CTT Systems
CTT Systems - A little turbulence before we see blue skies (ABG Sundal Collier)
2020-07-22 08:14
Protecting earnings was key, optimism for Q4’20-Q1’21
EBIT revised down 3% ‘20e, down 5-6% ‘21e-‘22e
8% adj. EBIT CAGR ’19-‘22e, 11x EBIT ‘22e, net cash
Double-digit margins remained despite 51% organic declineWe believe CTT performed in line with expectations in Q2. Sales declined 51% organically to SEK 50m, which was in the lower end of its SEK 50m-60m guidance and 10% below our estimate. Despite this significant volume drop, CTT still managed to maintain double-digit margins (12% vs. ABGSCe at 10%), causing EBIT to decline 82% y-o-y to SEK 6m (ABGSCe 6m). Looking ahead, the CEO highlighted that the important B787 fleet had returned to 63% utilisation compared to 36% in April. Although CTT’s Q3 was guided to remain under pressure (sales down 50-54% y-o-y to SEK 38m-42m vs. ABGSCe 39m), we agree with the CEO’s view that a gradual return in fleet utilisation should spark returning aftermarket deliveries in Q4’20e-Q1’21e. The company has not utilised any government support, and we expect cost savings to support 21% adj. EBIT margins for FY’20, on a 38% organic sales decline.
Positive underlying revisions offset by weaker USD
We make minor positive underlying revisions to EBIT on the back of the better mix. However, the weakening USD/SEK rate results in 5-9% negative revisions to ‘20e-‘22e sales and 3-6% to EBIT. Looking ahead, we forecast 6% organic sales CAGR and an 8% adj. EBIT CAGR for ’19-‘22e. CTT still has a net cash position and a ’19-‘22e avg. ROCE of 30%.
Return to its long-term growth trajectory 2021 and onwards
On our updated estimates, the stock is trading at 18-11x EV/EBIT ‘21e-‘22e, where we expect 2022 earnings to be c. 20% above the 2019 level, primarily due to recovering aftermarket demand. In a long-term DCF scenario (9% WACC) assuming that the penetration on the A350/B777X reaches similar levels as in the B787, the share could reach SEK 199, and SEK 220 when including short-haul (A320neo/B737MAX). If CTT fails to enter these models, our DCF returns a valu
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