Componenta Q2’24 flash comment: On a positive note

Translation: Original comment published in Finnish on 7/23/2024 at 9:23 am EEST.

Componenta's Q2 figures were better than expected, except for financial expenses. As anticipated, the guidance for 2024 was left unchanged, which reduces the pressure to exceed the lower limit. We believe the share price will be supported by today's result.    

Exceeding revenue expectations

Q2 revenue was slightly ahead of our expectations, although down 10% y/y. Revenue reflected the weak order backlog in Q1 as well as the lower main raw material and energy index levels included in sales prices. Of the total H1'24 revenue decline (-17% y/y), the drop by customer sector was most pronounced in machine building (-21% y/y), agricultural machinery (i.e. tractors; -44% y/y) and forestry machinery (-17% y/y). This was compensated by the energy industry (+14% y/y) and particularly the defense industry (+232% y/y), whose revenue increased from 1.8 MEUR to 6.0 MEUR and whose share of group revenue increased from 3% to 12%. The order book (10.8 MEUR), which includes binding deliveries for the next two months, showed a slight increase of 4% y/y.  

Profitability on a good upward trend

The Q2 result was better than expected and the EBITDA margin of 7.8% was already close to the level of Q2'23 (8.8%). Based on Componenta's indications, the quality problems in the ramp-up of volume products, which still weighed on the result in Q1'24, no longer had much impact on profitability in Q2'24, but the result was largely due to lower-than-normal volumes. Financial expenses (-0.65 MEUR) exceeded our expectations and the underlying reason for this remains to be further investigated. Taxes remained at zero.  

2024 guidance now easier to achieve

Outlook comments for 2024 were unchanged. “While there are differences in order backlogs between customers and sectors, the outlook for 2024 as a whole remains generally positive. We expect volumes in H2’24 to be better than in H1’24. The ongoing ramp-up of serial products will have a positive impact on our result as deliveries return to their expected level.” Componenta still expects 2024 revenue and EBITDA to improve compared to the previous year (101.8 MEUR and 5.3 MEUR). As per previously commented, the improvement is expected to be clearly concentrated in H2'24. The lower end of the guidance assumes around +25% year-on-year revenue growth in H2'24 after a weak comparison period and an EBITDA margin of around 6.5% in the same period (H2'23 act. -0.3%). The Q2 numbers were a positive surprise and reduced the pressure to meet guidance. According to Componenta, the acquisition of the operations of the Kalajoki plant and the Sepänkylä machining and service center from Fortaco Group (2023 revenue 9.6 MEUR), as announced yesterday, will be completed approximately on October 1, 2024 and will have no impact on the 2024 guidance.

A positive report overall

Overall, the Q2 report was a positive surprise in terms of numbers. We would like to learn more about the demand drivers and outlook for the different customer sectors, the customer structure and profitability of the Fortaco business to be acquired, and the situation of the profitability drivers for the group as a whole. We believe that Componenta's stock will be boosted by the report today.