CTT Systems: In-line sales but lowered OEM sales forecast - ABG
This is a third party research report and does not necessarily reflect our views or values
Q2 details
Q1 seemingly marked the trough as CTT was able to deliver Q2 sales of SEK 38m (+1% vs. ABGSCe 37m), up 19% q-o-q. driven by a sequential improvement in both OEM and aftermarket sales. Earnings remained positive despite the low sales level, with adj. EBIT coming in at SEK 2m (vs. ABGSCe 6m), for a margin of 5%. In reported numbers, we note that CTT recorded one-off revenues of SEK 9m, offset by a SEK 4m impairment, which resulted in a positive SEK 5m effect on EBIT. Underlying activity continued to improve in addition to higher orders. However, CTT notes that further short-term adjustments to the delivery pace at Boeing raises uncertainty over OEM sales levels in H2’21. On a positive note, Airbus has recently flagged for improving production rates, indicating support for improved OEM sales 2022 and onwards. For Q3, the company guides for revenues of SEK 35-40m (down 9% to up 4% y-o-y vs. Q3’20, mid-point 30% below ABGSCe at SEK 54m). In addition, CTT also guides for FY’21 revenues of SEK 140-160m (down 20-30% y-o-y, mid-point 17% below ABGSCe at SEK 181m). We believe the main deviation is due to lower than previously expected OEM sales.
Lowered sales guidance implies less of an impact on EBIT
We estimate that OEM is the lowest-margin segment for CTT, and should therefore impact EBIT to a lesser extent. However, if we assume FY’21 sales of SEK 150m (mid-point of guidance), this would implicitly lower our sales assumptions by 17% but EBIT by mid-to-high single-digits.
On the right track, but at a slower than expected pace
We are somewhat discouraged by the slower than expected OEM recovery. On the positive side, we believe demand from 2022 and onwards should be strong, although from a lower starting point. The stock is flat L1M vs. the Carnegie Smallcap index at +7% and is trading at (pre-Q2 ests) 21-17x EV/EBIT ‘22e-‘23e.
Q1 seemingly marked the trough as CTT was able to deliver Q2 sales of SEK 38m (+1% vs. ABGSCe 37m), up 19% q-o-q. driven by a sequential improvement in both OEM and aftermarket sales. Earnings remained positive despite the low sales level, with adj. EBIT coming in at SEK 2m (vs. ABGSCe 6m), for a margin of 5%. In reported numbers, we note that CTT recorded one-off revenues of SEK 9m, offset by a SEK 4m impairment, which resulted in a positive SEK 5m effect on EBIT. Underlying activity continued to improve in addition to higher orders. However, CTT notes that further short-term adjustments to the delivery pace at Boeing raises uncertainty over OEM sales levels in H2’21. On a positive note, Airbus has recently flagged for improving production rates, indicating support for improved OEM sales 2022 and onwards. For Q3, the company guides for revenues of SEK 35-40m (down 9% to up 4% y-o-y vs. Q3’20, mid-point 30% below ABGSCe at SEK 54m). In addition, CTT also guides for FY’21 revenues of SEK 140-160m (down 20-30% y-o-y, mid-point 17% below ABGSCe at SEK 181m). We believe the main deviation is due to lower than previously expected OEM sales.
Lowered sales guidance implies less of an impact on EBIT
We estimate that OEM is the lowest-margin segment for CTT, and should therefore impact EBIT to a lesser extent. However, if we assume FY’21 sales of SEK 150m (mid-point of guidance), this would implicitly lower our sales assumptions by 17% but EBIT by mid-to-high single-digits.
On the right track, but at a slower than expected pace
We are somewhat discouraged by the slower than expected OEM recovery. On the positive side, we believe demand from 2022 and onwards should be strong, although from a lower starting point. The stock is flat L1M vs. the Carnegie Smallcap index at +7% and is trading at (pre-Q2 ests) 21-17x EV/EBIT ‘22e-‘23e.