Tässä ABG:n tuoreesta rapsasta pääkohdat. Target laskettu 35 SEK (210) ja suositus laskettu HOLD (BUY).
Preliminary Q2 figures and credit provision
Preliminary Q2 sales were SEK 543m (-9% vs ABGSCe 594m) and EBITDA
was SEK -20m (-165% vs ABGSCe SEK 31m). The organic growth was 9%
(ABGSCe 31%), driven by a slowdown in emerging biopharma and biotech
related to the recent macroeconomic challenges. Management has also
reviewed historical accounts receivables, which has led to a more
conservative sales process and a credit provision of SEK -59m (SEK -43m
net of COGS), which means reported EBITDA in Q2 will be SEK -63m. The
provision relates to sales in 2021 for which customers have not been able to
pay, due to the changing market environment. The products have been
returned and will be sellable to other customers. Furthermore, management
will implement a cost reduction programme to reduce expenses by SEK
100m on an annual basis, with full effect from Q1’23.
Uncertainty on historical and future financials
To us this announcement is a major concern, which is exacerbated by the abrupt
departure of the CFO three months ago. With historical financial performance
now in question, we are uncertain what the true level of demand is from
customers that can make payments. Furthermore, we believe that further credit
provisions cannot be ruled out, such as from sales recorded over the last 6m that
have not yet become overdue. The Q2 figures are another concern, with the
market slowing down while BICO’s costs continue to increase rapidly.
Down to HOLD on uncertainty and balance sheet concerns
We revise our estimates and turn more cautious, assuming 15% organic
growth for ’23e-’24e. Despite us assuming only modest opex growth
(~8%/y), and a large reduction in capex (SEK 500m to SEK 200m), we do
not expect BICO to generate a positive FCF until ’25e. With current cash of
SEK 1.2bn and SEK 1.5bn in convertible debt maturing ’26e, and SEK 470m
in earn-outs to be settled in ’22-’24e, we believe there is risk of an equity
issue. Considering the material uncertainty to operations and financials, we
downgrade to HOLD (BUY) with a new TP of SEK 35 (210).
Financial concerns, down to HOLD
We believe that Friday’s announcement raises several questions:
- If BICO’s financial results for 2021 were based on sales to customers not able
to pay for its products, what is the true financial performance of the company? - Has management taken any precautionary measures for sales that occurred
over that past six months, but where products are not yet overdue? Will there be
further credit provisions? - Why have customers purchased products they cannot afford, but refrained from
using them so that they now (6-18 months later) remain in a re-sellable
condition? - Why has this issue not been identified earlier, such as in February, when
management “initiated measures to improve the invoicing process to reduce day
until payments”? - How does this relate to the sudden departure of the CFO in April?
- To what company (or companies) do these issues relate? Was the company
recently acquired or was it in the Group when this happened?
Concerning developments in Q2
Beyond the sales to questionable customers, we are concerned about the
developments in Q2 where the market seemingly saw a slowdown while BICO’s
cost continued to increase. Assuming that the gross margin was 73%, cash opex
increased to SEK ~415m in Q2, which corresponds to a 15% q-o-q increase from
Q1. It should also be noted that this was during a period when management guided
that it would see only modest cost increases during the year. In our view, this
development was not addressed in the press release. Assuming that capex is
similar to previous periods, we believe the underlying EBITDA indicates a negative
FCF in the range of SEK -100m to SEK -150m in the quarter. With this in mind, we
believe the annual cost savings of SEK 100m are not enough to turn around the
development.