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.

FY17: best reported sales figure in the industry, bottom-line growth satisfying

The company continued to grow and posted the best reported sales growth in the lift industry. Management sees a FY18 revenue increase of 3-5% in local currencies. Moreover, the conversion rate in China is above 70%, the best figure in our opinion in the industry, and Schindler is willing to work on pricing, in the same way as market leader Kone did in 2017 in order partly to offset the raw material price increases.

Good set of results, but disappointing WCR performance

Key information: • Orders received grew by 5.2% and by 5.6% in local currencies. • Revenue rose by 2.7% and by 2.9% in local currencies. • Operating profit increased by 10.7%. • EBIT margin reached 11.7% vs 10.9% in H1 16. • Net profit grew by 12.6%. • Cash flow from operating activities increased by 3.3%.

Revenue growth supports FY guidance; Chinese oversupply: not good for Kone

Key information: • Orders received rose by 5.9% in local currencies. • Order backlog grew by 4.5% in local currencies. • Revenue grew by 3.8% in local currencies. • Operating profit increased by 10.6%, and 9.4% in local currencies. • EBIT margin at 11.5% up by 70bp. • Net profit almost stable. • Cash flow from operating activities increased by 6.9%.

Operating cash flow contracting but pricing pressure easing

Key information: • Orders received rose by 4.1% (4.6% in local currencies). • Order backlog increased by 6.8% (6.5% in local currencies). • Revenue grew by 3.1% (3.6% in local currencies). • Operating profit (EBIT) increased by 13.1% (13.9% in local currencies). • EBIT margin was 11.7% (previous year: 10.7%). • Before exceptional items, the EBIT margin was 11.5% (previous year: 10.5%). • Net profit improved by 10.2% to CHF823m. • Before exceptional items, net profit was CHF766m (previous

Strix Group plc (KETL LN) - Chinese covid policy impacting trading, Billi acquisition closes

Strix has issued a trading update today following a disrupted period due to China’s continued Zero Covid policy approach and ongoing macro uncertainty. This has so far restricted business activity for two of Strix’s top five major OEM customers, with further disruption expected. Revenues for the full year will be below initial expectations whilst profitability is impacted more heavily due to the operational gearing in the business. These difficult market conditions see Zeus full year revenue for

Invinity Energy Systems - 15MWh order, largest to date

Invinity has announced a record new order, for 15MWh of its vanadium flow batteries (VFB) for Everdura Technology in Taiwan with 255MWh of follow-on-order potential. This marks Invinity's sixth announced sale this year and its fifth in 2H22. For the YtD that brings total firm orders to 37.7MWh, almost 3.5x the previous annual record. The evidence continues to mount that Invinity has a commercially competitive product, yet it trades at well under half the market capitalisation to book value accor

Invinity Energy Systems - More Traction In Taiwan

Invinity have announced their largest single battery sale to date through a 15MWh contract with Taiwanese industrial technology company Everdura. This comes on the back of another recent deal in the Taiwanese market, as well as notable sales in the US and Europe. We see sales momentum for Invinity’s flow battery accelerating as renewable penetration increases creating urgency for proven, low-cost, safe Long Duration Energy Storage (LDES) technology.

Auctus on Friday - 25/11/2022

AUCTUS PUBLICATIONS ________________________________________ Calima Energy (CE1 AU)C; Target price of A$0.60 per share: Market cap paid back in 2 years, even after incorporating higher differentials - Four wells out of the five well 4Q22 programme have now been drilled with two wells already in production. Gemini#10 is producing in line with the type curve (IP of 120 boe/d gross and 60 boe/d net to Calima 50% WI). Gemini #11 was put into production on 24 November while Gemini#12 will be brought

LIBERUM: Yü Group* - Strong growth and dividend on the cards

Cenkos: Brickability Group Plc - Underlying trading remains strong

Positive interims, with LFL revenue growth of 9.3%, adjusted EBITDA growth of 45.7%, a 5% increase in the dividend and an in-line outlook statement. There is clearly added uncertainty going into 2023, the diversity of both its product base and customers means it remains in a good position. The share price has behaved more like a housebuilder and in our view, this fails to reflect the diversity of its model and the fact that the group's earnings continue to rise. On revised forecasts the shares t

Invinity Energy Systems - 2.2MWh sale, entry into Taiwanese market

Invinity has announced a further sale of its vanadium flow batteries (VFB), this one comprising 2.2MWh of its VS3 model. The purchaser is Bei Ying International Corporation, a Taiwanese industrial equipment wholesaler which is acting as a reseller for Invinity. This brings total sales announced since the interims to 14.3MWh and to 22.7MWh for the year to date. Given the run rate, we believe there is a high likelihood of further sales before year end, confirming solid demand for Invinity's VS3 pr

LIBERUM: ATOME Energy * - Flagship Villeta project doubles to 120MW capacity

Hybridan Small Cap Feast 23/11/2022

Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** Kistos Holdings plc, intends to join AIM. The Company was incorporated to act as a new holding company for the group companies 0f Kistos plc (KIST), a holding company with the objective of creating value for its investors through the acquisition and management of companies or businesses in the energy sector. Anticipated Market Cap £327m. Expected 22 Dec 2022. AT85 Global Mid-Market Infrastr

DX Group (DX/ LN) - Back on the (supply) chain gang*

DX Group has reported strong full year earnings; we reinstate our estimates and valuation following the relisting of the shares in October. Trading has been resilient despite widely reported, but now resolved, corporate governance issues. Growth was healthy in DX Freight driven by the 1-Man delivery service, and with higher parcel revenues in DX Express. Current trading is reportedly in-line with expectations, and the medium-term operating margin target of 7.5%-10.0% (FY22a: 5.8%) has been reite

Hybridan Small Cap Feast 16/11/22

Dish of the day Joiners: BWP REIT joins the Wholesale Segment of the International Property Securities Exchange (IPSX). BWP REIT is a newly formed single asset company and has raised £35m by issuing 35m new ordinary shares at 100 pence per share to acquire Bridgewater Place, an office-led mixed use property in central Leeds and valued at £63m. The property is one of the tallest buildings in Yorkshire, comprising 234,000 sq. ft of office space, and is close to 90% let to EY, as well as multinatio

Where There's Muck - Bioenergy

Energy from biomass or waste can be genuinely low carbon and sustainable, representing a major tool in the decarbonisation toolbox. The ability to add carbon capture technology creates an immediately available negative emissions solution and adding liquid fuels allows the decarbonisation of sectors previously seen as challenging. Demand for all these solutions is likely to grow as decarbonisation and energy security become essential requirements in the energy mix.

Morning Note – 16 November 2022

Full year results and additional debt finance

EAAS has announced its full year results (to June ’22) alongside news that it has secured further debt finance of £2.5m in order to support the growth of the business and strengthen the Group’s balance sheet. Last Friday’s update confirmed a strong start to the new year and reiterated expectations of material year on year revenue and EBITDA growth for FY23. We expect to update our valuation analysis following the upcoming AGM (20th Dec).

Q2 22: mixed signals

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.