.

Strong Swiss franc downplaying its Services resilience.

Schindler’s H1 20 revenue contracted by 8.7% yoy, driven by lower demand and a strong Swiss franc. Net profit shrank by 28% yoy. Consequently, Schindler launched a cost optimisation programme, including the reduction of c. 2k staff over the next two years (part of an up to CHF150m restructuring programme). Schindler’s outlook sees revenue contracting between -6% and 0% (local currencies), net profit between CHF680m and CHF720m, and the market not returning to FY19’s level until 2022.

Market composition may spell doom during COVID-19 era

Schindler’s Q1 revenue fell by 5.2% yoy to CHF2.4bn. The resilient services division (deemed a “system critical service” by many governments) partly relieved the overall revenue contraction brought by new installations and modernisation units. Logically, APAC (especially China) suffered the most during Q1 20, while other regions followed a similar pattern starting in early/mid-March. Given Schindler’s revenue breakdown by region (c. 73% of sales coming from outside APAC), we expect Q2 to impact

Q3 19: labour cost inflation remains the main threat

Schindler maintained its guidance despite the long-term threat of labour cost inflation. Hence, following this earnings release, we expect no change in either our forecasts or our target price and, hence, we will keep our Add recommendation.

H1 19: Schindler ought to be the winner of the Kone/ThyssenKrupp merger

With the potential merger of Kone and ThyssenKrupp, there is a high chance that in some countries Kone would have to divest some activities to obtain the competition authorities’ approval for the deal. Much as CRH did in buying assets from LafargeHolcim, Schindler could be selective in buying assets from Kone/ThyssenKrupp. Therefore we believe that Schindler would be the true winner of such a merger and we intend to keep a positive recommendation on the company.

Q1 19: lower growth than Kone and sharper EBIT margin contraction

Schindler posted lower growth than Kone and a sharper contraction of the EBIT margin. Raw material and labour inflation will continue to have an impact on profitability. Schindler is expecting to increase EBIT on an absolute basis, but it will be challenging to maintain the margin reached in FY18. We expect to lower our operating profit by some 3%, which should have an about 5% negative impact on our target price.

FY18: strong cash generation business model is intact

Schindler managed well to adapt to changing market conditions (flattening of demand in China, difficulties in Brazil, cost inflation, wage inflation, trade wars, and so on…) and successfully continued its growth path while at the same time improving its results. Concerning the outlook, China will remain a key factor for growth and profitability, but management also said that it sees the US at the top of the economic cycle and sees risk in tightening financing conditions.

Renold - Strong end to FY24: EPS up 11%. Robust FY25: EPS up 27.6%

The FY24 year-end update is very upbeat signalling trading being materially ahead of expectations, with a better-than-expected profit out turn and stronger cash generation. It continues to strengthen margins through efficiencies and investment in modern equipment. The order book remains close to record levels providing a robust view of future forecasts. In FY24E we upgrade EPS by 11% and in FY25E a significant upgrade of 27.6%. It looks capable of declaring a dividend in FY25 as well as manageme

Q1 Operating Results

Another Good Year of Diversified Growth with More to Come in 2024 CCapital have released their Q1 operating results. Overall, revenue has come in slightly lower than expected at $80.2m vs TamE of $85.9m but is largely tracking in line with our FY24 annual estimate and we note the company has maintained guidance. Drilling revenue for this quarter was impacted by a fall in utilisaztion rates as well as general remobilisation geographically but we expect a strong recovery throughout the year as k

Morning Note – 16 April 2024

Billington Holdings - Record result boosts dividend; forecasts upgraded

FY23 results show very strong growth over FY22, driven by strong Structural Steel activity, with results slightly ahead of upgraded profit expectations, while stronger than expected cash flow resulted in an unexpectedly generous dividend of 33p (offering a FY23 yield of 7.0%). The group now has net cash of £22.1m and is debt free and is therefore in a strong position for potential M&A activity. Following the recent £90m of new orders to increase the order book to record levels we conservatively

Plant Health Care - China distribution with AMVAC

Plant Health Care announced it has signed a distribution agreement with AMVAC, an American Vanguard Company, to support commercialisation of novel fertiliser products incorporating Plant Health Care's Harpinαβ in China starting in 2024. The novel product combines Harpinαβ technology with an AMVAC fertiliser and is expected to help growers improve crop quality and yield as part of an integrated and environmentally responsible crop production programme. AMVAC continues to evaluate Plant Health Car

Morning Note – 15 April 2024

discoverIE - Back to organic growth

discoverIE’s March year-end update confirms a strong operational performance in challenging markets. Following two years when sales increased by +48%, FY 2024 Group sales were +1% ahead of 2023 at CER (reported -3%) driven by a +2% contribution from acquisitions and organic -1%. As expected, organic growth returned in the later part of the year (Q4 +2%, +11% sequentially) and the order book has reverted to normalised levels of c.4.5 months’ sales, which – combined with a continuing strong pipeli

Severfield - Multiple positives should excite investors

Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appear

Warns on brine supply costs

SP Angel . Morning View . Copper prices hold higher as China processing fees fall below $0/t amid low feedstock availability

PROGRESSIVE: Severfield: Targeted acquisition strategy aids growth path

Acquisitions have been an important element of Severfield management’s growth strategy, with the aim of adding new products, sectors and regions to what we have identified as exciting long-term organic opportunities. In this Spotlight report, we focus on the group’s targeted M&A approach, highlighting three significant deals.

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

LIBERUM: Severfield: Erratum: Better EPS and cashflow, and buyback

Invinity Energy Systems - Update on Strategic Investment

Invinity’s update on discussions with strategic investors reveals interest from multiple parties. While this has slightly delayed finalising an agreement it increases the potential for a better outcome. Although details are unknown at this stage, we think there is enough in the statement to be comfortable that any agreements will be consistent with the company’s strategy of growing market share in core markets and using a licencing and royalty model in other markets.

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