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GEA reported Q1 22 results close to expectations, with a 9% beat on the order intake. The NWC/sales is getting back to higher, yet normalised, levels as inventories increase in line with the inflation of raw materials. The additional cost headwinds are expected to be fully covered by the price mix, in FY22 at least. Overall, this highlights the radical improvement of the company’s internal management over the last few quarters, which keeps on delivering results while showing good forecasting ski
Companies: GEA Group Aktiengesellschaft
GEA exposed a promising mid-term outlook with a double focus on organic sales growth and operational improvements. The 2021 and 2022 outlooks have been confirmed, hence reassuring about the ability of the new management to turn around the company while delivering on its promises. That said, GEA will count on the New Food business, sales efficiency, and service growth to fuel a healthy FCF generation despite higher R&D and capital expenditures. Shareholders should be pleased to see the dividend t
GEA released a mixed bag of results, with sales declining further (9M 20: -3.8% yoy vs H1 20: -2% yoy), EBITDA improving (+17.8% yoy), and net income slightly growing (+2.6% yoy). EBITDA benefited from higher-than-expected overheads and raw material costs, though net income was negatively impacted by impairment losses from the sale of GEA Bock. Consequently, GEA is more confident about its FY20 EBITDA target, raising it from at least €455m to at least €500m.
GEA posted -2% yoy H1 20 revenue, driven by its Food & Healthcare tech (-5.3% yoy) and Farm tech (-5.7% yoy) segments. Limiting this contraction, Separation & Flow tech (GEA’s second largest segment) grew by 2.8% yoy. Furthermore, GEA presented lower COGS (-5.1% yoy) and selling expenses (-7.3% yoy), translating into a +35% yoy net income. For the outlook, the company expects revenue to contract slightly yoy, EBITDA (before restructuring charges) to be €430-480m, and ROCE 12-14%.
Management announced in late January that it has to write-off the purchase price of Italian Pavan. This happened in Q4 last year which has translated into negative EBIT, PBT and net earnings. In spite of this, it proposes an unchanged dividend of €0.85.
GEA acquired Pavan S.p.A., an Italian producer of production lines for the manufacture of fresh and dried pasta, for a total consideration of €254m in late 2017. As the company has not delivered what management had expected, it is now writing off the entire €248m amount of goodwill.
GEA has shown very volatile profit numbers in the last few quarters. From a strong recovery of pre-tax earnings in Q1 19 (+119%) to a collapse in Q2 (-58%). The Q3 number was about unchanged, whereas we had a considerably more cautious view. We hope that this becomes a more normal feature of the new management team.
Clients are reluctant to invest in new machines and plants and this is reflected in GEA’s accounts. Whereas the book-to-bill ratio was at a reasonable 1.12x in Q1, it fell to 0.92x in the last quarter. In fact, this is the lowest quarterly number since 2006 and the 1.01x after six months the lowest since 2009, i.e. since the last financial crisis. This is not a good signal for the quarters to come.
The share price has halved during the last three years as net earnings fell by some 70% from 2015 to 2018 although revenue was up. Management has tried to deal with this by regularly changing the divisional structure, but that has not paid off. Changes in the reporting segments are often an indication that management has a lack of ideas. Hopefully, the new management team will do a better job.
GEA has released some numbers for 2018 and the order inflow and revenue numbers were slightly lower than we had anticipated. However, EBIT fell by 32% to €260m which is considerably below our projected €325m. Finally, EPS collapsed by more than 50% to €0.63 compared to our €1.31. In spite of this, the dividend is, as we had expected, maintained at €0.85.
Ever since GEA moved its HQ away from its labour force to an office space in Düsseldorf in 2011, the group’s profits have been under pressure. The most recent peak EBIT number was reached in 2012 and, ever since, management has had to release regular profit warnings. This might indicate that management has lost contact with the real world.
GEA had reduced its cash flow driver margin for 2018 with the release of its 9M18 numbers. It has now lowered its 2019 outlook. In spite of the currently good volume development, it is less optimistic for 2019. The deteriorating economic development in combination with higher material and personnel costs will have a damaging impact on next year’s earnings, it says.
Supervisory Board member Werner Bauer, a representative of Nestlé Deutschland, has stepped down and is replaced by Colin Hall, a representative of Group Bruxelles Lambert (GBL). GBL made its first investment in GEA in August 2018 and the share price has fallen by some 30% ever since.
We have argued for quite a while that the previous management was not able to bring GEA back onto a sound footing and it had to release regular profit warnings. Consequently, the CEO decided in March 2018 not to pr
Order inflow increased by 13% to €1.2bn in the last quarter, bringing the ytd number to €3.68bn, an increase of 7%. Simultaneously, the respective revenue growth rates were 5.1% to €1.19bn and +5.6% to €3.46bn. Whereas the group’s H1 profit numbers had been dismal, they recovered strongly in Q3. EBITDA was up by 14% to €138m, EBIT by 9% to €85m, and net earnings by 38% to €60m. While turnover was in line with our expectations, the profit numbers were higher.
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Today’s trading update for H1 22 highlights the difficult operating environment over the first six months of the year, particularly in Q1. Trading picked up in Q2 and is expected to continue to improve in H2 22, in part, due to the inherent seasonality of the business, but also due to some catch up in demand. Guidance is for FY22 post-tax profit to be in line with the consensus estimate of £32.2m, as a result Zeus reduces its estimate by 2.5% to £32.2m. Previous guidance of £3.0m potential impac
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Last week, the UK government published the consultation paper on its Review of Electricity Market Arrangements (REMA). Any change potentially represents uncertainty in a market that has been wary of changes with a number of shares falling after early details of possible reforms were flagged in the press. We review the possible changes and conclude that while there is some risk, from what we can see at present the likely outcomes could be either minimal or beneficial for investors in clean energy
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Invinity has begun trading shares on the OTCQX Best Market in the USA. We see this as adding liquidity for North American investors and more generally increasing visibility for the company in key markets in North America.
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The US Inflation Reduction Act of 2022 now has a chance of passing the Senate next week as it is being voted under the Reconciliation procedure which allows bills related to the budget to pass on a simple majority rather than the 60-vote majority required to overcome a filibuster. If the act does find its way onto the statue books it will bring US$369bn in clean energy tax credits, grants and other incentives. Much is directed to protecting clean energy manufacturing in the USA, but it is a wide
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Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group export
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Rolls Royce published mixed figures. Profitability was particularly low, pushing the net result back into the red zone. However, FCF generation was a positive surprise despite the rise in inventory. It has finally found an agreement to sell ITP Aero and will use the resulting cash to repay its only floating interest rate debt.
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Oil posted the biggest weekly decline since early April on growing signs that a global economic slowdown is curbing demand. Prices are near the lowest level in six months.
West Texas Intermediate settled at $89 a barrel, ending the week nearly 10% lower. US gasoline consumption has dropped, stoking demand concerns, while low liquidity has added to volatility. Supplies from Libya also picked up, helping to shrink key oil futures time-spreads and ease the tightness in the market.
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