Standard Profil - some forward momentum
All,
Please find our updated model here.
Following the release of Q1 numbers, we have re-examined our model in light of Standard Profil’s updated guidance. We have increased our revenue and EBITDA expectation, but we can’t match the Company’s guidance of €75-80m for EBITDAR for FY23. This is despite projecting marginally higher revenue than the Company’s guidance. However, we remain confident in Standard Profil converting its order book into sales, with FY24 showing further improvement in top-line revenue. Any improvement in actual Gross profit/EBITDA margin will be a bonus.
Investment Rationale:
- We maintain our 5% position and we had expected the bonds to rerate following the confirmation of the passthrough agreements with the OEMs.
- The Company’s performance is underpinned by its large order book and the sole supplier status it enjoys with the OEMs. We expect the Company will start to deleverage as EBITDAR reaches cashflow breakeven levels of €80-85m by FY24.
- Note, the shareholders have shown some support to the Company via an equity injection in April of €10m.
- At current levels, 68c/€, or 23% yield, the bond remains in limbo. A further quarter of strong revenue and improvement in margin should see the bonds return to the mid-’70%, with a price of 80% equating to a 15% yield. With the cost compensation agreed upon coupled with stronger revenue, bondholders should be able to look forward to positive cash flow and some marginal deleveraging.
Model Update:
- The additional €15.2m billed in May for FY22 cost inflation compensations are included in the Q1 numbers of the Company. We have adjusted downwards Q1 revenue and allocated it evenly between Q3 and Q4 2022 for our modelling purposes.
- We have made some small changes to our model assumptions, increasing our revenue expectations for FY23 to €502m from €472m previously. But despite the higher revenues, our EBITDAR expectation remains at €71m versus the Company guidance of €75-80m. Note the Company has not adjusted its guidance for FY23 since the OEMs agreed to the additional compensation, and therefore actual FY23 may exceed guidance.
- We maintain our caution on FY23 EBITDA as our model factors in some reversal of compensation as raw material prices fall modestly. Standard Profil is hopeful that they might be able to hold on to this upside.
- We expect further growth into FY24, with revenue benefitting from stronger OEM production volumes. The higher volumes result in FY24 EBITDAR projections of €85m, enabling the Company to commence real deleveraging.
Liquidity Concerns:
- Working capital has ballooned in Q1 with the additional €15.2m of compensation only billed in May (albeit included in Q1 accounts). This has already been received at the beginning of June, with further compensations for Q1 sales to be concluded by the end of Q2. However, with revenue increasing, Standard Profil expects an outflow of working capital for FY23, with the next 3 quarters providing an inflow but not sufficient to compensate for the outflow in Q1.
- The Company drew on its RCF in Q1 in full, as a precaution due to the demise of Credit Suisse. Without drawing on the RCF, Standard Profil would have needed to draw further on its factoring facilities and local lines.
- Liquidity remains tight for Standard Profil and we will be waiting for Q2 numbers to see the progress on Working Capital and margins to ease these concerns.
Happy to discuss.
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk