CTT Systems: H2 guidance held back by OEMs' supply constraints - ABG

- Sales -4%, EBIT -1% vs. ABGSCe, 3% org. sales - H2'24 guidance soft due to supply constraints among OEMs - ABGSCe EBIT could come down 10-15%, neg. reaction expected

Q2 details
Performance affected by supply constraints among OEMs and tough comparables. Sales grew 3% organically (ABGSCe +6%, +5% in Q1'24) to SEK 82m (-4% vs. ABGSCe 86m), below CTT's own guidance of 85-90m, mainly driven by supply constraints for the B787 program. EBIT declined 7% y-o-y to SEK 31m (-1% vs. ABGSCe 32m), for a margin of 38% (ABGSCe 37%, 43% Q2'23) due to good aftermarket mix and FX. Free cash flow was OK at ~15m. According to the CEO, shortages of a component for the B787 dryer has now been solved and should support deliveries from Q3. However, for H2'24, CTT guides for revenues of SEK 160-180m, with the mid-point implying 10% growth y-o-y, and ~25% below ABGSCe 231m, as supply constraints among both Boeing and Airbus will lead to below-planned OEM deliveries. CTT expects this production adjustments to be temporary, and normalise from Q1'25.

Estimate changes
Mechanically, the slight Q2 EBIT miss vs. ABGSCe, and H2 guidance (assuming normal margins) would impact our FY'24e EBIT by (excl. FX) negatively by 10-15%. However, these effects should be fairly isolated to 2024, as normalised deliveries should still imply good visibility for 2025 and beyond.

Share price view
An in-line report, but disappointing H2 guidance due to challenges among OEMs. The share has underperformed the market into numbers (-9% vs. OMSGI +3%), but has been strong YTD (+43% vs. +11%) and is trading at 26-17x EBIT '24e-'26e, ~5% above its 5Y average. We believe we could see a negative reaction on the day, due to the slower expected H2'24 deliveries, even though we remain confident in CTT's performance in 2025 and beyond. There is a conference call at 09:30 CET,

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