da Intermonte – SESA Company Research Report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a SESA a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendano Grassini

M. +39 3381313854

 

Strong Results, FY Guidance Highly Visible Even at Top End

 

  • Surprising organic growth in the quarter. In 2Q22/23 (1 August – 31 October 2022) revenues came to Eu156.6mn, up 32.6% YoY, 13% better than expected. The VAD business unit (73.8% of quarterly sales) grew 32.4% YoY – almost entirely organic – representing the most significant positive surprise to our forecasts, the SSI business unit (22.4% of quarterly sales) posted a 23.5% rise in revenues, while the contribution from Business Services (3.2% of quarterly sales) was up 60.1% YoY. In terms of margins, we can point to a 5bp EBITDA margin decrease YoY to 7.14%, a touch below our estimates, but better than in previous quarters (+31bp and +4bp compared to 4Q21/22 and 1Q22/23). All in all, quarterly EBITDA came in at Eu45.8mn, up 31.6% YoY and 12.2% better than expected. Below this line, D&A and financial charges were slightly higher than our forecast, taking quarterly adjusted net profit to Eu20.9mn, 9.0% above our estimate and up 23.8% YoY. Notably, at the end of October 2022 the net financial position was positive to the tune of Eu10.5mn (or Eu189.5mn before IFRS16 liabilities of Eu45.1mn and before accounting for the future M&A earn-out and call options of Eu133.9mn), Eu17.5mn below our forecast, as a result of slightly higher M&A and buyback cash-outs. Over the last twelve months Sesa has invested about Eu100mn in M&A, paid Eu14mn in dividends and sustained a Eu12mn buyback.

 

  • Management confident of reaching the higher end of FY22/23 guidance: in light of the positive results, management appeared confident of meeting the higher end of the FY guidance (EBITDA Eu195-205mn). Organic growth is expected to continue at a double-digit rate thanks to strong demand and increased market share. As a key partner for US giants in Italy, Sesa is ideally positioned in segments enjoying the fastest growth rates, such as cloud, security, digital platform and digital green (the latter representing almost 10% of group revenues after very strong growth).

 

  • Change in estimates. We are raising our revenue forecasts by 1.9%, factoring in the positive quarterly surprise, especially in the VAD business, as well as new M&A deals. As for the EBITDA margin, we are leaving our forecast unchanged, taking new EBITDA estimates for the current year to Eu207.9mn, i.e. above the top end of management’s guidance range (Eu205mn). In 2023 we expect recently-announced M&A to drive some margin improvements. All in all, having assumed slightly higher D&A and financial charges, we are raising our EPS projections by 0.9% for the current year and 1.8% for the following one.

 

  • OUTPERFORM confirmed; target Eu180.0 from Eu188.0. Sesa is enjoying very strong organic growth and remains well placed to seize further M&A opportunities, including outside Italy. It has an ever-burgeoning reputation, and clear and forward[1]looking governance. In December 2022, CDP improved its sustainability rating on the company from “D” to “B”. Despite a tough macro environment, business trends are expected to remain healthy (corporate digital spending should remain strong) and the group enjoys a strong market positioning, with revenues that are well diversified across a large customer base. In conclusion, we strongly confirm our positive view. Our target goes to Eu180.0 to reflect a higher risk-free rate, a move partially offset by the increase in estimates and by rolling our valuation forward.

 

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