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

2Q'20 vs. 2Q'19 Results
Sales: € 749 M (-7.6% vs. -6.9% BS(e) and -6.8% consensus);
EBIT: € -97M (vs. € 40 M in 2Q’19 vs. € 2 M BS(e) and 18 M consensus);
Net Profit: € -81 M (vs. € 16 M in 2Q’19 vs. € -7 M BS(e)).
1H'20 vs. 1H'19 Results
Sales: € 1.5 Bn (-4.0% vs. -3.8% BS(e) and -3.8% consensus);
EBIT: € -78M (vs. € 79 M in 2Q’19);
Net Profit: € -75 M (vs. € 34 M in 2Q’19).

The results came in below expectations, hit by Covid-19 (delays and lower commercial activity, with an impact of around € 62 M measured by IDR) and by impairments on intangible assets (€ 95 M, without impact on cash), although on the positive side, the lower cash burn stands out (€ -29 M in 2Q’20 vs. € -129 M in 2Q’19 and vs. € -59 M BS(e)) and a strong backlog (+15.3% up to € € 5.1 Bn) and net order intake (+11.4% in local currency). Thus, the 2Q’20 sales decrease by -7.6% (-4.5% in local currency, in line with our estimates), with a € -97 M negative 2Q’20 EBIT (vs. € 2 M BS(e)), hit by delays and lower activity as a result of Covid-19 and by the deterioration of intangible assets worth € 95 M. The company expects a 2H’20 still hit by the coronavirus, although to a lesser extent and thus better than 1H’20. The company unveiled its 2020 guidance of between € 3.15-3.2 Bn of sales (vs. € 3.179 Bn BS(e)) and between € 120-135 M of EBIT (vs. € 167.3 M BS(e)) prior to expected non-recurring costs of € 166.4 M (cash cost -39 M (still pending), where € 166.4 M are broken down as follows: € 95 M from the intangible asset impairment seen in 2Q’20 and around € -65 M from an action plan to obtain annual costs savings of € 100 M starting in 2021, 3.4% OPEX’19, with a positive impact on cash of € 75 M).
The results have a negative slant for the short term (impact from Covid-19 and non-recurring costs/deterioration in 2019), but with stronger cash flow and a solid outlook in the medium term thanks to the cost-savings plan and the strength of the backlog (mainly TD, higher margin sales). With this in mind and taking into account the stock’s poor performance (-39% since Feb’20 highs and -11% vs. IBEX), we would take advantage of any weakness from a poor reception to take positions. The expected revision of estimates to assume this more negative scenario should not exceed -5% in valuation (low cash outflow in 2020 and good cost-cutting programme that offsets the greater impact from Covid-19), still yielding an appealing upside >35%. BUY. T.P. € 9.50/sh. (upside +45.37%).