CTT Systems: Doing its best in a constrained market - ABG
- 3% organic growth to accelerate to 18-16% H2'24e
- 22% adj. EBIT CAGR '23-'26e on >30% margins
- 28-16x EBIT '24e-'26e, ~40-55% ROCE, net cash
Supply constraints and tough comps to hold back H2'24
Supply constraints at Boeing and Airbus had, and will have, a bigger impact on CTT's OEM sales than we had expected. Alongside some delays in CTT's aftermarket ('AM') sales and tough comparables, this led to 3% organic sales growth (ABGSCe 6%) and a 7% EBIT decline y-o-y (-1% vs. ABGSCe), as margins remained solid (38% vs. ABGSCe 37%). As management highlighted, however, we believe CTT's OEM sales should pick up from Q1'25 and track build rates, which combined with solid AM growth (10% '24e, we estimate an 11% CAGR '23-'28) and increased penetration rates should drive 57-23% sales growth in 2025e-26e, following 10% in 2024e. Finally, we find it encouraging to hear that another private jet customer (partnership with Liebherr) could be won during H2'24, while the strong margins should remain above 30% for the foreseeable future.
Our view on 2025+ earnings largely intact
We lower '24e EBIT by 13% on slower OEM deliveries, but '25e-'26e EBIT by 3-2% as this should be recouped once supply constraints begin to ease. This should yield a 29% organic sales CAGR '23-'26e and a 22% adj. EBIT CAGR.
Monopolistic leader set to capitalise on strong aero demand
Although H2'24 will be held back by external challenges, we continue to believe that CTT should have all the pieces in place for >20% avg. EBIT growth in 2024e-26e, as the company benefits from a near-monopolistic market position, strong aerospace demand and its margin-accretive AM business. The stock is currently trading at 28-16x EBIT '24e-'26e (F12m P/E 26x, -12% vs. its L5Y avg), and 13x 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, 3/2/4% DY '24e/'25e/'26e).
Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ctt-systems/Equity-research/2024/7/ctt-systems---doing-its-best-in-a-constrained-market/
