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CAF: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Sales: € 594.0 M (-5.6% vs. +6.9% BS(e) and -0.2% consensus);
EBITDA: € 39.0 M (-33.5% vs. -93.3% BS(e) and -33.5% consensus);
EBIT: € 17.0 M (-56.4% vs. € -13.1 M BS(e) and -46.1% consensus);
Net Profit: € -4.0 M (€ 10.54 M in 1H'19 vs. € 7.0 M BS(e) and € 26.0 M consensus);
1H'20 vs. 1H'19 Results
Sales: € 1.117 Bn (-11.8% vs. -5.5% BS(e) and -9.1% consensus);
EBITDA: € 73.0 M (-37.1% vs. -67.3% BS(e) and -37.1% consensus);
EBIT: € 28.0 M (-63.6% vs. € -2.1 M BS(e) and -58.4% consensus);
Net Profit: € -35.0 M (€ 25.0 M in 1H'19 vs. € -24.0 M BS(e) and € -5.0 M consensus);

The company released at yesterday’s closing bell 1H’20 results impacted by Covid-19 and, although worse than expected in sales (-7% vs. BS(e) and -3% consensus) and in Net Profit (€-35 M vs. € 24 M BS(e) and € -5 M consensus), they beat our estimates by +92% in adjusted EBITDA, in line with the consensus, and especially in NFD (€ 451 M vs. € 580 M BS(e) and € 529 M consensus).
Sales decreased -12% vs. 1H’19 due to the performance of Solaris (25% CAF’s sales), which was -19% worse than we expected (-13% vs. 1H’19) and +3% better in the railway business (-11% vs. 1H’19). At the conference call held after the earnings release, the company specified that the decline in Solaris is not due to such a significant drop in the activity but to the impossibility of delivering some units already manufactured. As for the railway business, the vehicle manufacturing business (46% CAF’s sales) fell by -25%, while the services activity (18% CAF’s sales) grew by +37% vs. 1H’19 thanks to Euromaint’s integration (-2% in organic terms). The manufacturing activity is currently operating at 100% of its capacity while the maintenance services business has 60% of contracts with traffic above 90% the normal activity and 84% with traffic above 70% normal activity.
The adjusted EBITDA margin came in at 6.5%, far above our expectations (3.2% BS(e) and 6.3% consensus; 9.2% in 1H’19), which brought EBITDA to € 73 M (-37% vs. 1H’19). Solaris’ margin stood at 6.1% (vs. 4.9% BS(e)), and that of the rail business at 6.6% (vs. 2.6% BS(e)). Adjusted Net Profit came in far below expectations (€-35 M vs. €-24 M BS(e) and €-5 M consensus) due especially to higher financial costs stemming on exchange rates (especially for the Mexican peso and the BRL; this does not necessarily mean cash outflow) and a greater fiscal impact than expected.
During the post-release conference call the company mentioned that it expects 2H’20 to be clearly better than 1H’20, meaning that sales in 2020 will exceed those of 2019 (vs. -1.6% BS(e) and -2.2% consensus) and that 2H’20 EBITDA will hit a similar level to 2H’19 (in line with our estimate and -6% below the consensus) assuming the same activity conditions as the current ones (that is, with the maintenance business still below normal levels).
On the cash generation side, the results clearly beat expectations, reaching € 451 M of NFD (2.3x adjusted NFD/EBITDA according to CAF’s definition; vs. € 580 M BS(e) and € 529 M consensus). Furthermore, the company raised its liquidity position to € 1.16 Bn (vs. € 914 M as of YE2019) vs. debt maturities of € 420 M in 2020-21 (according to 2019 accounts).
Order intake came in above our expectations (€ 599 M in addition to € 251 M from Renfe’s contract that was not included in the 1H vs. € 650 M BS(e)), leaving the order backlog at € 9.178 Bn (taking into account Renfe’s contract; -3% vs. 2018; 3.3x sales). At the conference call the company outlined that it has pre order intake to be awarded worth some hundred million.
In summary, poor results that came in far above our EBITDA estimate although in line with that of the consensus but clearly better in cash generation, and thus we expect a moderately positive market reaction especially after underperforming the IBEX by -2% since Feb’20 highs. BUY, T.P. € 41.00/sh. (+32.26% upside).