Q3e: We expect y-o-y improvements…
…but short-term uncertainty remains
14-9x EV/EBIT ’19e-’21e on lowered forecastsShort-term uncertainty remains
After the operational trend shift in Q1’19, with broad-based regional growth and improving margins, our view was that ITAB’s outlook for a turnaround had improved. Then, ITAB’s Q2 fell short of our expectations, but we still anticipated improvements in H2’19 given the poor H2 trading last year, cost savings, and as H2 usually is ITAB’s strongest part of the year. However, the magnitude of improvements is still uncertain and we sense that ITAB’s sales have become more project-driven and volatile lately. We understand that LFL customers are more uncertain than before and that new customers are margin-dilutive, initially. Looking ahead, we still expect y-o-y improvements, both short- and long-term (although from depressed levels), but we have lowered our expectations somewhat. That ITAB managed to refinance EUR 200m in 5-year bank funding through Nordea is a positive. However, the fact that a new CEO just started and that the CFO just recently decided to leave the company adds to the short-term uncertainty, we believe.
Q3’19e: 5% sales growth (4% org.), EBIT margin of 5.0%
For Q3’19e, our assessment is that end-markets have continued to be hesitant, especially in the UK (due to Brexit). We forecast sales of SEK 1,548m, for sales growth of 5% y-o-y (of which 4% organic, on an organic growth comp of -17%). We expect the gross margin to stay flat y-o-y at 27.0%, and believe SG&A will remain high with little help from cost initiatives. This leads to our Q3’19e EBIT of SEK 77m, +21% y-o-y, for a margin of 5.0% (+70bp y-o-y).
14-9x EV/EBIT ’19e-’21e on lowered forecasts
We lower our ’19e EBIT by 10%, based on 4% (10%) organic sales growth and higher selling expenses for Q3’19e. We lower ’20e EBIT by 4% due to somewhat lower sales/higher selling expenses. On our new forecasts, ITAB is trading at 14-9x EV/EBIT and 12-7x P/E for ’19e-’21e.
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