EUR 200.00 For Business Accounts Only

APPLUS: MEETING WITH THE COMPANY (ANÁLISIS BANCO SABADELL)

We highlight the main messages conveyed at the conference call held today with Joan Amigó (CFO):
 Impact from Covid-19 in the 2Q’10 and expected recovery: it foresees a -35% sales drop and slightly negative EBIT (without giving accurate figures, with greater impact on MoT activities and Oil& Gas) in the 2Q’20 and the beginning of the recovery in the 2H’20 and significant as the MoT stations are reopened (41% of the group’s EBIT; where stations are already being reopened)
 Automotive: the reopening of stations in Spain is already materializing, and the company expects to recover the business lost between 2020 and 2021 (most of it in 2020), stating that it will lose part of the productivity due to the safety measures will be forced to implement in the stations.
 Oil & Gas: as for the business linked to Opex (~25% of the group’s sales), the company does not expect a loss of volume, although it forecasts delays and some pressure on prices (which the company will try to offset with costs and an increased share). In this regard, it will be more restrictive about accepting price reductions. As for the business linked to Capex (9% of total sales), the company expects to see some deterioration due to low crude oil prices and their impact on the cancellation of new projects. However, the business’ fragmented nature makes it somewhat more resilient.
 Financial position: the company is satisfied with the measures that were adopted recently in order not to meet the debt covenants. The company’s current liquidity position is € 622 M (after obtaining a new loan facility of € 150 M in April), with € 390 M of cash. With these measures and with its sizeable debt maturities falling due from 2024 onwards, the company would have much leeway to absorb the current situation. Moreover, it expects the impact on cash to be insignificant in April, as the drop in the P&L statement would be offset with lower working capital investment.
 M&A: the company considers this is key to its strategy and value-enhancement. However, it believes that deals will not emerge in the short-term given the current uncertain situation.
MARKET IMPACT
These comments reinforce those unveiled at the conference call on 1Q’20 Results and offer visibility on the impact from Covid-19 and on its measures to tackle it, although they also underscore the uncertainties in the short-term, with the company being unable to update its targets’20. As we outlined last week, we will cut our estimates and T.P. (from € 14.60/sh. to Under Revision). With the impact expected in the 2Q’20 (where EBIT accounts for around 30% of the total), our cut would reach -45% in EBIT’20e and a lower level in T.P. (around -35% vs. the current € 14.60/sh.) based on a rapid recovery of the hardest hit business (Mot), and thus the upside would continue to be appealing. We maintain our BUY recommendation as we see value in the long-term.