A difficult H1-2023
A difficult H1-2023EARNINGS/SALES RELEASES
The building-related activities (DOM & MAC) could not escape a sudden softening in the market even though they enjoy the nominal steadiness of renovation markets. The industry-related activities shone but accounted for less than 30% of revenues. The management is worried about H2 and slashed its sales guidance to €680m which now looks like a floor. We have cut our 2023 earning forecast by c.30%.
FACT
Strong organic sales (up 7.5%) were accompanied by a 200bp drop in the operating margin to 3.9% and a contraction in net earnings to €6.6m from €11m.
With a still-demanding working capital requirement, the net cash situation (as per the SFPI definition) was down to €11.4m vs. €25.5m a year earlier. The balance sheet remains extremely sound with net cash expected to improve as excess inventories are run down.
ANALYSIS
The H1 earnings were not expected to be good as European building markets have hit the buffers of fast rising rates. Building is always the first to be impacted. Industry is unlikely to escape a degree of slowdown somewhat later. For 2023, SFPI’s industrial units are doing remarkably well in meeting the solid demand with a lean industrial base.
The negative surprise was the drop in the gross margin to 57.1% from 58.8%. This came from the building side and confirmed that demand has become price sensitive. With the renovation markets accounting for 80%-90% of revenues, MAC (mostly windows and doors) sales were somewhat cushioned but it is reasonable to expect that this segment will tank as well at a later stage
Solid cost control at the payroll level was sadly not enough to offset the extra layers of miscellaneous costs including the in-depth reorganisation of the industrial bases of MAC. This was well flagged when SFPI released its 2022FY accounts thus should be regarded as costs incurred for a good cause.
The Industrial units were the H1 positive with MMD posting sales up 37% and Neu-JFK up 11.5%. There is no shortage of demand for heat exchangers and air treatment but these are businesses where order books are not very long so that the more than 6 months of business ahead is great to have.
As with many other manufacturing businesses, SFPI has had to face a supply scarcity in the post-Covid recovery period. Building up inventories was unavoidable and presumably at higher costs than the going prices. This shows up in an increase of working capital requirement of c. €10m yoy but was contained to €2m vs. the close of 2022. After allowing for dividends and acquisitions in the H1, the gross cash position remains very healthy at €117m. This is largely due to strong cash from operations (€21m)
IMPACT
The ever-cautious SFPI has slashed its sales guidance from €715m to €680m – a strong statement about the changing visibility. We see €680m as a floor that we have not adopted for our reduced forecast with sales resetting at €695m. Pressuring sales down further would probably imply a collapse of profits. On sales at €695m, our earnings forecasts reset 30% lower for 2023 and c.8% to 10% lower for the following 2 years. This does not change our target price that much (provided that the dividend does not take a hit). The news flow is however unlikely to be positive for the next few quarters.
Groupe SFPI SA. Groupe SFPI SA is a group of manufacturing companies based in France. Each company of the Group designs, produces and distributes equipment for the construction and manufacturing industries. The Group divides its business activities into two main segments: Construction and Manufacturing. The Construction segment focuses on the supply of equipment, convenience, security and energy efficiency to a number of access points, which includes joinery, shutters, industrial closures, locks, sophisticated access security systems, monitoring systems and alarms, among others. The Manufacturing segment focuses on heat exchanges, sterilizers, air conditioning units, pneumatic transport and dust extraction systems.
AlphaValue Corporate Services capitalise on the research and credit analysis expertise deployed by AlphaValue with major institutional investors at European level over the past nine years. The proprietary tools and processes enabling AlphaValue Corporate Services to establish a valuation and/or a credit risk assessment are identical to those used by AlphaValue to the benefit of its institutional clients. The only difference is the recognition that a company evaluation cannot be dissociated from the fact that the latter is paying for the service (AlphaValue Corporate Services), as opposed to the investor footing the bill (AlphaValue). AlphaValue’s research tools are characterised by the transparency of the valuation methodologies, their responsiveness to market data and by nine years’ experience of a universe numbering more than 450 European companies. Through its coverage and sector exhaustiveness, AlphaValue ranks alongside the major research houses in Europe and constitutes the only new entrant to the European space in the past decade. This significant presence is reflected in an unrivalled distribution capability via platforms commonly adopted by investors to access research: Factset, Bloomberg, Capital IQ and the numerous websites. AlphaValue is one the largest research contributors to these platforms, to the benefit of AlphaValue Corporate Services issuer clients. The AlphaValue Corporate Services analysts are AlphaValue’s sector specialists. Their robust knowledge of the business models in their sectors enables the rapid generation of incisive, relevant research and advantageous interaction with the management teams.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.