Q1'23 was another quarter of positive performance surprises from Elektrotim. The Management Board signalled the near completion of the contract for a perimeter line on the border with Belarus (possible settlement at the turn of Q2/3'23).
The conference also highlighted the positive earnings outlook for the coming quarters, which implies a y/y earnings improvement in 2023. The company is currently focusing on building its 2024+ portfolio (at this point, we estimate its coverage at ca. PLN 200m). Completion of the contract on the border with Belarus should also improve the prospect of winning new orders from the defence area (SG, among others, has announced the launch of a tender for the Bug perimeter).
This prompts us to raise our earnings forecasts included in the model (our previous EBITDA forecast for Q1'23 was 30% met after Q1'23, and according to management, the following quarters should be better due to seasonality). We set our current target price at PLN 15.8, which implies reiterating a Buy rating. In Q3'22, Elektrotim managed to break a negative trend of reporting disappointing earnings, and Q4'22 and Q1'23 confirmed this trend. Elektrotim reported Q1'23 revenue of PLN 97m and net profit of PLN 5.8m, the best start to a year in the company's history. Net cash amounted to PLN 60m (Q2-3'23 may be more challenging in this respect due to the start of new contracts, which are more demanding in terms of cash flow profile). After Q1'23, the Group's backlog amounted to PLN 618m (ca. PLN 44m contracts on the border), of which ca. 60-70% is due for completion in 2023 (this year should be close to the 2022 level in terms of revenue).
Management's goal after Q1'23 also seems to be to maintain margins. Seasonally, we note that Q1 is usually the weakest of the year, in management's view there is no indication that the traditional seasonality will not be maintained this year. We currently assume the company will generate PLN 500m revenue, PLN 39m EBIT and PLN 33m net profit in 2023. We take a more conservative approach to 2024 (the company is mainly executing contracts with deadlines <18m, the competitive environment in 2023 is more challenging, and the situation on the cost side may turn around if EU funds are unblocked).
At the same time, we maintain that in the medium/long term, the company may be a beneficiary of the increase in expenditure on power grids and the military area (references and certificates held). In its 2023-25 strategy, the Management Board has outlined that the company is targeting at least PLN 350m in revenue and PLN 10m in net profit at the standalone level (50-75% is to be allocated to dividends). In light of the 2022 results and 2023 prospects, these targets do not seem demanding. At the same time, the company has struggled to stabilise results in recent years, which translates into a valuation discount. In 2017-21, it posted a net loss three times, with results ranging from PLN -15m to +17m. Following the finalisation of the sale of Procom in Q4'22, work is currently underway on the possible divestment of the Zeus subsidiary (the management did not wish to comment on the progress of this process at the last conference).
On the one hand, it would allow further capital release on the other hand, however, this company has certificates and competences overlapping with Elektrotim, which could potentially create new competition.
