Annual results of We.connect and Verallia Q1

WE. CONNECT annual results

P&L analysis

Sales grew by 11.2% despite a bad year for the industry. This was due to the acquisition of the Octant group; organic growth was 1%. A good result compared to a bad year for the industry in general. On the other hand, the company's organic growth in H2 was 7.4%. The acquisition of Octant was successfully integrated, and the subsidiary increased its sales by 15.5% in H2.

The company's margins improved, with a gross margin of 11.3% vs. 10.7%, EBITDA of 4.5% vs. 4.1% and EBIT of 4.5% vs. 4.1%.

Net income has many non-cash items and does not seem to us to be the best way of calculating the value of the company, for example this year there was a reversal of an impairment of goodwill which resulted in an extraordinary gain of 1 M.

Balance sheet

Despite the growth, the company has been able to reduce its investment in working capital, which as we commented in the thesis was much higher than necessary, but it was temporary and would normalise. They reduced working capital by 11 M, and I think they still have about 8 M working capital surplus.

The company ends the year with net cash of 8.3 M against 10.8 M of debt in 2022.

Cash flow

We.connect generated FCF of 20.7M, of which 11.2 M is a cash inflow from excess working capital. If we normalize it excluding working capital, the company would generate 9.5 M.

Outlook and Conclusion

The outlook for the company for 2024 is quite positive, they have reaffirmed the target of 300 million, which would imply a growth of 13.6%. In September 2023, they signed an agreement with HP to distribute their high-end products to professional customers in both the public and private sectors.

On the other hand, if the economic situation allows it, in 2024 should begin the renewal cycle of the equipment sold in 2020 and 2021, in addition to the appearance of new products with artificial intelligence functionalities.

For these reasons, I am confident that they will meet and even exceed the target.

A brief commentary on Verallia's Q1 results.

Another company we follow has presented Q1 results.

There is not much to comment, the results were within expectations.

Revenues fell by 20.5% mainly due to a drop-in activity. As announced, the recovery is expected to start in H2. The company reaffirms the 1 B EBITDA guidance.

With the company trading at just 9x 2023 earnings and 10x 2024 earnings, I'm quite comfortable waiting for a recovery in an oligopoly like the glass industry with relatively stable demand.