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GLOBAL DOMINION: 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs 1Q'19 Results
Sales: € 224.5 M (+5.6% vs. +7.5% BS(e) and +4.9% consensus);
EBITDA: € 18.0 M (-13.9% vs. -5.7% BS(e) and -10.5% consensus);
EBIT: € 7.8 M (-25.7% vs. -13.3% BS(e) and -27.1% consensus);
Net Profit: € 3.9 M (-41.8% vs. -25.4% BS(e) and -28.4% consensus);

The 1Q’20 results came in worse than expected, but the company forecasts growth and a positive operating cash generation in 2020. Adjusted sales grew slightly above the consensus estimate (+5.6% vs. +7.5% BS(e) and +4.9% consensus). However, EBITDA came in below (-13.9% vs. -5.7% BS(e) and -10.5% consensus) due to greater margin squeeze than expected (-180bps vs. -120bps BS(e) and -140bps consensus). The company blames this drop on (i) a temporary imbalance due to lower sales and cost optimisation, and (ii) the impact from provisions for restructuring (unspecified). Organic growth at constant rates was +4% (vs. +5.5 BS(e) vs. +8.5% in 2019 and >+5% in its Strategic plan’19-22), whereas on the operating level Net Profit fell by -42% (-25.4% BS(e) and -28.4% consensus).
Looking to 2020, the company forecasts growth in sales (vs. +5% organic previously), with positive results and cash generation, and puts off the delivery of the targets included in its strategic plan until 2023 (that is doubling Net Profit to levels of €~64 M).
The stock has risen +1% (+1.5% vs. Ibex), which we believe would be due to the company’s guidance for growth and profit in 2020 and the margin improvement expected over the next few quarters (which in 1Q’20 are affected by provisions and do not price in the effect from cost optimisation measures). Following this set of results, we plan to revise our estimates, which in our scenario of V-shaped recovery (after two quarters of deep recession) would be -27% in EBITDA’20e (-7% on average over the 2021/22 period), bringing our T.P. to levels of € 4.90/sh. (+72% upside; -16% vs. previously). In our more negative scenario of U-shaped recovery (two quarters of deep recession followed by moderate recovery in 3Q and strong recovery in 4Q and in 2021), we would cut our EBITDA’20e by -40% (-12% on average over the 2021/22 period), which would leave our T.P. at €~4.50/sh. (+57% upside), meaning that we maintain our BUY recommendation. T.P. € 5.70/sh. (+101.41% upside). From market highs in February, when the Covid-19 impact began to be felt, the share price has fallen -26%, but has outperformed the Ibex by +7%.