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CAF: 1Q’21 RESULTS AND T.P. INCREASE (ANÁLISIS BANCO SABADELL)

1Q’21 vs. 1Q’20 Results:
Sales: € 662.0 M (+26.6% vs. +30.0% BS(e) and +29.1% consensus);
EBITDA: € 57.0 M (+67.6% vs. +67.9% BS(e) and +63.1% consensus);
EBIT: € 34.0 M (+209.1% vs. +214.5% BS(e) and +200.9% consensus);
Net Profit: € 16.0 M (€ -31.0 M in 1Q'20 vs. € 14.2 M BS(e) and € 11.2 M consensus).

At yesterday’s closing bell the company released 1Q’21 Results that were still hit by Covid-19 (especially in the maintenance business), but very much in line with expectations. The company has not provided any information on 1Q’21 cash flows.
Sales came in slightly below expectations (-3% vs. our estimate and -2% vs. consensus), reaching € 662 M, meaning a +26% increase vs. 1Q’20. The rolling stock division (77% of sales) saw its sales grow by +14% vs. 1Q’20 (in line with our estimate), whereas Solaris (bus division; 23% of sales) rose +108% (-12% vs. our estimate). Although the company does not break down figures between the rolling stock maintenance and manufacturing divisions, in the subsequent conference call it mentioned that the former would still be affected by the restrictions on movement stemming from Covid-19 (and at very similar levels to 4Q’20), as with the execution of comprehensive projects.
EBITDA stood at € 57 M (in line with our estimate and +3% vs. consensus), meaning a margin of 8.6% (vs. 8.4% BS(e)). The company does not break down margins between the rolling stock and bus divisions. Net Profit came in above expectations (-3% vs. our estimate and -2% vs. consensus), reaching € 16 M (vs. € 14.2 M from our estimate and € 11.2 M consensus), due largely to better performance from the financial result vs. 1Q’20.
Awarded contracts were in line with expectations, reaching € 1.08 Bn (including the Paris contract; BtB 1.6x vs. >1x guidance’20), although the accumulated figure to date is more than € 1.43 Bn (vs. € 2.12 Bn for all of 2020; 52% of our estimate for the full year). The backlog stands at € 9.23 Bn as of the end of 1Q’21.
During the conference call after the results release, the company reiterated its guidance’12 of (i) reaching BtB of at least 1x (BtB 0.9x BS(e)), (ii) raising sales vs. 2020 (+6.9% BS(e) and +7.5% consensus) and (iii) increasing profit with pre-Covid operating margins (9.4% in 2019 vs. 8.9% BS(e) and 8.7% consensus). Lastly, although no information has been given on cash generation, the company did reiterate the message of tighter working capital, which will largely depend on the level of down payments stemming from new awarded contracts, although as of 1Q’21 only a slight rise would have been seen.
Lastly, we would highlight that the process initiated by Thales to sell its signalling business, although the company has not confirmed that it is or will study a possible acquisition of the business, it does state that it is a top-level company and would be a good strategic fit for CAF. In this regard, we highlight that the valuations rumoured in the press are above € 1.5 Bn (~75% of CAF’s EV), and thus it would be a very significant deal for CAF that we understand it would have to carry out with the aid of a financial partner. In any event, for the time being this would only be the initiation of a process, and the company has not confirmed its participation.
In short, these results were very much in line with expectations on the EBITDA level (even slightly above the consensus), reiterating the guidance given, and thus we would expect a neutral reception. However, a possible deal of the size mentioned, even though it would be a strategic fit, could generate some uncertainty in the short term (due to the scant information available).
With all this in mind and following the Results released and based on the better prospects for contract award and the industry’s positive outlook, we raise our long-term EBITDA estimate by +1.1 on average (2021-2023), although 2021 remains unchanged, leaving a 13.4% CAGR’20-23e (vs. 12.6% previously). We also raise order intake in perpetuity by +5% up to € 2.7 Bn, in line with the adjusted average from the past 10 years. Thus, we revise our T.P. by +14% up to € 46.73/sh., yielding +17.55% upside. We reiterate our BUY recommendation, as we continue to believe that the railway sector could be one of the main beneficiaries after the pandemic given the recovery funds and megatrends in favour of transport electrification. CAF share price is currently trading at the same levels as in early 2021 (-9% vs. IBEX), with the signing of new contracts being its main catalyst. BUY, T.P. € 46.73/sh. (+17.55% upside).