CTT Systems
CTT Systems - Profitability remains, focus on outlook (ABG Sundal Collier)
2020-10-23 09:24
51% organic decline, in line with expectations
Seeing signs of a gradual recovery, both in OEM and AM
We believe we are close to the trough, 9x EBIT ‘22e
Q3 resultsCTT maintained a positive EBIT despite significant pressure on topline. Sales were SEK 38m (-2% vs. ABGSCe), -54% y-o-y of which -51% was organic (ABGSCe -47%), arriving in the low end of CTT’s own sales guidance range of SEK 38-42m. VIP and AM/IP sales were above our expectations while OEM sales declined c. 60% y-o-y. Reported EBIT of SEK 6m included c. 3m of positive one-offs. Hence, Adj. EBIT declined 91% to SEK 3m (ABGSCe 6m), for a margin of 8%. Looking ahead, CTT guides for Q4 revenues of SEK 35-45m (down 58-46%, ABGSCe 44m). Operating cash flow was negative at SEK -5m, due to inventory build-up (long lead times) as well as some back end-loaded VIP projects.
Outlook and estimate changes
The CEO notes that air traffic has seen a cautious but gradual improvement, and expects OEM sales to decline ‘marginally’ q-o-q before increasing again from Q1’20. We have Q4 OEM sales of SEK 20m (c. +30% q-o-q). On the aftermarket side, the CEO notes that the global B787 fleet is back up to 80% utilisation levels (from c. 36% in April) and that CTT’s current AM sales are lower than the underlying market, indicating pent-up demand going forward. Our current Q4 AM sales imply an increase from the current SEK 11m to SEK 16m (c. 40% up).
Final thoughts
The substantial effect of the pandemic on the aerospace industry has become clearly visible in CTT’s numbers. However, excluding a second lock-down, we believe we are now close to the trough in terms of earnings and expect a gradual recovery into 2021 as the AM business will be the first to return to normal. The CTT stock is down 36% YTD, compared to the Carnegie Smallcap index at +12%, and is currently trading at 15-9x EV/EBIT ‘21e-‘22e. There is a conference call/webcast at 09.30 CET, dial-in: SE +46 8 505 583 74, UK +44 333 300 92 68, link: https://tv.streamfabriken.com/ctt-s
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