Sonel – Change of financial forecast – continuation, ESG and financial results and forecast – Part III
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- Announced change in the schedule of the contract for Tauron and improvement of profitability in the segment of electricity meters. According to previously published information, both contracts for the supply of meters to Tauron (a total of approx. PLN 85 million of the basic order + approx. PLN 30 million under additional options) were to be completed in 2023. We assumed the exercise of options and on this basis we forecasted in the electricity meters approx. PLN 100 million in revenues in 2023 and a decrease to approx. PLN 30 million in the following years (completion of the above-mentioned contracts for Tauron and acquisition of further orders). At the last conference, the Management Board of the company announced that in 2023 Foxytech will obtain approx. PLN 50 million from contracts for Tauron and another PLN 30 million in 2024. On this basis, we changed our forecasts: for 2023 we lowered to PLN 60 million (mainly Tauron), and in the subsequent ones we increased it to PLN 50 million (completion of deliveries to Tauron and new orders). Currently, tenders are under way for the supply of meters to EON. Foxytech has also obtained appropriate certificates allowing it to offer its meters also on other EU markets, hoping for export orders.
- Foxytech had big problems with maintaining positive profitability in 2022 due to unfavourable exchange rates (PLN depreciation increased the costs of purchasing components for production from Chinese partners without the possibility of transferring the increase in costs to the customer). The drop in the EUR exchange rate in 2023 improved the profitability of this part of the business. We are counting on the return of the margin to the levels from 2021 and a clear increase in Foxytech's profits.
- Foreign companies offering Sonel products on Asian markets are developing well (Sonel India and Sonel Singapore). We expect that in the coming years, the results generated by Sonel SA will be increasingly supported by profits generated by other companies from the group
- The publication of an update of Sonel's Development Strategy for 2022-24 was announced for June this year. There will be new (higher) goals in the area of revenues, the plan to achieve the ROE ratio (for Sonel SA) at the level of 17% is to be maintained. Currently, the ROE'22 ratio is approx. 15.4%, and assuming that only part of the profit is paid out as dividends (as a consequence, equity increases each year), the growth rate of net profit should be higher. With our assumptions regarding the level of dividend paid (PLN 8.4 million from the profit in 2022 - approx. 60% of the generated profit and PLN 13 million from the profit in 2023 - 80%), to achieve the ROE plan = 17% net result should increase in 2024 to approx. PLN 18.5-19 million (P/E'24=8x). We consider this goal to be realistic, though ambitious.
Considering the above factors, we adjusted our financial forecasts for the following years:
- We increased revenues in Sonel's core business (meter production) - the effect of more optimistic assumptions regarding demand, and in assembly services - we changed assumptions related to cooperation with Lincoln (the new assembly line increases production capacity and we do not see the need to reduce orders for services in the next 3 years assembly). In the meter segment (Foxytech), we changed the delivery schedule to Tauron (decrease in revenues in 2023) and we hope for higher contracting in the coming years (obtained certificates opening export markets + meter exchange program in Poland).
- The change in profitability assumptions is primarily the effect of the adopted product mix (the least profitable meters).
- Higher CAPEX results from Sonel's development plans and rising costs.
- The higher level of dividend paid is a derivative of higher forecasted profits. The need to provide funds for investments (higher) and for financing working capital (higher due to higher expected revenues) with a fairly conservative liquidity policy will limit the payout ratio. We have lowered the dividend payout ratio to 80% (according to the new dividend policy, previously we assumed that approx. 90% of the net profit would be allocated to dividends). Lowering this ratio creates challenges for the net profit (in the context of the ROE=17% target).
ENVIRONMENT, SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE (ESG)
Sonel is a company that fully uses its production potential, optimizes direct costs, while constantly maintaining high quality, improving work safety and conducting activities for environmental protection. Sonel actively participates in the life of the region, supporting various social initiatives (sports clubs, Bach festival, "Logged in" program or "Stay with us" and many others), in addition, a cooperation agreement was signed with the Complex of Construction and Electrical Schools in Åšwidnica, in which, in cooperation with Sonel, a patronage class in the profession of Electronics Technician was created a few years ago. Young people attending classes in this class undergo professional internships on the company's premises, with a large involvement of the engineering staff. In addition, Sonel actively supports the development of the school's teaching staff through cyclical trainings improving their qualifications in the field of new technologies in the field of electronics, power engineering and electrical measurement.
FINANCIAL RESULTS AND FORECAST
Michał Sztabler
Equity Analyst
michal.sztabler@noblesecurities.pl
+48 22 244 13 03
