April update

News about Delko / Datagroup / Verallia / Esautomotion / We.connect

Delko

Delko reported results for the first 6 months of the 2023/2024 period (remember that its fiscal year now begins in June).

The results were not particularly good: although sales increased slightly, margins declined, resulting in a 32.8% decrease in net income. This decline in margins can be attributed to inflation as well as an increase in promotions due to the poor performance of the sector.

According to market leader Biedronka “Consumers became progressively more price sensitive and promotions driven”. This has led to a decline in volumes in the sector.

We should remember that Poland was one of the countries most affected by inflation with levels of 8.69% in 2021, 16.81% in 2022 and 6.2% in 2023. Fortunately, the outlook is positive and the latest inflation figure for March 2024 is 1.9%.

Nevertheless, Delko maintains a solid balance sheet with a financial debt of 45.75 million and cash and cash equivalents of 27.6 million. The net debt to EBITDA ratio is 0.93.

Cash Flow: The company's cash generation has been positive, generating a free cash flow of 13 M of which 7.3 M has been from working capital.

Significant events

There were no significant events for the Company during this period. We could highlight the retirement of one of the founders and Vice President, Mr. Miroslaw Dąbrowski.  This retirement is due to health reasons, and he will continue to relate to the company in less demanding positions.

Valuation

The company continues to trade at very attractive multiples with a price to book ratio of 0.7.

Over the last twelve months the company has generated PLN 1.73 per share, trading at an LTM P/E of 5.4. If we want to be more conservative due to falling margins, we can do the simple but incorrect exercise of multiplying H1 earnings by 2, which would result in an EPS of PLN 1.56, equivalent to a P/E of 6.

In light of the poor state of the market, they look like an attractive multiple.

Datagroup

The company reported Q1 results without much to highlight.

 As expected, revenues were down 4.1% and EBITDA was down 5.9%. The decline was driven by Solutions & Consulting, the company's non-recurring segment, which fell 36.4%.   On the other hand, recurring revenues increased by 4.2%, with a weight of 86.6%.

Guidance

The company has issued the following guidance.

The DATAGROUP Management Board expects revenue growth of EUR 510-530 million (previous year: EUR 497.8 million), which already considers the effects of organic growth, revenue reductions from legacy contracts and inorganic growth from mergers and acquisitions. EBITDA is expected to be between EUR 77 million and EUR 81 million (previous year: EUR 80.2 million) and EBIT between EUR 43 million and EUR 46 million (previous year: EUR 45.3 million).

Given that Datagroup had made two acquisitions at the time of the guidance that together generated 17.2 M in 2023, it doesn't seem like they're expecting too much organic growth.

Days later, the company acquired a third company that generated 12.5M in 2023.

On the positive side, the company had the largest order intake in its history for the CORBOX service. There is a lag of about 9 months between new orders and revenue, so these new orders will not be reflected in earnings until 2025.

Valuation

According to analysts' consensus the company trades at a FW EV/EBITDA of 6x and a FW P/E of 13.5.

In the article I wrote in January, I said that the company was not a bargain and could be said to be trading at fair value at €53 (P/E 15), but that it was an interesting company to watch. If you think about a recovery towards 2025 or 2026, considering that this is a company with 86% recurring revenues with average contracts of 4.5 years, when the whole sector is going through difficult times, the multiples start to look attractive.

Verallia

On February 28, Verallia announced the acquisition of Vidrala's operations in Italy.

The acquired subsidiary generated revenues of 131 M and EBITDA of 33 M in 2023. The paid multiple was 6.9 x2023 EBITDA.

The transaction makes sense for both parties, Vidrala exits a market where it was barely present with a 3% market share in Italy and Verallia is now estimated to have between 22% and 24%.

Esautomotion

In February, Esauomotion presented preliminary data showing a 4.3% increase in sales thanks to the acquisition of Sangalli Servomotori. Organic growth would have been -2.7%.

The results were not bad in the current economic situation. Fanuc in the FA division, which corresponds to the automation business with a market share of 65%, recorded a decline in sales of 16.6%.

The company currently has net cash of 3.3 million and is well capitalized to face this period of uncertain demand. Positive cash generation is expected next year with an optimization of working capital. With the opening of the U.S. office, the company will look to grow in the U.S. and Mexico, taking advantage of the trend of offshoring manufacturing from China to closer markets such as Mexico.

Gianni Senzolo, CEO of Esautomotion: "We are working, as we have done in the moments of uncertainty of past years, to further expand on the markets and products that create opportunities. The opening of a new branch in the USA and one in Turkey, as well as the expansion of the product range following the acquisition of Sangalli Servomotori S.r.l., represent the appropriate reaction to aim, however, at growth". The end of the component shortage period will allow the improvement of working capital parameters and logistics costs, allowing an improvement in cash flow."

WE.connect

Our latest investment thesis WE.connect has recently announced buybacks worth 2 M euros, the 4% of its market cap.