Q1 shows good order wins
Kongsberg Automotive's (OSLO:KOA) Q1 results demonstrated that the group continues to make progress in new order wins, with annualised contract wins of €53m in Q1 equating to a 12-month rolling run rate of €293m, which supports management’s target of 3-5% organic growth within three years. Revenues were c 6% ahead of Q114 due to currency effects and the R&D costs were in line with expectations. We therefore maintain our forecasts and anticipate progressively improving margins over the course of the year to achieve the 6% level required to hit the 13% ROCE target.
Q1 reflect investment as expected
Q1 results reflect the ongoing commitment to invest in the business to drive growth and deliver advanced margin-enhancing products. Revenues were up 5.6% (€14.4m) to €270m as a result of a currency tailwind of €18.8m. Group EBIT was €16.7m, down 8% (€1.4m) from Q114, with a €4.2m increase in R&D and the loss on a sale of a small non-core Italian fluid transfer subsidiary (€1.5m) partially offset by volume effects, operational improvements and fixed costs reductions. Following a small negative free cash flow driven by an uptick in working capital and after negative currency effects, net interest-bearing debt:EBITDA rose slightly to 2.4x, up from 2.2x in Q414, but this is expected to decrease as the impact of the new loan agreement signed in March takes full effect with a reduction in interest.
Order momentum supports longer-term targets
Order intake in Q1 highlighted the benefits of the increased momentum in future potential revenues, with orders wins in the quarter of some €53m. This has pushed the 12-month rolling order intake form the historic level of c €200m pa towards €300m pa. This is the level required to push organic growth towards the targeted 3-5% and includes orders such as the Volvo Car SPA platform with the highest KA content ever, and the supply of complete manual gear shift system to a global OEM platform for B car segment cars across the globe, with product supplied from six KA plants highlighting the global scale of the group. With these contracts typically ramping up in 24-36 months’ time, we are maintaining our near-term forecasts, but expect accelerating revenues to show through in two to three years.
Valuation: Re-rating opportunity remains
We maintain our view that improved returns and a resumption of growth should act as a catalyst to a potential re-rating of KA’s shares, which currently sit at a 29-65% discount to global peers. We believe the increased win rate provides a promising indication that the strategy is working.
To Read the Entire Report Please Click on the pdf File Below