CTT Systems
CTT Systems - Continued EBIT growth despite tough comps (ABG Sundal Collier)
2020-01-20 18:38
Q4 report on 7 February, 08:30 CET
EBIT up 0-2% ‘19e-‘21e, due to mix offset by weaker FX
Share up c. 40% since Q3 report, 20x EBIT ‘20e
Mix and FX expected to support 12% EBIT growth in Q4eWe expect Q4 sales of SEK 85m, down 10% y-o-y (-13% organic, +6% FX, -3% divestment) in the middle of CTT’s guidance for sales of SEK 83m-88m. We expect continued double-digit organic growth within OEM as well as Aftermarket sales due to the recent strong development. Despite negative sales growth, we expect adj. EBIT to increase by 14% y-o-y and arrive at SEK 28m for a margin of 33% (26%) on a positive mix, divestment of a low-margin business and FX. In connection with the Q4 report, we expect management to provide further details on the phasing out of B787 dehumidifier volumes during 2020. Previous guidance was for R12m sales to flatten out towards SEK 350m over the next 3-5 quarters (ABGSCe SEK 338m ‘20e). We expect a DPS of SEK 5.50, implying a 73% payout ratio, in the middle of its 60-80% target.
Positive mix revisions offset by less FX contribution
We make minor revisions to EBIT, raising our estimates by 0-2% for ‘19e-‘21e. Our updated positive margin revisions from mix effects are offset by decreasing support from FX. For ‘19e-‘21e, we expect an organic sales CAGR of 4%, and an adj. EBIT CAGR of 8%. In the long-term, we believe that CTT has the potential to deliver >10% long-term EBIT growth due to the increasing penetration of the A350 and B777X.
Sales growth expected to pick up again in 2021
Since CTT’s Q3 report on 25 October, the stock has appreciated close to 40%; it is up c. 25% since our in-depth report released on 9 December, with no other news released by the company. Looking past 2020, we argue that the sales loss will be short-term in nature and that growth should pick up again from 2021 and onwards as humidifier deliveries to the A350, B777X and B787 are expected to continue. On our current estimates, CTT is trading at 20x EV/EBIT ‘20e, 3% dividend yields while generating >
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