EUR 100.00 For Business Accounts Only

ROVI: 2Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs 2Q'19 Results
Sales: € 90.1 M (-5.5% vs. -5.7% expected and -4.0% expected by the market consensus);
EBITDA: € 22.4 M (+53.1% vs. +40.6% expected and +27.1% expected by the market consensus);
EBIT: € 17.8 M (+75.1% vs. +55.7% expected and +42.6% expected by the market consensus);
Net Profit: € 15.7 M (+68.8% vs. +50.8% expected and +33.3% expected by the market consensus);
1H'20 vs 1H'19 Results
Sales: € 191.1 M (+7.7% vs. +7.5% expected and +8.5% expected by the market consensus);
EBITDA: € 42.4 M (+60.0% vs. +53.1% expected and +45.7% expected by the market consensus);
EBIT: € 32.9 M (+85.9% vs. +74.8% expected and +67.2% expected by the market consensus);
Net Profit: € 29.6 M (+82.7% vs. +72.4% expected and +62.3% expected by the market consensus);

Better 2Q’20 Results on the operating level. The company confirmed the dividend payment. The 2Q’20 EBITDA reached € 22.4 M, above our expectations (€ 20.6 M) and those of the consensus (€ 18.6 M) thanks to higher gross margins than expected (63.4% 59.4% BS(e)) vs. 56% FY’20 BS(e)) and sales in line with expectations (-5.5% vs. -6% BS(e) and -4% consensus). Net Profit did not see any relevant changes and evidenced the operating performance (€ 15.7 M vs. 14 M BS(e) and € 12.4 M consensus).
Net debt doubled up to € 38 M on the quarter due to the working capital expansion (€ -31 M; mainly inventories), however, debt remains at low levels (0.5x NFD/EBITDA) and we expect a recovery in the 2H’20 that would leave net debt close to ~ € 0 M at the end of 2020. On another note, the company announced that it will pay in the end its single dividend’19 (€ 0.1751/sh. 0.6% yield and 25% payout), which was announced in February’20 but put on hold in May’20 until the assessment of the impact from Covid-19.
The company kept its 2020 guidance of between 0-10% growth in operating revenues (vs. +6% BS(e) and +7.2% consensus) and raised its 2020 forecast for the manufacturing division for third parties (~17% sales BS(e)) from double-digit growth to between 10% and 20% growth vs. +12% BS(e)).
Since the company signed an agreement with Moderna on 9 July 2020 for the filling and packaging of a possible Covid-19 vaccine outside of the US, the stock has risen by +20% (+21% vs. IBEX), which would be pricing in a recurring positive impact of €~20 M on EBITDA (33% of EBITDA’19) and ~60% on sales (~16% of sales’19). In any event, we believe it is risky for the share price to factor in such an uncertain event linked to relevant factors such as (i) the vaccine’s success, (ii) the volume of sales if coexisting with other vaccines, or (iii) the revenues and the margin that ROVI will receive for each vaccine.
If we were to assume that the vaccine is successful and considering >350 M doses/€ 0.75 per vaccine/an EBITDA margin of 35%, this could contribute €~95 M to ROVI’s EBITDA, which would have an impact of €>12.00/sh. (48% of our T.P.) on our T.P. , yielding +25% upside. In any case, we reiterate that the value of this agreement could be far lower than expected or even stand at 0 if the vaccine was unsuccessful, meaning that, out of prudence, we do not include it in our estimates.
Currently, the stock is rising +4% vs. IBEX (after outperforming the IBEX by +47% since the beginning of the pandemic), which we blame not so much on the quarterly results but on yesterday’s news confirming that Moderna’s Covid-19 vaccine would enter phase III today and the fact that Govt. funding for the drug has doubled to US$ 955 M (which will allow the company to increase the sample of patients). Today there will be a conference call with the management team at 15:00 (CET) in which we expect the company to provide further details on the performance of its core business and new information on its agreement with Moderna. SELL. Target Price: € 25.00/sh (-18.30% potential)