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INDRA: 9M’19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results:
Sales: € 741.0 M (+4.3% vs. +4.1% BS(e) and +3.0% consensus);
EBIT: € 48.0 M (+13.1% vs. +13.1% BS(e) and +11.9% consensus);
Net Profit: € 31.0 M (+72.8% vs. +35.0% BS(e) and +44.4% consensus);
9M'19 vs. 9M'18 Results:
Sales: € 2.288 Bn (+5.2% vs. +5.2% BS(e) and +4.8% consensus);
EBIT: € 127.0 M (+10.4% vs. +10.0% BS(e) and +9.6% consensus);
Net Profit: € 65.0 M (+18.2% vs. +6.0% BS(e) and +9.1% consensus);

The results were in line with expectations, where the strong growth in the backlog (+8.6%), the growth in sales (driven by Minsait and despite the difficult comparison due to the lower activity in the election business) and the expanding EBIT margins continue (+50bps in 3Q’19). Thus, 3Q’19 sales grew +4.3% in reported terms (vs. +4.1% BS(e) and +3% consensus), with solid performance in both IT (+5.6% in local currency) and T&D (+1.9% in local currency). 3Q’19 EBIT came in at € 48 M (+12.5% in local currency vs. 2Q’18, in line with BS(e)) with a 6.5% margin vs. 6.0% in 3Q’18. If we adjust for personnel restructuring costs, and excluding the impact from the sanction handed down by the antitrust body in 3Q’18 (€ 13 M), the 3Q’19 margin would have been 7.4% (-100bps vs. 3Q’18 adjusted for the smaller contribution from the election business).
3Q’19 FCF stood at € -1 M (vs. € -20 M BS(e) and € +15 M in 3Q’18), leaving 9M’19 FCF at € -238 M (vs. € -46 M in 9M’18) due to higher WC consumption in 1H’19. Excluding the WC impact, cash would have totaled € 119 M (and € 93 M also excluding the IFRS 16 effect) vs. € 93 M in 9M’18. With this in mind, NFD reached € 730 M, with 2.4x NFD/EBITDA.
The company reiterated its guidance’19: low-single-digit sales (vs. +1.9% BS(e) and +5.2% in 9M’19) and +10% EBIT growth (vs. +15.4% BS(e) and +18.1% in 9M’19). In sales, the strong trend will continue, despite the fact that EBIT has a more challenging comparison (€ 12 M one-off in 4Q’18), and the company is confident that it will meet its target. As for cash, IDR expects to end 2019 with similar NFD to 2018 (€ 483 M +/- € 50 M), which would mean generating FCF of between € 288-188 M in 4Q’19.
The results were in line with expectations, where the robust trends of increasing orders/sales and margin growth continue, which along with the better cash figure and the fact that dividend payments might be resumed in 2020 (no additional details were provided) leads us to reiterate our positive view on the stock. BUY. T.P. € 11.50/sh. (+30.09% upside).