VBG Group
VBG Group - Stable underlying development in Q4 (ABG Sundal Collier)
2020-02-21 06:52
7% organic sales decline, EBITA -22% due to one-offs
EBITA down 2% for ‘20e-‘21e on slower MCC
10x EV/EBITA ‘20e on 5% EBITA CAGR ’19-‘22e
One-offs and implementation costs burdened Q4 earningsVBG has now started to see weakening demand on a broader scale when looking across its divisions. Group sales declined by 3% y-o-y (-7% organically) and arrived 2% below our expectations. The new segment Truck & Trailer Equipment (TTE, consisting of VBG TE and Edscha) declined 15% organically mainly due to European trailer weakness. Q4’19 was always the first quarter since 2016 that MCC showed an organic decline (-1% vs. ABGSCe +4%). EBITA declined 22% y-o-y and arrived at SEK 75m (-18% vs. ABGSCe), for a margin of 8.8% (ABGSCe 10.6%). However, management does not quantify the one-off charges in MCC and Ringfeder but claim that the underlying group margin was roughly in line with Q4’18, i.e. ~11%. Looking ahead, we believe profitability improvement will be the main focus during 2020, but we believe that improvements may take some time to materialise.
Revised margins mainly in MCC behind negative revisions
We lower our EBITA estimates for ‘20e-‘21e by 2% with a slower margin progression in MCC offsetting our positive revisions in TTE and Ringfeder. We note that VBG’s cash conversion continues to be strong (above 100%) and at 1.2x ND/EBITDA, we estimate that VBG has c. 25-30% M&A headroom to ‘20e-‘21e sales. To our understanding, M&A remains high on management’s agenda but that multiples on available prospects have been too high to be appealing.
11x EBIT f12m, 10% above historical 10-year valuation
From an organic point of view, we expect a 3% EBITA decline due to our belief that margin improvements should first start to show in 2021. Thus, we believe that any upside to earnings would have to come from M&A activity. On our estimates, the company is trading at ~11x EBIT f12m, which is 10% above its 10-year historical valuation of 9.6x while offering 7-8% FCF yields (lease adj.) and 3% d
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