CTT Systems: Go West - ABG

Strong aftermarket recovery behind >40% org. growth
Russian sales offset by stronger aftermarket; EBIT intact
14x 2024e EV/EBIT, >20% EBIT growth, >35% ROCE

US and Europe drive recovery in flight traffic
CTT saw a stronger-than-expected start to the year, as sales grew 42% organically y-o-y (ABGSCe 35%) to SEK 49m (+13% vs. ABGSCe), above its own guidance of SEK 42m-47m. According to the company, the rapid recovery in domestic US traffic and transatlantic flights drove strong sequential aftermarket (AM) growth (42% q-o-q). The high AM share (75% of sales, ABGSCe 58%) in turn yielded a 28% EBIT margin (ABGSCe 21%). For Q2e, we expect the sequential sales improvement to continue, to SEK 52m (CTT guides for SEK 50m-55m), up 32% organically y-o-y, driven mainly by higher private jet sales. Although OEM and retrofit sales will remain low in 2022 (low production rates, cancelled Russian sales), we expect a continued high AM share (~60% of sales) to drive EBIT margins of >40% in H2’22e, yielding a 2022e EBIT margin of 37%.

Accretive sales mix and FX behind unchanged estimates
We lower our sales assumptions by 2-5% for 2022e-2024e, mainly due to lower retrofit sales as well as postponed OEM sales to the B777X. However, we expect this to be offset by recouped B787 deliveries in 2023e as well as higher AM sales. This, in combination with updated FX rates, results in largely unchanged EBIT estimates for 2022e-2024e. For the same time period we forecast a 35% EBIT CAGR (9% CAGR 2019-2024e).

Significant earnings growth also beyond the pandemic
We reiterate our view that CTT should be able to deliver >20% EBIT growth from 2022e, due to: 1) highly profitable AM sales, 2) recovering aircraft production rates, and 3) the attractive private jet market. By 2025e, we forecast sales of ~SEK 590m (9% org CAGR ’19-’25e), EBIT of ~SEK 210m (10% CAGR), 35% margins, and >40% ROCE, while holding a net cash position from 2022e. Based on the current share price, CTT is trading at 27-14x ’22e-’24e EV/EB ...
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