Beijer Electronics Group reported net sales of SEK 370.9m, corresponding to 10% y/y growth (5% adjusted for currency effects). We had expected somewhat higher sales within all entities. The order intake of SEK 374.6m was lower compared to Q1’18, which is explained by several unusually large orders in the comparable quarter. Management states that the order book was 36% higher at the end of the quarter compared to the same period in 2018.
Even though sales came in below our forecast, Beijer Group showed solid profitability improvements. EBITDA amounted to SEK 58m (SEK 9.5m positive impact from IFRS 16). Hence, adjusted for IFRS 16 effects, the company reported an EBITDA slightly above our forecast (we have used comparative values adjusted for the IFRS 16 effects when comparing to our estimates). The improved EBITDA is primarily explained by a rapid recovery in Westermo’s profitability (19.3% EBITDA-margin), which was burdened during H2’18 due to capacity problems (12.6% in Q4’18). Management states that EBIT was affected by higher overheads, which implies that there should be room for additional improvements during the upcoming year.
We had expected a stronger quarter for Korenix both in terms of sales and earnings. Management mentions that the orders that were deferred in Q4’18 will be shipped during the upcoming six months, while we had expected a positive effect on sales already in Q1. Korenix EBIT was SEK -0.6m, implying that the entity continues to burden the group’s profitability. Management repeats its aim of turning Korenix profitable in 2019.
On a group level, Beijer Group reported EBIT of 30m (8.1% margin) and net income of SEK 20m (5.4% net margin), corresponding to EPS at 0.7. It mentions that the improvements are explained by improved gross margins (efficiency improvements and favorable product mix) and increased sales volumes. One should also note that it benefits from favorable currency effects (SEK 3.9m).
The cash flow from operating activities was SEK 12.8m, of which SEK -39.6m attributable to working capital changes. Hence, it was a weaker quarter in a cash flow perspective. However, Q1 has historically been a tough quarter, and it is also currently affected by Beijer Electronics phaseout of older products. The company held SEK 112.8m in cash and debt of SEK 664.8m by the end of the quarter, which implies net debt of SEK 552m (IFRS 16 increased net debt by SEK 110m).
All in all, we have a positive view of the Q1 report. We had expected somewhat higher growth in all entities, but the current growth rate at 10% is solid, and we have, in particular, a positive view on the improved profitability. The group is rapidly approaching its financial target of an EBIT-margin of 10%.
We do not intend to make any material adjustments in our upcoming analysis.
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