VBG Group
VBG Group - Positive earnings maintained (ABG Sundal Collier)
2020-07-23 11:02
31%/65% org sales/EBITA decline, solid cash flow
Ringfeder stands out positively, challenges in MCC
Outlook uncertainty remains, but balance sheet is strong
Q2 detailsSales declined 32% y-o-y and arrived at SEK 670m (+12% vs. ABGSCe 596m), -31% organically (ABGSCe -43%). TTE (-37%) and Ringfeder (-11%) held up well. Ringfeder especially, thanks to the division’s diversified geographic/customer end-market mix. EBITA declined 65% y-o-y and arrived at SEK 47m (+63% vs. ABGSCe 28m), for a margin of 6.9% (ABGSCe 4.8%, 13.4% in Q2’19). Both TTE and Ringfeder maintained double-digit margins, with Ringfeder actually seeing a margin expansion y-o-y. However, MCC (-37% org) saw EBITA margins decline to 1.3% (ABGSCe 4.0%) due to less aftermarket demand and sensitivity to rapid changes in demand. Total government support amounted to SEK 34m. Excluding this, EBITA would have been SEK 12m, for a margin of 1.9%. Looking ahead, the CEO states that the 2020 outlook remains uncertain, while “increasing Q3 revenues won’t necessarily lead to better earnings than in Q2, if government support is lacking”.
Estimate changes
Based on the Q2 report alone, the better earnings than we had expected would imply raised EBITA estimates of 7-4% for ‘20e-‘22e. However, we note that government support funds, and the uncertain contribution from this going forward, would likely mean that the numbers should not be extrapolated. Further, VBG has initiated a structural oversight of its MCC division, with one action being the divestment of MCC’s Brazilian operations.
Final thoughts
VBG’s share price return over the last three months is -1%, compared to the Carnegie Smallcap index at +26%. For 2020 as a whole, we currently expect an organic sales decline of 22% and an EBITA decline of 43%. Cash flow was strong in the quarter, which further adds to VBG’s M&A headroom, and the company is trading on c. 10x EV/EBITA ‘21e on our pre-Q2 estimates. However, we note that even though we expect to see a gradual demand recov
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