Q4 report due on 6 February at 8:30 CET

FX and lower AM momentum behind revisions

11-13% long-term EBIT growth, 17x EV/EBIT ’19e

Back-end-loaded 2018 driven by VIP sales
For Q4, we expect sales of SEK 96.9m, up 52% y-o-y (43% organic, 9% FX), c. 2% above the higher end of CTT’s own guidance range of SEK 90-95m. This is driven by SEK 18m of VIP sales (c. SEK 20m for FY’18) accompanied by continued strong Aftermarket momentum (+30% organic). In terms of OEM sales, we expect 16% organic growth (18% in Q3’18). We estimate EBIT of SEK 27.5m, for a margin of 28.4% (+740bp), which is derived from the high share of Aftermarket, VIP and IP sales as well as favourable FX rates.

5-9% negative EBIT revisions on 3% lower sales due to mix
Even though we continue to expect strong Aftermarket momentum, we believe 2018 may have been exceptionally strong and therefore reduce Aftermarket sales by 4% for ’19e-’20e. Because of the negative mix impact, we reduce EBIT by 8% for 2019e and 4% for 2020e. We still expect Aftermarket sales to offset the lost B787 dehumidifier volumes in 2020, resulting in flat sales growth but a 200bp margin improvement.

Humidifier growth case intact, not dependent on lost dryers
We expect Boeing and Airbus to reach their production targets of 14 B787s and 13 A350s per month, respectively, in 2019, which we believe together with the B777X provides a potential 11-13% long-term EBIT CAGR between 2020 and 2030 for CTT. Furthermore, we argue that humidifiers provide a value proposition to airliners that is not dependent on the decision from Boeing to stop including CTT’s dehumidifiers (dryers) as standard equipment. The stock is currently trading at c. 16x EV/EBITDA ’18e, an 8% discount to its historical average. We also expect CTT to maintain its dividend payout ratio of 60-80% by proposing a DPS of SEK 3.50 for 2018 (61% payout ratio, 27% dividend growth). On today’s level, this is equivalent to a c. 3% dividend yield.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se