Q2/2022 results: weaker meter segment
- In 2Q2022, Sonel achieved results similar to the first quarter of this year and clearly better y/y.
- The increase in revenues in the most profitable area of measures (+15% y/y) did not manage to compensate for the loss of margin in less profitable segments: assembly services (sales increase +65% y/y) and meters (+85% y/ y).
- Rising costs negatively affected the results in Foxytech (deepening of the loss in Q2/22).
- Sonela's CAPEX still remains relatively small (approx. PLN 2m in Q2), given the company's development plans. We expect investments to accelerate in the coming quarters.
- The company regained some funds frozen in working capital, mainly due to increases in short-term liabilities.
- Sonel still has a surplus of cash, its level may decrease in the second half of the year due to the payment of dividends, acceleration of investments and possible increase in WC expenses.
- After six months, Sonel realized approx. 60% of revenues forecasted for this year and 55-60% of planned profits. Although maintaining a less favourable structure of revenues in terms of margin may worsen profitability in the second half of the year, we do not see any threats to the fulfilment of our full-year forecasts.
Revenues and margins
Consolidated revenues of Sonel in Q2 increased by 35%, mainly due to higher revenues in the service segment and from the sale of electricity meters (in total PLN +8.2 million y/y, approx. 75% of the total increase in sales recorded in 2Q2022). The subsidiary Foxytech, responsible for the area of meters, generated sales of PLN 8.2 million in the reporting period (+85% y/y). Sales of core business indicators increased by approx. 15%. The high (+65% y/y) sales in the service assembly segment may be a surprise, as we assumed a gradual reduction in this activity. The company explains it, among others lower use of the potential of the dedicated production of meters (reduction of demand from eastern markets), which made it possible to redirect the capacity to the provision of services.
The decrease in the margin was the result of a weaker product mix (high share of low-margin meter and service segments) and rising production costs (components, work, energy).
General expenses increased by 29% y/y, above the increase in gross profit. Other operating activities gave a positive result (approx. PLN 0.6 million), while a year ago there was a loss (including an allowance for the R&D project in the amount of approx. PLN 1.3 million - one-off).
As a result, EBIT / EBITDA and net profit increased significantly.
In the commentary on the results, the management indicated the loss recorded by Foxytech. The company relies mostly on imported components, and due to the nature of the market it operates on (a tender market with low margins and long terms of contract performance), it was not able to adjust its prices to the dynamically growing costs. We dealt with a similar situation in Apator. We mentioned the potential problems of companies with high exposure to the market of contracts won in tenders in our previous reports.
Improvement in working capital, CAPEX still low
The company has recovered some funds frozen in working capital (WC), mainly due to increases in short-term liabilities. Inventories continue to increase, receivables slightly lower.
Consolidated CAPEX remains relatively low (ca. PLN 2m in Q2), but we expect spending to accelerate in the coming quarters.
Sonel still has a surplus of cash, its level increased to PLN 15 million at the end of June. We expect that this value may decrease in the second half of the year due to the dividend payment (PLN 7 million paid in August this year), acceleration of investments (we estimate PLN 10 million in 2H2022) and a possible increase in WC expenditure (the need to finance higher inventories related to the implementation of large contracts in the area of meters).
Last valuation: PLN 10.3 / share on June 06, 2022. Price on the issue date: PLN 9.8.
Michał Sztabler Equity Analyst +48 (22) 213 22 36 michal.sztabler@noblesecurities.pl
