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TALGO: 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results:
Sales: € 112.8 M (+29.5% vs. +19.7% expected and +23.3% expected by the market consensus);
Adjusted EBITDA: € 14.8 M (-5.0% vs. -29.2% expected and -8.4% expected by the market consensus);
EBIT: € 9.3 M (-27.9% vs. -55.8% expected and -24.8% expected by the market consensus);
Net Profit: € 4.9 M (-34.7% vs. -41.3% expected and -25.3% expected by the market consensus).

The company released at yesterday’s closing bell better-than-expected 1Q’20 Results on the operating level although it cancelled the share buyback programme ahead of schedule. Sales rose by +30% vs. 1Q’19 (vs. +19.7% BS(e) and +23.3% consensus), although this means a -11% drop vs. the previous quarter due to the impact from Covid-19, which has hit the manufacturing activity (42% sales’20e) due to the slowdown of the execution and to maintenance (58% sales’20e) as a result of the falling activity of its clients. This impact is also seen in EBITDA, which fell by -5.0% vs. 1Q’19, in any event, far above our estimate (-29.2%) and slightly better than the consensus (-8.4%), as the margin has slowed down less than we expected (13.1% vs. 10.5% BS(e)) although it is in line with the consensus. In this regard, the company recently reiterated its 2020/21 guidance (quite in line with our estimates pre-Covid19), which was mainly as follows: (i) 2020-21 revenues would stand at around 35% of the order backlog, (ii) reaching an average BtB of 1.2x and (iii) obtaining and adjusted EBITDA margin of 16.5%. Net Profit came in at € 4.9 M (+34.7% vs. 1Q’19), above our estimate (-41.3%), although below the consensus (-25.3%).
The company does not provide balance or cash data in 1Q, although it has mentioned that working capital has meant some cash burn (it has not specified the amount), which would be in line with what we expect for the full year, and that it has increased its credit lines available to € 135 M (vs. € 90 M as of YE2019). In this regard, we highlight that as of YE2019, the company’s liquidity position stood at € 390 M (€ 320 M of cash plus € 70 M in unused loan facilities) vs. debt maturities totalling € 59 M in 2020 and € 52 M in 2021. As of the end of 2019, the company had a net cash position of € 53 M.
There were no big surprises on the order intake side, with € 141 M worth of projects awarded on the quarter, stemming mostly from the contract in Denmark (€ 136 M), which account for ~20 of our pre-Covid-19 estimate for the full year.
Lastly, the company announced it has put an end to its share buyback programme ahead of schedule (the maximum between € 100 M or 16% of the capital that would be later cancelled), and thus, it has reached 9.5% of the capital (around € 75 M) and it will cancel 7% of the capital (this had been already announced). The decision does not come as a surprise as we believe this is due to the current economic environment brought by Covid-19. The impact on our valuation would be