Waberer’s - Not Convincing, But Showing Up Positive Signs

WABERER’S – Instant Earnings Comment

Recommendation:  BUY (unch.)

Target price (e-o-y): HUF 1,785 (unch.)

Share price: HUF 1,280

 

Not convincing, but showing up positive signs

 

• Waberer's Q3/19 results (7th/Nov) were disappointing once again, affected by negative one-offs due to consulting expenses (HUF 55 per share) related to the transformation programme. Despite Management’s hopes, strong recovery is very unlikely in Q4/19, in our view, which is in line with our previous forecast, however, Audi contract, effective from Dec/19, may support the results in the ongoing quarter. ITS (International) segment has continued its worrisome performance, but RCL (Regional Contract Logistics) and WHB was capable of delivering adequate results to support the Group’s financials and to offset the suffering of the ITS. (NEG)
• Waberer's posted a recurring net loss of EUR 5.6 million for Q3/19 vs. a recurring net loss of EUR 2.7 mn seen in Q3/18, predominantly driven by (1) the trashy performance of ITS segment (despite favorable fuel prices) and (2) non-realized FX losses, amounted to EUR 1.1mn. The Company accrued a net loss of EUR 19mn in the first 9M of 2019, vs our FY19 forecast of EUR -21mn. In this aspect, we are looking forward a challenging quarter once again and a recurring loss of c.EUR 2mn for Q4/19.
• Total Group sales amounted to EUR 169.8 mn, down by 7.1% YoY in Q3/19 predominantly due to lower volumes as a result of the fleet reduction programme. EBITDA shrunk by 19% YoY to EUR 15.3mn. Waberer’s reported loss on operational level as EBIT reached EUR -1.7mn in Q3/19.
• Indebtedness: Net leverage improved to 5.4x (covenant at 3.5x) as of the end of Sept from 5.7x as of Q2/19 - this declining trend is expected to continue going forward. It was broadly as a result of fleet size reduction (further 260 trucks to be handed back in Q3/19 vs. Q2/19), More importantly, CEO highlighted that measures started influencing margins and will be material in the quarters to come. Truck efficiency is at those levels seen in the same period last year, while the Group remained financially stable.
• Opinion: We reiterate our BUY recommendation, with a TP of HUF 1,785 per share.
  We are of the view that short-term and long-term measures will likely result in a margin improvement in the next quarters as it happened in Q3. However, we put a blame on ITS segment, which is continuously deteriorate the value of the Group. We see that it is still unable to recover, which demonstrates the very low pricing power of Waberer’s on the European routes. More importantly, the regulatory framework is shifting toward a more unpredictable and unfavorable direction, which aims at shrinking the Eastern European hauliers out of the Western European market. We therefore cannot exclude the continuation of the fleet reduction programme. We remind the investors that, in our view, RCL and WHB are the two segments, which can create value for investors, while ITS has been pulling down the results for a long time due to the inefficient capacities.
• Risks: Fuel price increase, restrictive measures from the side of the EU, and Brexit, which are beyond the scope of the Company, still pose the biggest risks.Waberer’s announced on Thursday AMC that it would explore strategic options regarding its insurance business. While the Company did not define what explore means, we believe the Company is also contemplating on selling the business.

Source: Waberer’s

 

Gabor Bukta
analyst

CONCORDE SECURITIES LTD.

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