Standard Profil - catch up with management
All,
Please find our unchanged model here.
Already poor due to lack of semiconductors, volumes at some Automotive OEMs have taken a further knock from the closure of suppliers based in Russia and the Ukraine. We have been in particular concerned about the additional impact the closure of Leoni’s factories in the Ukraine might have had on Standard Profil’s clients and therefore volumes. Although the Company is in a closed period, the CFO and IR were willing to clarify some salient points, which has helped us put into perspective the nature and scale of these disruptions across the industry. Referring back to our analysis, we see our recent thesis largely confirmed.
Ukrainian Conflict:
- Standard Profil management referred extensively to an Alix Partner report on the relative importance of Ukrainian suppliers to OEMs globally. The majority of wiring harnesses are supplied from Mexico, which has an 18.5% market share. Ukraine is number 10, with only a 3.4% share. These are global numbers, but looking locally at supply in Europe, Ukrainian suppliers only account for 11.6%, behind Romania (21%) and Tunisia (13%).
- However, there is no doubt that the conflict is having an impact on German manufacturing, with Germany accounting for 48% of Ukrainian production. Audi/VW are the most exposed.
- For FY20, 25% of Standard Profil's revenue was to German-based manufacturers, and some of this has been impacted by wiring harness disruption.
Other issues:
- OEMs continue to experience semiconductor supply issues, but thankfully they are not resulting in assembly line shutdowns at short notice. OEMs are still struggling to secure a reliable source for semiconductors but have taken to increasing order size to ensure production can continue.
- Raw materials have risen substantially since the date of the last conference call. The oil price and energy costs are both having an impact on Standard Profil’s cost base, and although they have pass-throughs on 70%+ of their contracts, it isn’t the case of 100% passthrough.
Liquidity:
- Management was at pains to reiterate they have sufficient liquidity for the business.
- Concerning their factoring facilities, these are provided by mainstream banks. We were reassured that none of the OEMs' financial arms is involved in their factoring facilities. They have been approached by the OEM banks but don’t need any more liquidity.
- They believe it is a double-edged sword and would set off “alarms” in risk departments if seen to rely on the financial arms of their customers. But the customers are and want to be seen as supportive.
- No comment if payment terms have been adjusted.
Sponsor:
- Ultimately, management is still talking about the bullish story. Standard Profil has won significant contracts over the last couple of years, with the additional revenue to come on board in 2-3yrs from the date of the contract win.
- Strongly believe they are winning market share.
- The aim is to see the EBITDA growth from these contract wins and to IPO the business.
- Wouldn’t disclose if management has participation and/or indirect holdings in Standard Profil (but the manner of the answer suggests they do).
Positioning:
- We took a 5% long position in Standard Profil in late February at 82%. We acknowledge we moved early on acquiring a position, but we remain confident in our thesis.
- Our bullish stance is based on the overall macro picture and an ability to pass through some of the raw material price increases Standard Profil is experiencing. The limited drawn debt ahead of the HY bond gives us comfort and although we don’t envisage a return to FY18 & FY19 EBITDA levels in the near term, post-Q1 22, EBITDA numbers should show incremental improvement.
- There are no upcoming maturities, and the concerns surrounding Standard Profil not having sufficient liquidity to withstand the current raw material prices are exaggerated. The Company has unused factoring lines and a newly created €30m RCF facility.
Happy to discuss this further.
Tomás