CTT Systems - EBIT stays positive despite 50% sales decline
Sales declined 54% (vs. ABGSCe -52%), positive EBIT Q2 guidance SEK 35-40m vs. ABGSCe 42m Q1’21 marked the trough, according to the company Q1 details CTT continued to see a significant impact on sales due to lower OEM deliveries, which resulted in a 54% organic sales decline (ABGSCe -52%) and total sales of SEK 31m (-3% vs. ABGSCe 32m).
On a positive note, aftermarket sales continued to improve sequentially (c. 50% q-o-q, SEK 21m vs. ABGSCe 20m) as flight hours gradually improved.
The company claims that c. 90% of the global widebody fleet is in service, and that the underlying demand (ex inventory effects) could result in an additional SEK 10-15m in quarterly aftermarket sales. EBIT came in at SEK 0.
6m (vs. ABGSCe 1. 1m), vs.
27m the prior year. For Q2, the company guides for revenues of SEK 35-40m (down 20-30% y-o-y, vs. ABGSCe 42m).
Looking further ahead, the CEO expects OEM sales for H2’21 to be flat y-o-y, implying OEM sales of ~SEK 30m vs. ABGSCe at SEK 36m. As a final note the CEO states that he predicts Q1’21 to have been the low-point of the pandemic downturn.
Estimate revisions dependent on H2’21 and AM recovery Based on the Q1 results, Q2 guidance and wording regarding H2’21 OEM sales, we believe that this could implicitly result in us lowering FY’21 sales by 5%. However, should the underlying demand for aftermarket sales return (10-15m additional quarterly revenue according to the company), this would instead result in positive revisions. Recovery ahead, share has outperformed the index L3M We find it positive that management believes that the trough has passed, and that the company despite a 50% sales reduction managed to maintain profitability (in part helped by FX).
Looking ahead, we believe that H2’21 will be imperative for the pace of the recovery during 2021, but we already expect group revenues to return to 2019 levels in 2019 on the back of a strong AM recovery. The stock is up ~28% L3M vs. the Carnegie Smallcap index at +17% and is o.
