Antolin: speeding into H2 2024?
Dear All,
Please find our updated model here
Antolin reported at best mixed Q2 2024 results yesterday. The company was held back by weaker-than-forecast vehicle sales (especially production delays in their EV segment), but strong cost control meant EBITDA (and margins) eventually beat our expectations. CF from working capital was negative, offset by non-core asset sales. Despite the weakness in Q2 2024, management issued a slightly improving outlook for H2.
Investment Considerations
We remain on the sidelines on the Antolin senior secured notes
- While the new senior secured notes due 2030 look appetising with their chunky 10.375% cash-pay coupon, the company still has execution risk as it focuses on its Transformation Plan and does not generate any free cash flow as most of the business and order book is beyond the control of the company (e.g it misses on its topline but due to its cost-cutting efforts maintains its EBITDA and margins). As a result, we don't see this as a sustainable way to grow the business and de-lever its capital structure in the long run.
- In addition, due to pressure from its lenders, the business has a very expensive debt structure in the form of high coupon bonds and amortising loans which further increases execution risk within the business and increases the risk of default if the business does not generate enough free cash flow.
- For the moment, it is reliant on non-recurring divestments and working capital swings to bolster liquidity which has historically been tight.
- At the same time, bonds trade at a 10% yield which does not compensate for any of the above-described execution risk or the unknowns in the business plan.
Q2 2024 Results
- Missing revenue guidance: Revenues at €1.1 billion (-10%) were market expectation due to a weak market for light vehicles and production delays from EV programs. The company missed our model by a whopping €100 million, which confirmed that the top line is entirely beyond the control of management. However, this revenue development mirrors what we have been seeing across the sector and is not specific to Antolin.
- EBITDA: EBITDA from the Product Systems grew by €4.0 million, or 3.8%, to €110.8 million. EBITDA from the Technology Solutions segment rose by €0.4 million, or 3.1%, to €14.7 million due to higher revenues. Both beat our estimates by a couple of million euros.
- Working capital was negative at -€39 million as the company invested in inventory for its production cycle which was in line with our expectation.
- Capex: Capex came in at €39 million which was below our estimates by €20 million however management stated on the call that capex is expected to grow going forward at the 5% of revenue number going forward.
- Liquidity was bolstered by non-core asset sales which are on track and 75% completed. The company is expected to generate free cash flow in Q3 2024 from the proceeds which we had modelled into our numbers
Outlook - H2 2024
- Revenue: expected to be at the low end of 2024 range of €4.3 billion to €4.6 billion. We have assumed €4.4 billion in our model. We are still a little shaky on the implied stabilisation of revenues in H2, as we have insufficient evidence of the wider sector’s behaviour so far.
- Working capital to reverse in H2 2024 and become a cash inflow item. We expect a small decrease in working capital for the entire year in 2024 and have modelled inflows of €16 million inflow for Q3 and €50 million for Q4.
- Free cash flow generation driven by divestments in Q3 and cash from working capital in Q4 2024. We have assumed €105 million in Q3 (driven by €100 million in divestments) and €45 million in Q4 (driven by inflow of working capital of €50 million).
Happy to discuss further
Saahil
T: +44 203 192 0200
www.sarria.co.uk