CTT Systems: Delayed flight - ABG
- OEM and AM challenges to normalise in Q1'25e
- '24e-'26e EBIT down 18-3%; 20% CAGR '23-'26e
- 30-15x EBIT '24e-'26e, ~30-55% ROCE, net cash
Return to EBIT growth in Q2'25e
Despite the Q3 pre-announcement (18% organic sales decline vs. ABGSCe +18%, 51% EBIT decline, 56% below ABGSCe), the sudden decline in aftermarket sales (-24% y-o-y) was still surprising, while subdued OEM deliveries due to production challenges at Airbus/Boeing were somewhat expected. Over time, CTT has good visibility on both system and AM sales, while air traffic remains solid. We therefore expect AM sales to return to its positive trend in Q4 (we estimate a 10% CAGR '23-'28e), while a clear step-up in OEM sales should occur in Q2'25. Thus, profitability will remain strong (at ~30% EBIT margins), but we believe that EBIT will likely return to growth first in Q2'25e, before seeing a marked acceleration in H2'24e due to notably higher system sales. This combined with increased penetration rates should drive 57-34% sales growth in 2025e-2026e, following -3% in 2024e. We expect operating leverage and still-growing AM sales to offset the negative mix effect from higher system sales and yield >30% margins.
Ramp-up postponed, not cancelled
We lower '24e-'26e EBIT by 18-3% as we factor in a normalised AM base and delayed system deliveries. This still yields a 27% org. sales CAGR '23-'26e and a 20% adj. EBIT CAGR.
Monopolistic leader set to capitalise on strong aero demand
We continue to believe that CTT should have all the pieces in place for ~20% avg. EBIT growth in 2024e-27e, as the company benefits from a near-monopolistic market position, strong demand and its margin-accretive AM business. The stock is trading at 30-15x EBIT '24e-'26e, and 12x EBIT '28e in our valuation scenario. In addition, we believe CTT's net cash position and relatively low investment needs could continue to support dividends above its 70% payout target (~115% in 2023, 2-5% DY '24e/'25e/'26e).
Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ctt-systems/Equity-research/2024/10/ctt-systems---delayed-flight/
