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

3Q'19 vs. 3Q'18 Results:
Sales: € 107.7 M (+46.1% vs. +35.7% BS(e) and +37.2% consensus);
Adjusted EBITDA: € 20.6 M (+33.8% vs. +16.9% BS(e) and +17.5% consensus);
Net Profit: € 11.4 M (+65.2% vs. +50.7% BS(e) and +42.0% consensus).
9M'19 vs. 9M'18 Results:
Sales: € 275.5 M (+16.3% vs. +13.1% BS(e) and +13.6% consensus);
Adjusted EBITDA: € 50.5 M (+5.2% vs. -0.2% BS(e) and +0.0% consensus);
Net Profit: € 26.2 M (+27.1% vs. +22.3% BS(e) and +19.6% consensus).

At yesterday’s closing bell the company released 9M’19 results that beat expectations on all levels, already showing some acceleration in executing the latest contracts signed by the company (especially the VHS, or Very High Speed, contract with Renfe).
Sales rose +16% vs. 9M’18 (+13% BS(e) and +14% consensus) thanks to 3Q’19 figures +8% better than we expected (+7% vs. consensus). Adjusted EBITDA also came in above expectations (+5% vs. flat BS(e) and consensus), with a margin of 18.3% (vs. 17.9% BS(e) and consensus and 18% guidance), again thanks to a much better Q3 than expected (+110bps vs. forecast). It is true that the adjustments to EBITDA were slightly higher than expected, but even the unadjusted EBITDA margin is slightly above our estimate. Adjusted Net Profit came in at € 26.2 M (+27% vs. 9M’18), which again is substantially higher than expected (+19% vs. +30% BS(e)), due in part to financial items that were less negative than expected. The company does not present balance sheet or cash flow data in these results.
In order intake, there is not much new and the company has presented €~827 M of awarded contracts that, along with the awarded contract with Adif in October (€ 39 M), would be in line with our order intake estimate for the full year (in line with the company’s guidance).
Talgo reiterated its 2019 guidance of ending the year with an 18% adjusted EBITDA margin and average BtB of >1.3x in 2018 and 2019. The group also maintains its net cash expectations for the year-end, although modifying the “slight increase” with “in line with 2018” (we estimate a slight drop), although we downplay this fact, given that since some of the contracts signed during the year allow the company some leeway in managing the reception of payments, we think this aspect of the guidance loses importance.
We expect a positive market reception that would be partly mitigated by the fact that the stock has outperformed the IBEX by +8% in the last month (-1% YTD). BUY. T.P. € 6.91/sh. (+16.52% upside).