BARCO: 1H20 preview : looking for a “Silver lining on Covid-19”

We expect Barco’s second quarter to be weaker than the first quarter resulting in a 1H20 y/y sales decline of 14.9%, near the top of its 10 to 15% range. We expect the cost productivity and operational efficiency measures Barco implemented over the past years to have created a more resilient business model, poised to withstand severe economic headwind. We expect -based on its experience in China since January- that Barco managed to contain its cost spending levels while keeping its manufacturing facilities operational. We reiterate our BUY and € 27.9 Target Price, supported by our DCF (€ 29.0) and SOTP (€ 28.3).

• Our 1H20 forecasts (results on 16 July 2020) take into account that Barco recently highlighted that “it remained open for business” as they were keeping operations running worldwide as much as possible.
• We are banking on 1H20E sales of € 422.8m while consensus is at € 419.6m. We are somewhat more pessimistic on Entertainment sales (€ 126.8m versus € 146.2m); optimistic on Enterprise (€ 155.9m versus € 132.2m CSS) and in line on Healthcare (€ 140.0m 1H20E sales) as China will be impacted the most in 1Q20 and the rest of the world only showing impact as of end of 1Q20.
• We see ClickShare showing softness during the lockdown, and we are expecting to see recovery on the back of a strong value proposition when businesses start to unlock and get part of employees back to office. ClickShare Conference is expected to show traction in early phase after restrictions ease up. Barco was hinting for a “Silver lining on Covid-19”.
• We also expect a good performance from Barco’s remote collaboration product weConnect for virtual class rooms.
• We expect 1H20E EBITDA of € 35.3m versus € 42.9m CSS. In Entertainment we expect 2.1% EBITDA-margin (€ 3.0m 1H20E EBITDA), in Enterprise 11.2% (€ 15.2m) and in HealthCare 12.0% (€ 17.0m). Consensus is at respectively € 4.6m, € 18.6m and € 19.7m.
• We expect Barco’s visibility for the year to remain limited.