51% organic decline, double-digit margins remained

EBIT in line with ABGSCe, USD/SEK has derated

Gradual return to operations could support H2 recovery

Q2 results
The impact of COVID-19 is now starting to show in the numbers. Sales were SEK 50m (-10% vs. ABGSCe 56m), -51% y-o-y, of which -51% was organic (ABGSCe -50%), causing sales to arrive in the low end of CTT’s own sales guidance range of SEK 50-60m. Sales related to the AM/IP as well as the VIP segment were above our expectations while OEM sales declined more than expected. EBIT declined 82% y-o-y to SEK 5.9m (0% vs. ABGSCe 5.9m), for a margin of 12% (ABGSCe 10%). Looking ahead, CTT guides for Q3 revenues in the range of SEK 38-42m (down 54-50% y-o-y, ABGSCe 43m). Cash flow was negative, as CTT deliberately built up inventory to safeguard delivery capabilities. According to the CEO, c. 2/3 of the global A350/B787 fleet is today operational compared to 1/3 in the middle of April. This could support increasing orders during the third quarter, and potential for higher sales during Q4’20.

Estimate changes
Based on the Q2 report alone, we believe preliminary revisions before FX could be fairly limited, to slightly negative, due to us being above CTT’s sales guidance for Q3. However, we note that the USD/SEK rate has derated c. 10% since our last published report. As a rule of thumb, a 10% change in the USD/SEK rate impacts CTT’s EBIT by 20-25%.

Final thoughts
We view today’s results as fairly in-line, given the considerable uncertainty looming over the aerospace currently. The CTT stock is down 22% in the last three months, compared to the Carnegie Smallcap index at +26%, and is currently trading at 18-11x EV/EBIT ‘21e-‘22e on a net cash position, 5y avg ROCE of c. 30% and an 8% adj. EBIT CAGR ’19-‘22e. There is a conference call/webcast at 09.30 CET, dial-in: SE +468 566 427 04, UK +44 3333 009 030, link: https://tv.streamfabriken.com/ctt-systems-q2-2020

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