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Growth journey to continue despite tougher B2B environment
- Positive growth expected in 3Q, Motors and B2C to offset B2B slowdown. We expect another quarter of organic growth, driven again by the resilient motors and ownbrand (B2C cooking) activities, although worsening B2B demand is likely to be visible. We forecast sales of €129mn, down -7% YoY but up +1% organically (3Q21 still included India) with a +2% estimated FX tailwind. Motors sales are forecast at €26mn, +10% YoY. We expect B2B Cooking sales of €35mn, down -32% YoY due to a demand slowdown and the (planned) phase-out of some OEM contracts, as warned at the 2Q results release. B2C Cooking should remain a positive driver, with B2C sales forecast at €68mn, up +8%. By Geography, we expect EMEA sales up +6% to €101mn and Americas sales down -6% to €19mn.
- Margins and FCF expected to reflect B2B volume reduction. We expect the operating leverage effect from lower B2B volumes in 3Q to impact margins, as we forecast adj. EBITDA /adj. EBIT of €13mn/€7mn, down -9%/-16% YoY, also reflecting India deconsolidation. We expect an adj. EBITDA /adj. EBIT margin of 10.4%/5.4%, down – 0.3pp/-0.6pp YoY. We expect adj. EPS to also decline by -5% YoY to €0.07, partly due to the positive effect of the change in contribution from the India participation. FCF is forecast positive at €7mn (vs €12mn in 3Q21), only partly offsetting the cash-outs for the Airforce closing (€1.5mn), EMC deal payment (€7mn), and re-organization plan (estimated €3mn). Net debt is forecast to rise to €35mn (from €31mn as at end-2Q).
- Tougher B2B demand context may drive FY22 guidance revision. The worsening scenario expected for 2H, visible from the cautious indications on European home electronics demand from Electrolux and Whirlpool, will likely be mainly visible from B2B volumesfirst. This trend looks likely to continue at least until mid-2023, while the more resilient B2C and Motors activities, with new product launches planned in 2023, might merely offset this pressure. We believe this scenario is likely to lead to a FY22 guidance revision: we now see org. sales growth closer to +2/3% and the adj. EBIT margin closer to 6.0% (from previous guidance of +5/6% and c.6.5%), in-line with FY21 profitability, achieved notwithstanding a €50mn impact from cost inflation. However, we believe the YoY net debt reduction target is likely to be confirmed. For FY23, the expected c.1pp of additional margin from the re-organization plan remains. The mid-run 8% EBIT margin target may still be supported by the ca. 0.5pp margin gain from continued de-complexification actions.
- Change in estimates. We have adjusted our forecasts to reflect the expected changes in FY22 guidance, and also adjust our FY23 estimates accordingly.
- BUY rating confirmed, TP lowered to €4.0 (from €4.7). The tougher market environment is set to hit harder than initially expected. Nevertheless, we re-affirm our confidence in management’s ability to execute the strategy, as the key pillars of our equity story still hold in our view (re-organization plan to unlock margin growth, innovative product line-up, expansion potential in the US, proven cost control capabilities). We lower our DCF-based TP as we reflect a higher risk-free rate (now 4%, -€0.5 p.s.), a higher terminal growth (now 2%, +€0.2 p.s.) and the more cautious estimates (-€0.4 p.s.). Valuations remain at a discount to international appliance OEMs (33% discount to EV/adj. EBIT’23) and our Italian peer group (average discount 60%)