Esautomotion H1 results and management meeting notes

In the following article, we will discuss the H1 results and provide some key takeaways from meeting with Management last month.

H1 RESULTS

Esautomotion delivered a strong performance in the first half of the year, despite the challenging economic conditions in the industry:

Revenues reached 19.3 million, increasing 17.2% compared to H122. Given the decline in the industry demand, this growth is remarkable.

EBITDA amounted to 5.3 million, increasing 20.4% compared to H122. The EBITDA margin was 27.8% compared to 27.1% in the previous year. The margin improvement is particularly relevant when we compare it to 24 % in H122. It seems that the company is recovering its margin sooner than expected.

The net profit amounted to 3.47 million, which is 25.2% increase compared to 2022.

Free cash flow: The company generated FCF of 0.3M because of the impact of working capital. FCF excluding working capital was 3.41M. The level of working capital is higher than usual because the semiconductor market is still tight, and a large part of the revenue growth has come from customers with more favorable payment terms. We expect working capital levels to normalize over the next few years.

The company has net cash of 9.6 million. This will be used in H2 to finance the acquisition of Sangalli Servomotori.

Market situation

According to UCIMU-Sistemi per Produzione, orders for machine tools fell by 23.7% in the first quarter. Fanuc, which due to its large market share (65%) can also give us an idea of the current market situation, in the last 6 months sales in the FA segment (segment equivalent to Esautomotion business) decreased by 15.6%. On the positive note, orders in Q2 increased by 11.4% compared to Q1.

Management call

The call with the management was useful to clarify some aspects about the company and will be updated in the original thesis.

In 2011 there was a buyout by the current management caused by financial problems during the crisis. These problems were mainly caused by the fact that before the crisis they acquired a real estate asset to expand their capacity, which resulted in excessive debt just before a downturn in demand due to the crisis.

Andrea Senzolo, appointed General Manager in April 2023, is the son of current CEO Gianni Senzolo and is likely to be the next CEO of the company.

They have more working capital than they need and could easily reduce working capital by 1.5 M. This means that despite the acquisition, they will not use debt to continue to grow.

In Europe, the percentage of machines using CNC is high in the metal segment but lower in the wood and marble segments, both markets where the company has a very strong position.

The company has little exposure to the automotive sector, so the reduction in the production of parts for combustion engines will have little impact.

 This is an industry with barriers of entry, so one might ask how the company manages to acquire customers. This is achieved by being present in several segments. When establishing relationships with companies that manufacture different types of machines, Esautomotion tries to offer its products in all segments. This is because OEMs prefer to work with only one type of CNC. For example, consider a company that manufactures bending press machines using Cybelec CNCs, laser cutting machines using Siemens CNCs, and water jet cutting machines using Esautomotion CNCs. Since Esauotmotion is the only one present in all 3 segments, they will try to get the customer to use their CNC on all types of machines.

Why do customers prefer to use only one type of CNC? This standardizes the products as it is easier for the end customer who will be using the machines to train their operators on one type of CNC, and it also makes it easier to provide technical support.

Conclusion

So far, I am quite satisfied with the performance of the company, but the difficult economic situation may affect the company in the short term, but in the long term, the prospects of the industry are positive.

Disclaimer: The purpose of this article is purely educational and in no way a recommendation for investment.