Original-Research: Landi Renzo S.p.A. (von GBC AG): Buy
Original-Research: Landi Renzo S.p.A. – from GBC AG
Classification of GBC AG to Landi Renzo S.p.A.
Company Name: Landi Renzo S.p.A.
ISIN: IT0004210289
Reason for the research: Research Note
Recommendation: BUY
Target price: 0.60 EUR
Last rating change:
Analyst: Marcel Goldmann, Cosmin Filker
Nine-months 2023: Landi Renzo continues to grow thanks to strong OEM business; unfavourable sales mix weighs on profitability; operating margin recovery continues in Q3; GBC estimates and price target adjusted; Buy rating confirmed
Business performance 9M 2023
The Landi Renzo Group announced its nine-month figures for the current 2023 financial year in mid-November. Based on these figures, the technology group continued its growth streak in the first three quarters of the financial year despite difficult conditions (war in Ukraine, inflationary pressure, higher interest rates, etc.). Group sales increased moderately by 2.2% to € 221.14 million compared to the same period of the previous year (9M 2022: € 216.35 million).
The strong expansion of business in the main business area of ‚Green Transportation‘ proved to be a key growth driver. This enabled the company to benefit significantly from the increased demand from leading car manufacturers for technological solutions for more climate-friendly mobility and more environmentally-friendly drive systems in the volume sector (mass car market).
The consolidated sales revenue generated was primarily driven by the core business segment ‚Green Transportation‘ (share of sales: 70.1%). In this business segment, sales revenue increased significantly by 9.8% to € 155.01 million (9M 2022: € 141.24 million), mainly thanks to stronger OEM business.
The increased growth in the OEM sales channel (9M 2023: +33.2% to € 98.70 million) was driven by a sharp rise in orders for bi-fuel engines and increased sales of components in the OEM Mid & Heavy Duty segment. Due to weaker sales in some Latin American and Eastern European markets, the After Market sales channel recorded a significant decline in revenue to € 56.30 million (9M 2022: € 67.10 million).
In contrast to the core business (‚Green Transportation‘), the ‚Clean Tech Solutions‘ business division recorded a significant decline in segment sales to € 66.13 million (9M 2022: € 75.12 million). The main reason for this decline in sales was not only the reduced production, which particularly affected the third quarter, but also the postponement of some major orders planned for 2023 to the following financial year 2024.
In contrast to the positive Group sales trend, Landi Renzo suffered a significant decline in operating earnings (EBITDA) to € ‑1.12 million (9M 2022: € 7.07 million). This was mainly due to an unfavourable sales mix in the ‚Green Transportation‘ business segment (lower-margin OEM car sales share), a lower business volume in the ‚Clean Tech Solutions‘ segment and higher fixed costs incurred to strengthen the company’s operating structure. As a result, the EBITDA margin also fell compared to the same period of the previous year and even slipped into negative territory at – 0.5% (9M 2022: 3.3%).
This decline in consolidated operating profit was only partially offset by an agreed list price change with a major customer of the Landi Renzo Group in the OEM distribution channel in the second half of the half-year and a price increase in the OEM Mid & Heavy Duty business area in the final months of the financial year.
Adjusted for special costs and one-off costs (e.g. M&A costs or restructuring costs), adjusted EBITDA (Adj. EBITDA) of € 4.57 million was achieved in the past three quarters, which was significantly below the earnings level of the same period in the previous year (9M 2022: € 8.70 million). The adjusted EBITDA margin (Adj. EBITDA margin) also fell accordingly to 2.1% (9M 2022: 4.0%). The (adjusted) Group EBITDA of € 3.25 million (9M 2022: € 4.28 million) was primarily attributable to the Clean Tech Solutions segment. Meanwhile, the core business segment ‚Green Transportation‘ contributed € 1.33 million (9M 2022: € 4.42 million) to the Group result.
At the after-tax level, the technology group recorded a negative consolidated net result (after minority interests) of € ‑27.73 million compared to the same period of the previous year and thus had to accept a significant decline in net earnings compared to the same period of the previous year (9M 2022: € ‑10.12 million). In addition to the weaker operating performance and high one-off extraordinary costs, significant write-downs on a portion of the deferred tax assets recognised in the previous year for tax losses also had a significant negative impact on the earnings trend. In addition, significantly higher (incurred) tax expenses of € 5.62 million (9M 2022: € 1.02 million) also had a negative impact on earnings.
Business performance in Q3 2023
At a quarterly level, the Landi Renzo Group recorded a 3.6% decline in consolidated sales to € 69.33 million (Q3 2022: € 71.91 million) compared to the same quarter of the previous year due to weaker business development in its infrastructure business segment. Segment sales in the Clean Tech Solutions division fell by 24.2% to € 18.58 million at the end of the third quarter (Q3 2022: € 24.52 million), mainly due to a lower production volume. The decline in production volume was primarily the result of orders being postponed to the following financial year 2024.
By contrast, the core business area ‚Green Transportation‘ developed in the opposite direction. Thanks to increased OEM customer demand for technological solutions for bi-fuel engines in particular, segment revenue in this division increased significantly by 7.1% to € 50.75 million (Q3 2022: € 47.39 million).
At Group operating result level, adjusted EBITDA (Adj. EBITDA) fell by 30.1% to € 0.65 million (Q3 2022: € 2.16 million), primarily due to the decline in sales and earnings in the Clean Tech Solutions division. At the same time, the adjusted EBITDA margin fell to 1.00% (Q3 2022: 3.0%).
Forecast and evaluation
With the publication of its nine-month and Q3 figures, the Landi Renzo Group has confirmed its most recently adjusted corporate guidance for the 2023 financial year in the form of the outlook for the two business segments ‚Green Transportation‘ (sales growth and lower profitability compared to the previous year, but margin improvement in H2 2023) and ‚Clean Tech Solutions“ (sales at the previous year’s level, but with an improvement in profitability on an Adj. EBITDA basis).
In this context, the technology group specifically expects a slight increase in sales in the core segment ‚Green Transportation‘ for the fourth quarter of the current financial year, which has already begun, compared to the previous third quarter, which should result in particular from increased sales in the OEM sales channel. Due to the increase in profitability achieved in this segment in the previous third quarter, Landi Renzo expects a (further) improvement in adjusted EBITDA for the fourth quarter compared to the previous nine months. After the ‚Clean Tech Solutions‘ segment suffered from postponed orders in the third quarter, the technology company is nevertheless anticipating an increase in sales and profitability for the current fourth quarter compared to the previous quarter.In view of the company’s performance falling short of our expectations, the significant slowdown in growth momentum and the persistently difficult general conditions, we have adjusted our previous sales and earnings estimates downwards. For the current 2023 financial year, we are now forecasting sales of € 307.14 million (previously: € 323.88 million) and EBITDA of € 0.64 million (previously: € 9.58 million). Our significantly reduced operating earnings forecast is the result of a lower expected business volume as well as significantly higher expected one-off costs and special costs (e.g. restructuring costs).
For the following financial year 2024, we expect sales of € 316.86 million (previously: € 357.17 million) and EBITDA of € 13.31 million (previously: € 24.76 million). In the following year 2025, sales and EBITDA should increase again to € 345.89 million (previously: € 379.73 million) and € 21.10 million (previously: € 37.94 million) respectively.
Our forecast for the Landi Renzo Group’s future margin recovery is based on rather conservative assumptions, i.e. the expected improvement in Group profitability may be significantly stronger if, for example, the after-market business and infrastructure business recover more quickly. Overall, despite their temporary weakness, we believe that the Landi Renzo Group is in a good starting position to return to a significant growth trajectory from the coming 2024 financial year. The expected recovery of the high-margin after-market business and the increased expansion of the infrastructure and MHD business (mid- and heavy-duty business) should prove to be key growth drivers. Landi Renzo has recently gained significant momentum, particularly in the expansion of their high-margin MHD business (LNG & CNG trucks), and should also be able to continue their growth streak in this niche. Thanks to an expected improved sales mix in the ‚Green Transportation segment‘ (higher share of the lucrative after-market business and MHD business) and the forecast recovery of their profitable infrastructure business, this technology company should be able to significantly improve its earnings situation from the coming financial year.The measures initiated by the management to optimise and strengthen their business model and corporate structure should also help the technology group to continue its growth trajectory in the area of sustainable mobility, particularly in mid and heavy-duty vehicles, as well as in the area of natural gas, biomethane and hydrogen infrastructures. At the same time, the acceleration of growth and the optimisation of their business model should also lead to a significant improvement in future profitability.
We assume that Landi Renzo’s management will publish new corporate guidance in the first quarter of the coming 2024 financial year.
In light of our lowered sales and earnings forecasts for the current financial year and subsequent years, we have lowered our previous price target to € 0.60 (previously: € 0.70) per share. In view of the current share price level, we therefore assign a ‚BUY‘ rating and see significant upside potential in the Landi Renzo share.
Die vollständige Analyse können Sie hier downloaden:
http://www.more-ir.de/d/28597.pdf
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GBC AG
Halderstrasse 27
86150 Augsburg
0821⁄241133 0
research@gbc-ag.de
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Date (time) of completion: 21/12/2023 (7:21 am)
Date (time) of first distribution: 21/12/2023 (10:00 am)
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