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
Companies: GEA Group AG
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.
As a consequence of a continuously difficult situation for products for milk processors, management is reducing its 2018 guidance. Revenue growth is now expected to be in the vicinity of 4% instead of 5-6% and the EBITDA margin at around 11% instead of 12-13%.
Management also argues that demand for new machinery (with relatively low margins) continues growing faster than service revenue (with higher profit margins).
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Companies: DX (Group) Plc
Friday's market sell off saw some violent downward moves in many stocks with little initial differentiation between sectors or the key drivers of businesses, creating significant share price drops in a number of higher quality or uncorrelated names. We take a look at some stocks we believe have either seen an unwarranted sell-off, have seen weakness go under the radar or where there is now a more attractive opportunity.
Companies: ANX IBPO CYAN SOM EQT AFM
Seeing Machines has announced results for its financial year ended June 2021 and, after the 3 August 2021 trading update, there were few surprises in the numbers with the company trading ahead of expectations in terms of margins and cash. This reflects the successful focus by the management on reducing costs and conserving cash. However, with the conclusion of the recent fund raise, we expect the company to change gear to investing in the business and managing for longer term shareholder value.
Companies: Seeing Machines Limited
Seeing Machines has announced that it has been selected as the DMS supplier for automotive programmes through Magna International worth cA$120m and a fundraise of at least US$40m at 11p.
The funds will be used to accelerate growth in the rapidly expanding DMS technology market, across all transport sectors globally. This includes the acceleration of the development of new core software and system features, acquisition of additional specialised technology, expansion of sales channels and produc
The oversubscribed placing to raise £25m and £2m open offer leaves Velocys well placed to move forward on its reference projects and strengthens its ability to address further demand as airlines increasingly seek out sustainable fuelling solutions. We have updated our forecasts for the raise and after a review of project timings. These show that if the company can progress its projects, it is capable of being cashflow positive in FY 24 without recourse to further funding. Our DCF based central c
Companies: Velocys plc
AFC Energy has announced that its “S” Series hydrogen fuel cell system and ammonia cracker have been selected for the Norwegian ZeroCoaster bulk cargo ship design. The proposal has also been awarded “Approval in Principle” status by DNV, the international certification agency. The announcement is another significant endorsement of AFC Energy’s technology and the group’s biggest step forward in Maritime. This is further endorsement of our investment thesis, which was refreshed in September, which
Companies: AFC Energy plc
Macfarlane Group, the leading protective packaging solutions specialist, servicing clients across the UK
and now emerging into Continental Europe, has issued a trading update this morning (25 November)
covering the period since end June and the year to date. Trading has continued to be robust in a difficult
supply chain environment and the Group now expects to exceed its previous expectations for the full
year. Sales growth for the year to date has accelerated through to October at rate of +2
Companies: Macfarlane Group PLC
While there remains considerable uncertainty over the planning and permitting of the Uskmouth power station conversion there have been a couple of recent pieces of good news for SIMEC Atlantis in our view. Inclusion of waste-to-energy in the carbon capture support model is potentially positive for Uskmouth and may increase its political attractiveness to the Welsh Government as they consider permitting. The ring fencing of CfD support for tidal steam in the next allocation round opens up the pos
Companies: SIMEC Atlantis Energy Ltd.
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Trinistar Liverpool S.a r.L announces its potential listing of a newly formed single asset company which will own the Capital Building in Liverpool on the IPSX. Upon admission the Company would become a real estate investment trust (REIT). The Capital Building occupies close to a 3.5 acre freehold site in the centre of Liverpool’s business district; the building comprises c425,000 square feet of predominantly of
Companies: ADBE ADBE SYM ARC AVCT CMCL CLIN DCTA FRAN OSI
The H1 results were a bit of a double check. First, how high hopes (battery materials) persist in a rapidly changing environment, something already communicated to the markets. The second, and a rather annoying one, was how to deal with the issues as management was not really transparent. This explains the strong miss in EBIT compared to the consensus. We were also wrong-footed as our impairment figure was far too low.
Companies: Johnson Matthey Plc
Powerhouse has seen early benefits from the agreement signed with HUI in October with this progress on a new project site in Bulgaria. Details have still to be agreed but we see the project as an example of further international demand for the company’s waste to hydrogen technology.
Companies: Powerhouse Energy Group PLC
Like Taylor Maxwell before it, management's patience and persistence has landed another prized target, this one HBS NE Limited trading as HBS New Energies and UPOWA, giving Brickability a platform into the fast-growing renewables energy products market. It is Brickability's 13th acquisition in the past three years, will cost a maximum £5.5m and falls within the group's target 4-6x EV/EBITA purchase range thus enhancing earnings whilst broadening the product offering to its core housebuilder cust
Companies: Brickability Group PLC
The trading update confirms that TClarke is on track to meet FY21 expectations signalling a strong recovery from the pandemic-hit 2020 with revenues +47%, H2 margins back at 3%, underlying EPS +50% and net cash of c£5m in the year-end balance sheet. The highlight, in support of its target £500m turnover by 2023, is continued improvement in the order book, currently at £525m (end June £503m) including a record £320m (+25%) secured for a year out. This is not ‘being bought' but comes with a real s
Companies: TClarke plc
A stellar financial performance in the first half shows Brickability at its best, delivering growth from organic and acquisition sources, gaining share and strategically, and importantly, continuing to diversify and de-risk the business by broadening its product ranges and customer depth. Whilst the half has been an extraordinarily favourable one in comparative terms and our instinct is to believe that forecasts can be beaten going forwards in both the short and medium-term from the enhanced pla
Last week, as part of Diversified's Capital Markets Day, CEO Rusty Hutson and the Diversified senior leadership team provided investors with an in-depth overview of the Company's strategy and operations, with a specific focus on the Company's Environmental, Social and Governance (ESG) initiatives. Some of the key takeaways include US$15m of additional investment from 2022 on emission reduction activities and equipment. Mid-term plans (2023-2026) include plans to curb Scope 1 methane emissions in
Companies: FO 88E DEC EME GTC TRIN UOG WEN