da Intermonte – Company Research Report BANCA IFIS, BANCA SISTEMA, LU-VE, INDEL B, TXT, WIIT

Buon pomeriggio,

di seguito e in allegato inviamo i company research report relativi a BANCA IFIS, BANCA SISTEMA, LU-VE, INDEL B, TXT e WIIT a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendaño Grassini

M. +39 338 1313854




Core Revenues in Line, Room to Raise Payout Ratio


n 1Q23 results: net profit slightly better thanks to higher trading. NII grew +6.4% YoY driven by commercial banking activity (factoring turnover +17% YoY, leasing +22% YoY) and a positive contribution from the NPL division (cash collections on NPL portfolio +7% YoY). 1Q23 results include an Eu8mn capital gain on direct and indirect PE investments (Eu1mn in 1Q22) due to the disposal of some equity stakes, and also a recurrent and stable contribution from the proprietary bond portfolio (Eu1.5bn) corresponding to Eu19mn in the quarter (total revenues Eu182mn). Operating costs were in line (+3.7% YoY) while the cost of risk was slightly better (Eu10mn, of which Eu5mn of additional provisions against macroeconomic risks). Net profit was Eu46mn vs. Eu38mn, while the CET1 ratio stood at 15.21% (+20bp QoQ) thanks to RWA reduction (+34bp) which more than offset the negative impact from fair value OCI and other reserves.

n Conference call feedback. Management is not seeing any deterioration in asset quality and confirmed the resilience of the business model (factoring turnover 4x per year and rapidly adapting sector exposure, leasing with marketable assets and zero exposure to RE and nautical, M/L term loans 80% state-guaranteed). The positive correlation of assets to interest rates should support NII even in an environment that should see the cost of funding increase materially in 2023 (from 1% to 2.5%). Capital solidity (CET1 ratio shows a buffer of c.700bp vs. SREP) would justify a higher payout ratio; management confirmed the BoD is studying a gradual and steady increase in dividend distribution.

n Change in estimates. We are leaving our 2024/25 estimates unchanged, while finetuning 2023 EPS estimates by +4.7% YoY on the back of slightly higher revenues (i.e. trading income) and slightly lower cost of risk (from 75bp to 70bp), partly thanks to Eu60mn of overlays that are currently untouched, which represent a buffer against any deterioration in asset quality (although management does not expect to use this buffer in 2023). We are now broadly in line with company guidance for 2023 (net profit at Eu150mn).

n OUTPERFORM confirmed; target Eu19.00 (from Eu18.30). We confirm our positive stance on the stock as we think the bank will be able to deal with a higher cost of funding thanks to a rapid repricing of the loan book and a steady positive contribution from the financial portfolio and the NPL business. Current dividend distribution could be improved further, enhancing an already-attractive dividend yield (currently 10% for 2023 based on a 55% payout ratio). We don’t expect management to use current capital for external growth. The stock is trading at 0.50x TE with an expected average 2023/24 ROTE at 9%.




Results in Line, Focus on Loan Repricing and Cost of Funding


n 1Q23 results in line. NII was stable YoY as higher interest income (+70% YoY) was offset by higher interest expenses, which went from Eu 2.9mn (1Q22) to Eu 19.4mn (1Q23). All business lines/products contributed to the increase in interest income, albeit with income-backed loans to a lesser extent as the loan book is fixed rate. The overall contribution to P&L from LPI under legal action came to Eu 11.1mn (Eu 4.1mn in 1Q22) thanks also to the ECB policy rate increase, which took the overall LPI rate to 10.5% (from 8%) and which is expected to be further increased by July 2023 (updated twice a year according to the ECB rate). Factoring turnover grew by 9% YoY, the income-backed loan book was slightly down YoY, while pawn loans grew by +19% YoY. The financial portfolio was pretty stable YoY, cost of funding grew to 2% in 1Q23 (from 0.4% in 4Q22), and retail deposits went down QoQ (Eu 1906mn vs Eu 2071mn) as the bank decided to reduce the component linked to corporate clients, which is more expensive. The fully-loaded CET1 ratio stood at 12% in the quarter and includes 1Q23 net profit of Eu 3.7mn (vs Eu 4.4mn registered in 1Q22).

n Feedback from the conference call. Management sees a further increase in cost of funding in the coming quarters albeit at a slower pace, which should take the total cost of funding from the current 2% to 2.5% by YE. Management will focus on retail deposits vs corporate deposits, as the former are less expensive; residual maturity of retail deposits equates to 12M. The contribution of income-backed loans will remain subdued for a few quarters while higher LPI should support NII. Any change in split payment rules should be neutral for the bank; the process for the IPO of subsidiary Kruso Kapital is ongoing and no capital gain is expected as the IPO will involve a capital increase.

n No change in estimates. We are keeping our estimates unchanged as we want to see the impact of higher rates on both assets and liabilities. Cost of risk seems to be under control and even lower than our expectations.

n Outperform confirmed, T.P. 1.75. We think earnings downgrades due to higher cost of funding should be over and new production should sustain the top line in the coming quarters. Asset quality remains solid and capital is sufficient to finance future growth. Stock trading at 0.5x TE with ROTE at 10% and a dividend yield at 5% on average.



Strong Business Resilience Thanks To Diversification


n 1Q23 results stable YoY despite tough comparison. This is the first time the group has published 1Q results, following its recent move to the STAR segment, and for this reason we didn’t have detailed quarterly estimates. We note that Lu-Ve had already released product revenues of Eu150.6mn, +4% YoY: the excellent growth in the heat pump, air conditioning and datacentre segments was partly offset, as expected, by lower demand for heat exchangers for tumble dryers and a slow start in the HORECA and display cabinets sectors, although the latter has shown the first signs of recovery in recent weeks. Quarterly EBITDA was Eu19.2mn (12.7% of revenues), in line YoY. If we adjust 1Q22 EBITDA for non-recurring costs, we note a Eu0.7mn YoY contraction due to a combination of different factors: positive contributions of Eu1.7mn from volumes and Eu2.8mn from prices, offset by a Eu5.2mn cost increase; notably, at current raw material prices, cost inflation would have been just Eu3.3mn, while the remaining Eu1.9mn impact comes from the use of safety stock, built up at higher prices than currently in force. This effect will not continue in the coming quarters. As for net income, adjusting for non-recurring items, the 1Q23 bottom line would have been Eu8.0mn vs. Eu10.5mn in 1Q22, reflecting an increase of c.Eu1.3mn in financial charges. Net debt at the end of March 2023 was Eu161.4mn, up Eu19mn from YE22 because positive operating cash flow of Eu15mn was more than offset by Eu6.2mn of CapEx and Eu27.9mn of NWC absorption, driven by business seasonality.

n Management outlook. In light of an order book of Eu218.6mn at the end of March (+15.8% vs. the YE22 figure), management expects 1H23 performance to be in line YoY. Even if business visibility remains low, 2H23 revenues should slightly exceed 1H23. Clearly, the outlook remains excellent for heat pumps (Lu-Ve is investing to expand production capacity and we expect group heat pump revenues to more than double in 2023, potentially reaching 13% of total turnover).

n Estimates confirmed. Considering the extremely tough comparison, 1Q23 results showed good resilience, but the business outlook remains quite uncertain for the coming months. As for 2023/24, we are confirming our revenue forecasts assuming +5.9%/7.0% YoY growth. In terms of margins, we are also leaving our 2023/24 EBITDA margin forecasts unchanged at 12.8% and 13.1% on sales respectively.

n OUTPERFORM confirmed; Eu33.0 TP unchanged. We expect Lu-Ve to confirm good resilience this year thanks to a successful business diversification strategy. Our medium-term estimates remain slightly more conservative than management’s ambition to achieve high single-digit revenue growth coupled with a 14%-15% EBITDA margin. The group remains well exposed to supportive trends: 1) the enforcement of increasingly strict environmental regulations; 2) the migration of heating systems from gas to electric through the use of heat pumps; 3) developing needs for refrigeration tools linked to rising urban populations; 4) the creation of effective cold chains in developing countries; 5) cooling needs of data centres and renewable electricity generation plants.




Solid Expectations Despite Lower Visibility Moving Forward


n Results showed strong resilience…2022 results (published on 28 April) exceeded expectations, with the top line rising 14% in 4Q, thanks to very strong trends in Automotive (+21%) and Hospitality (+35%). Cooling Appliances revenues also beat forecasts. In 2022, adj. EBITDA was Eu30.6mn, up 18.7% YoY, with the margin fairly flat at 13.5% (13.7% in 2021) despite cost inflation. Adj. net profit also improved to Eu16.3mn, up 3.7% YoY. Net debt increased to Eu28mn from €12.8mn due to increased working capital resulting from the rise in revenues.

n …which continued in 1Q23: the 1Q23 trading update (released on 12 May) showed revenues up 7% YoY to €55.2mn, with diverging trends across divisions. In Automotive: revenues were up 20% to €36.7mn; while still a double-digit growth rate, it marked a deceleration compared to previous quarters. We expect this trend to continue, as the comparison base will get progressively tougher during 2023. Leisure: revenues were down 20.3% to €6.2mn; the decline was due exclusively to the Marine segment, which suffered a mismatch between sell-in and sell-through at its subsidiary Indel Webasto Marine. The performance in the RV segment was positive, with double-digit growth. Hospitality: revenues were up 24% to €4.3mn, driven by growth in the Cruise segment, thanks to the acquisition of new orders. With the exception of 3Q22, the segment has recorded revenue growth rates of over 20% in recent quarters. Cooling Appliances: revenues were down 2.1% to €2.7mn, accelerating compared to the -17% reported in 4Q22. We note the comparison base will get harder, especially in 2Q. Components & spare parts: revenues were down 23.2% to €5.1mn, in deceleration compared to 3Q and 4Q22.

n Less visibility going into 2023 but positive developments still expected: 2023 started with a slowdown in revenues and a contraction in some markets. Nevertheless, management expects the 2023 top line to be at least in line with 2022 / up single-digit, with more positive developments in 1H than 2H, also flagging up lower visibility in general, with automotive OEMs showing less stable forecasts than in the past. Management expects some of the profitability lost in 2022 to be recouped in 2023, and is confident of bringing it back to pre-Covid levels in 2 years.

n Change in estimates: we are slightly raising our 2023 forecast, with higher revenues, showing 3.0% YoY growth. We embed a marginal 30bp increase in profitability from 2022 to 2023, but with a lower-than-previously-expected improvement in 2024. As a result, we are changing EPS by +2.6% and -10.8% in 2023 and 2024 respectively.

n Target raised from €28.6 to €33.1: demand remains strong across segments, which should allow the company to improve further in 2023 thanks in part to its ability to manage costs. Indeed, while visibility on 2023 remains sub-optimal, it is still too early to call a recession and make more negative assumptions. We are lifting our TP as a result of the valuation roll-over from 2022/23 to 2023/24, and the re-rating of peers. At the new target price, we value the company at 6.9x and 11.7x 2023 EV/EBITDA and P/E, with Dometic trading at 9.0x and 13.3x respectively. 




Good 1Q23 Numbers, Encouraging Outlook


n 1Q23 organic revenue growth stronger than expected. 1Q23 revenues were Eu52.3mn, +71.4% YoY and 1.2% better than our expectations. On an unchanged consolidation perimeter, revenues grew +11.2%, markedly better than our estimate of +5.6%. EBITDA came to Eu6.8mn, slightly better than our estimate of Eu6.7mn and up 52.1% YoY. Margin dilution (from 14.7% to 13.1%) is mainly attributable to consolidation of new acquisitions. Presentation of 1Q23 results also reflected the group decision to change segment reporting, which is now based on the type of offer: (i) Smart Solutions: proprietary software and solutions; (ii) Digital Advisory: specialised consultancy services for digital innovation of processes at large enterprise and in the public sector; (iii) Software Engineering: software engineering services for innovation. In 1Q23, the contributions of the various divisions were: Eu9.3mn (18% of total) from Smart Solutions; Eu6.6mn (13% of total) from Digital Advisory and Eu36.3mn (69%) from Software Engineering. Debt as at 31 March 2023 was Eu24.6mn, slightly better than expected and down Eu13.7mn thanks to favourable seasonality of NWC and despite the share buyback for Eu3.4mn. We note that this figure includes the value of the TXT stake in Banca del Fucino, booked at a carry value of Eu16.5mn. The approval of 1Q23 results took place at the first meeting of the new board appointed by the AGM on 20 April, which confirmed Enrico Magni as chairman and Daniele Misani as CEO.

n Management outlook. According to management, the Digital Advisory and Software Engineering divisions should continue organic growth in line with 1Q23 – +24.1% and +11.6% respectively – while Smart Solutions, which grew organically 4.5% in 1Q23, should accelerate from 2H23. Management is working on closing new acquisitions, as it has high financial flexibility. In 2023, TXT expects to achieve organic revenue growth in line with 1Q23 (11%) and an EBITDA margin of at least 14%. In relation to the 2023 M&A plan, TXT plans to continue with its acquisition plan aimed at integrating emerging technologies, specialised digital skills and excellence in markets that are already proprietary or adjacent to the current ones. Importantly, management is planning an investor day in July or September to better describe to the market its 3-year strategic outlook.

n Change in estimates. Given the positive 1Q23 figures and encouraging management outlook, in this report we slightly raise our 2023/24 organic growth estimates (from +8.9%/+8.0% to +11.0%/+8.0%), while leaving our EBIT margin assumptions unchanged; we think our new assumptions, consistent with management indications (clearly, we do not include future M&A deals expected to be announced during the year), remain quite conservative. All in all, we are upgrading 2023 and 2024 EPS by 1.9% and 2.0% respectively.

n OUTPERFORM, target Eu23.2 from Eu22.1. Good delivery on the M&A strategy coupled to organic performance, confirmed by 1Q23 results, remain the pillars on which our view on the stock rests. Even after the recent positive stock performance, the valuation remains attractive, especially in relation to the expected growth rates. Our target revision is explained by our estimate upgrade. The investor day presentation could be a relevant catalyst ahead.




Delivery Improves Visibility on our FY Estimates

n 1Q23 results. 1Q top line in line with estimates, but 3-4% positive surprise on adj. EBITDA (+9% on adj. EBIT). Revenues at €31.8mn (our exp. €31.4mn, consensus €31.8mn), up 21% YoY, owing in part to a €4.8mn contribution from newly acquired companies (€1.9mn Lansol, €1.1mn Global Access, €1.8mn ERPTech) but also to an improved mix: the German market accounts for 54.3% of overall turnover while Group recurring sales account for 84% of total. Organic growth was the result of higher focus on value-added services, increased cross-selling to acquired companies’ customers, and new customer intake: Italy saw a faster pace (1Q: +7.8%, FY22; +4%), in particular on core services (1Q: +9%, FY: +13%), compared to Germany (+4%). Adj. EBITDA was €12.0mn (+4% vs. our exp. 11.5, +3% vs. cons. 11.6), up +19% YoY, with significant margin expansion at 37.8% (vs 35.5% in FY22), and stronger delivery in Italy (40.8% vs 37% in FY22) compared to Germany (35.3% vs 33.6% in FY22) despite the higher electricity costs (€2.5mn, +€0.5mn YoY) mostly attributable to Germany (higher number of DCs managed), and increased personnel costs (€8.3mn, +€1.9mn due to change in scope) which now represent a third of adj. OpEx base. Excluding PPA (c.€1.1mn) and one-offs (€1.0mn), adj. EBIT was €6.7mn (21% margin), leading to adj. net profit of c.€3.9mn (reported €2.2mn). With minor swings in working capital, the €11.2mn cash flow from operations was partially absorbed by CapEx (€8.7mn, our exp. €6.3mn). Considering a €6.4mn M&A cash-out for Global Access and share buybacks (€2.0mn), net debt rose to €192mn (our exp. €178mn), above YE22 (€183mn), or €146.3mn ex-IFRS 16 (€12.8mn) and including treasury shares (€32.8mn), which implies 2.9x adj. EBITDA’23E.

n Feedback from call. Germany:  new acquisitions grew double digit (Lansol +20% YoY), with the exception of Boreus, which was flattish as expected (management is confident it will improve next year). Energy costs: c.2pp impact on the German margin. Benefits as of next year from contract with German utility company ensuring fixed-price energy for the next 4 years. Onboarding of new clients: positive one-off on revenues in 1Q, but lower than seen in 4Q. Settlement for Boreus: Eu10mn cash-out in 2Q. 

n No major change to estimates. Despite the surprise on 1Q margins and the potential pointers from the conference call, we do not see any scope for significant improvements to our 2023-25 estimates. We merely capture the 1Q one-offs and €10mn settlement for Boreus, which will increase treasury share stock by the same amount.

n OUTPERFORM confirmed; target still €27. Applying the same WACC (6.7% before 2026, 7.7% beyond 2026) and g (2.6%) and the same long-term adj. EBITDA margin (39%), we confirm our DCF-based TP at €27, which implies 18x EV/EBITDA’23 (in line with historical average) and still offers a compelling entry point, prompting us to reiterate our positive view. WIIT should continue to benefit from its leading position as a digital champion, further consolidating small M&A targets in Italy and gaining scale in Germany. WIIT is also well placed in a market with sound growth prospects underpinned by an embedded technological shift from on-premises to cloud infrastructure and services. The company should exploit this trend through its strong market positioning in the premium cloud niche, which is suitable for mission-critical applications requiring the tightest SLAs, and by taking advantage of its extremely scalable business model.