S&T Company News - 2019 preliminaries in line, 2020 guidance also in line on EBITDA

-2019 guidance updated on preliminary data: EUR 1,145 mn sales confirmed, EBITDA raised to EUR 105 mn, in line with RCBe and consensus


-2020e outlook: sales of EUR 1,250 mn, EBITDA of EUR 130 mn; sales are below consensus/RCBe, EBITDA spot on


-Mid-term target top line of EUR 2 bn confirmed, EBITDA of EUR 220 mn and profitability (11%) up from EUR 200 mn, slightly above our forecast


-We have a neutral stance overall, with the guidance being in line on EBITDA, despite the slightly disappointing sales outlook





S&T published an update for the 2019 outlook based on preliminary results and while management confirmed the EUR 1,145 bn sales forecast (RCBe: EUR 1,156 mn, consensus EUR 1,145 mn), it raised the EBITDA outlook to EUR 105 mn from EUR 100 mn, which is bang in line with consensus estimates of EUR 105 mn and a notch above RCBe's EUR 104 mn.



Management also issued guidance for 2020, with sales seen at at least EUR 1,250 mn, which is shy of consensus of EUR 1,310 mn and RCBe (EUR 1,347 mn) and EBITDA of EUR 130 mn. The latter is in line with RCBe of EUR 130.5 mn and consensus of EUR 130 mn. The resulting profitability (EBITDA margin of 10%) is, however, above consensus (9.9%) and our expectations (9.7%). Management argues that the IoT Solutions | Europe segment would be the key margin driver as well as an improvement in IoT Solutions | America. In our view, the latter is a) based on low comparables in the phase-out of old contracts in 2019 and b) the increasing order intake in the aviation and communications server business, all in line with forecasts. We believe that the improvements from the PEC efficiency programme could have made the difference vs. our forecasts. We believe that the top line growth in 2020 is by two thirds attributable to acquisitions made in 2019, translating into organic growth of 3-4%.



At the same time, management confirmed the EUR 2 bn sales target for 2023 and nudged up the EBITDA goal to EUR 220 mn from EUR 200 mn, marking an EBITDA margin of 11%. We remind that S&T's mid-term targets include acquisitions in the area of EUR 400 mn of sales, which are neither part of our nor consensus estimates. At first glance, the margin upgrade to 11% in the mid-term is more than we had thought by 60 bp.



S&T will report its final 2019 results on March 26, 2020. We appreciate the improved margin outlook but fail to be impressed by the top-line guidance. However, management has a history of starting a year with not overly high top-line targets, hence our overall neutral stance.