da Intermonte – SERI INDUSTRIAL company research report

Buon pomeriggio,

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

Rimaniamo a disposizione per ulteriori informazioni.

Un caro saluto,

Ludovica Bertola

M: +39 347 1667538

A Step Back to Reflect Increasing Complexity

We viewed SERI as a player set to benefit from the green transition, with significant value to be unlocked from the successful execution of its T1 and, above all, T2 projects. Although the long-term opportunity remains, we downgrade the stock to NEUTRAL on a deterioration of the battery market and the complications brought by the acquisition of IIA. In particular, we see several drawbacks to the deal, which will put further strain on execution of SERI’s industrial plan in terms of both focus and finances. We move the TP to €3.5 from €7.2 to reflect the inclusion of IIA in our forecast (even if it significantly improves in the next few years, we expect it to remain in the red) and lower forecasts at T1. We make no adjustment to T2 projections, although progress appears to be falling behind schedule, in our view, and still does not include P2P.

• 1H24 results OK… SERI reported 1H24 results in line with expectations, with slightly lower revenue (+1% YoY vs +6% exp.) on lower T1 sales, but higher EBITDA (€9.2mn vs 7.1 exp.). Net debt increased more than expected (€83mn vs 79 exp.) on worse NWC.
• …but 2H not achievable. Despite the business as-is substantially on track, 2H estimates look hard to achieve, as the market for lithium batteries has deteriorated markedly. The removal of the 110% Superbonus and aggressive commercial policies by Chinese players are to blame for lower-than-previously-assumed sales for T1 (€7mn vs 60 prev.).
• Acquisition of IIA… Last July, SERI announced the closing of the acquisition from Invitalia and Leonardo of 98% of Industria Italiana Autobus (IIA), which makes multi-energy buses under the Menarini brand at two plants in Italy. However, IIA is encountering operational and financial difficulties (FY23: revenues, operating loss and net loss of €57mn, 56 and 63 respectively). The rationale is to vertically integrate the business by putting lithium cells into vehicles manufactured by Menarini. IIA was purchased for free by SERI, which will invest €50mn in an investment plan, and neutral NFP at YE24.
• …has several drawbacks. We understand the turnaround foresees a restructuring program and a commercial relaunch including through help from a Chinese partner ( identity still unknown). Although we get management’s view, we believe the deal has several drawbacks: i) IIA has a long-standing negative track-record; ii) SERI has no experience in bus manufacturing, narrowing the scope for synergies, while specific batteries are still in development; iii) although the asset should come with a neutral NFP as at YE24, the turnaround will put further strain on execution of SERI’s industrial plan; iv) players operating in the field have much larger scale, portfolio, and reach but their operating profitability is MSD and they trade at MSD multiples.
• Update on FCT, T2 and P2P. Last week, SERI signed a framework agreement with FCT for the supply of battery modules to be installed on next-gen submarines. Contract is worth €101mn over 4 years (i.e. €25mn/year) providing some visibility to T1 revenues for which we assume €39mn and €87mn in 2025 and 2026 respectively. On T2, we note the total spend on the project is €35mn (mostly OpEx) out of the ~€500mn covered by grants. The revolving line to support the CapEx plan in anticipation of grants has yet to be finalized. Overall, the project appears behind schedule: SERI targets production in 2026; our forecast is 2027. SERI also recently signed an accord with Eni to make lithium batteries at Eni’s Brindisi plant, but no more details are available at this stage. On P2P, the company recently confirmed its willingness to start the investment plan, although we still do not include any benefit from that pending developments which also rely on government grants.