Rekeep (Manutencoop) – Q3 20 results – maintain position
All,
Please find our unchanged analysis on Rekeep here.
Rekeep’s Q3 20 revenues of EUR264m were ahead of our EUR235m projections and the EUR239m in Q2 20. However, Q3 20 EBITDA at EUR25.4m (pre IFRS 16) was only EUR1m ahead of our projection. By contrast, the liquidity position at EUR110m was a significant EUR33m better than model, thanks in equal measure to lower working capital outflows and delayed charges for the Nazprod acquisition. Both should normalise and so the increase in liquidity is welcome, but likely only temporary.
Laundry and Sterilization remains the main driver of revenue growth (+18.4% yoy), vs +4.2%yoy for Facilities Management. FM has returned to positive growth after an onerous railway contract came to an end in Q2 20. LS’s outperformance is consistent with the past few quarters. FM revenues were EUR9m ahead of last year’s, and LS revenues were EUR6m ahead.
Similarly to the previous quarters, the EBITDA margin was reduced to 9.6% vs 10.5% a year ago, due to the disposal of a high margin unit and the acquisition of a low margin business since then, as discussed in our analysis.
On the legal front, the company confirms that the EUR91.6m FM4 fine was recalculated down to EUR79.8m by the TAR Lazio court, which will be paid in 69 remaining installments going forward. This is positive for Rekeep, and should allow the company to absorb even the worst-case scenario hit from the Santobono case (EUR10m fine, temporary EUR7m EBITDA hit from a 6-months suspension of tenders). The Santobono hearing was regularly held on 20 Oct and the ruling is expected before year end. Both developments are in line with our expectations.
We have recently increased out long position on the Rekeep bonds from 4% to 6% of NAV. The results today confirm the stability of the business, driven by its heavy concentration in healthcare and public sector contracts. The revenue trend confirms that the business is really resilient, as opposed to Atalian, where a temporary margin expansion from wage support schemes has been partly offset by the significant revenue contraction from the key retail and transportation end markets. We will update our projections in due course following the Q3 20 results call.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano
_________
E: jtorii@sarria.co.uk
M: +44 794 73 56 163 (preferred)
T: +44 203 744 7055