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INDRA: 1Q’20 RESULTS AND CHANGE OF T.P. TO UNDER REVISION (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results
Sales: € 735.1 M (-0.1% vs. -0.4% BS(e) and -0.3% consensus);
EBIT: € 19.2 M (-50.8% vs. -28.2% BS(e) and -15.4% consensus);
Net Profit: € 6.3 M (-65.0% vs. -43.3% BS(e) and -13.3% consensus);

Results below expectations in EBIT due to periodification adjustments, delays in Eurofighter and impact from Covid-19 (in T&D). Given the lack of visibility, the company has cancelled its guidance’20 and postponed the decision to resume the dividend (expected to be charged against 2020 results). Sales rose +1.7% in local currently (-0.1% reported and -0.5% organic), benefiting from SIA’s contribution (+2.3% sales), with +12% growth in the order backlog that hit record levels (€ 4.8 Bn). The 1Q’20 EBIT came in at € 19 M (-50.3%) with a 2.6% margin (vs. 5.2% in 1Q’19) due to higher restructuring costs (€ 1 M, 5% EBIT) and the falling profitability of T&D (Eurofighter and Covid-19), while Minsait managed to keep its contribution stable. The 1Q’20 FCF was negative, € -59 M (improving vs. € -108 M in 1Q’19), hit by working capital (€ 68 M consumption) and by the delays in T&D due to Covid-19, leaving the NFD at € 633 M (+15% vs. 2019; 2.2x NFD/EBITDA). We stress the strong increase in liquidity (around € 940 M/1.48x NFD) and the absence of relevant maturities until 2022.

Given the current situation of uncertainty, the company has cancelled its guidance’20: medium single-digit growth in sales (vs. +2.2% BS(e)), >+15% growth in EBIT (€>255 M, vs. € 254 M BS(e)) and €>150 M of cashflow (vs. € 173 M BS(e)), including working capital. Also, it has postponed the decision to propose a dividend: we expected a DPS’20 of € 0.19/sh. (2.4% yield; 25% payout). As for the outlook for the end of the year, the company expects 2Q’20 to be challenging and worse than 1Q due to a greater impact from Covid-19 (even though Eurofighter sales should improve). Also, the company expects “substantial” recovery in delays in 2H’20 (no numbers given). We will cut our estimates to include these impacts and thus, we will reduce our T.P. (which we now place Under Revision, from € 11.50/sh. previously), although the cut would not exceed 25%. Although in the short term there could still be an impact from the uncertainty and the lack of visibility, we understand that most of this is due to delays that will eventually recover (as these delays come mostly from Eurofighter and are not linked to Covid-19), and thus we maintain our BUY recommendation, as: (i) we continue to see attractive upside (of around +20%), and (ii) the backlog has increased significantly (+12% ) and stands at record levels of € 4.8 Bn. Since IBEX highs in February, the share price has fallen -29% (+5% vs. Ibex). The current share price would be factoring in a drop of around 35% in EBIT’21, with margins falling around -310bps to below 6% (below 2016 levels), the lowest in the past 15 years (except in 2014-15, which were hit by heavy provisions). We believe this is an overreaction, as most of the impact seen to date is from delays expected to recover (mostly in 2020).