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VBG Group
VBG Group - Earnings come and go, but cash flow remains (ABG Sundal Collier)
2020-07-23 23:34
31% organic sales decline, Ringfeder resilient
EBITA +7-1% ‘20e-‘21e, down 7% ‘22e due to MCC/FX
9x EV/EBITA ‘21e, 7-10% lease adj. FCF yields
Positive earnings and solid cash flow despite volume dropVBG managed to deliver a profit despite a 31% organic sales decline (ABGSCe -43%). EBITA declined 65% to SEK 47m (ABGSCe 28m), for a margin of 6.9% (ABGSCe 4.8%). However, this included SEK 34m in government support. Still, excluding this, EBITA remained positive at SEK 12m (1.9%) while cash flow was strong. We find the performance in Ringfeder to be the most impressive, where margins expanded y-o-y despite an 11% organic sales decline. On the other hand, MCC (-37%) struggled to mitigate lower demand, especially on the aftermarket side. Due to MCC’s negative profitability trend since 2016, VBG has now initiated a structural shift in strategy for the division in order to prioritise growth over margins. Although this might limit the potential to generate growth above the general commercial vehicle cycle, we still believe that the company would like to purse bolt-on acquisitions in selected niches. The balance sheet certainly allows for it, as R12m ND/EBITDA stood at 1.1x as of Q2’20 while R12m FCF conversion remained above 100%.
Mixed revisions stemming from shift in strategy
We raise our EBITA estimates by 7-4%, respectively, for ‘20e-‘21e on the back of the better Q2 numbers, our belief in continued short-term cost savings measures remaining in Q3 and stronger margins in 2021e. However, the net impact from updated FX as well as VBG’s strategic shift to prioritise margins over growth in MCC lead us to lower 2022e EBITA by 7%. For ’19-‘22e, we now forecast a 4% organic sales decline and a 2% adj. EBITA decline. Again, we believe VBG has more than enough headroom to resume M&A activities from 2021 and onwards.
11% adj. EBITA CAGR ’00-’19, 8% CAGR ’00-’16 (excl. MCC)
VBG has a track record of >100% FCF conversion, 14% avg. ROCE, an 11% adj. EBITA CAGR ’00-’19 (8% excl. MCC), and a
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