EUR 103.24 For Business Accounts Only

BGC Partners: Brisa 1Q19 Earnings – Slightly negative…

The company sold 2.93mn tires in 1Q19 (domestic: 1.44mn, int’l: 1.49mn), down by 7.7% y/y (domestic: -21.7%, exports: +11.7%)), in line with our 3.01mn estimate. Weaker winter tire sales, poor demand in the domestic market, and competition had some negative impact on 1Q19 performance of Brisa as expected. We calculate 22.0% y/y rise in domestic prices (in TL) and a small 4.2% decline in export prices (in US$) in 1Q19 which leads an overall price increase of 21.1% in TL terms, on the average. Brisa recorded TL775.9mn revenues in 1Q19 (+11.8% y/y), in line with our estimate of TL788.2mn (consensus: TL790.5mn). Thanks to robust margins on the export front (supported by weaker TL, y/y), successful opex management (12.4% of sales in 1Q19 vs. 11.7% of sales in 4Q18 and 12.9% in 1Q18), and price hikes, Brisa posted a stable EBITDA margin of 16.3% and TL126.2mn EBITDA in 1Q19, in line with consensus estimate of TL125.4mn and 15.9% margin (BGC: TL117.2mn, 14.9% margin). Recall that some of the sales shifted to 2Q hence we may see some recovery in profitability in the second quarter; but the management expects actual recovery to take place in 3Q19. Recall that Brisa guides for 15-20% revenue growth (BGC: 23%), 15-20% EBITDA growth (BGC: 31%), and capex of US$40-45mn (BGC: US$50mn) in 2019. TL’s depreciation, soaring interest rates and high indebtedness have put some pressure on the bottom line as expected, but the company continued to benefit from incentives due to on-going investments and recorded TL3.2mn tax income in 1Q19 (4Q18: TL4.7mn income, 1Q18: TL5.0mn expense). All in all, the company posted a net “loss” of TL2.7mn in 1Q19, slightly lower than estimates. In the quarter due to the TL’s depreciation and TL119.3mn seasonal rise in working capital requirements, net debt increased to TL2,616mn from TL2,378mn at 2018-end (3Q18: TL2,607mn, 2017: TL1,835mn), at 5.0x trailing EBITDA.