Ailleron – Warsaw Stock Exchange (WSE:ALL) – 2Q22 Results
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2Q22 results: Continuation of high y/y dynamics
The company is reporting impressive year-on-year growth in results at the consolidated level. Revenues amounted to PLN 101.7 million, up 120% y/y vs. the PLN 61.4 million we assumed. EBITDA increased by 41% y/y, operating profit +58% y/y. Net profit was PLN 8.5 million vs. PLN 2.3 million a year ago and PLN 4.3 million of our forecast. We have a positive view of the consolidated results and those attributable to the parent company, due to the 58% y/y profit growth, while the result attributable to the Ailleron CG is still somewhat unsatisfactory. Therefore, we are positive about the management buyout announced by the CEO during the earnings conference regarding the HotelTech segment (iLumio) and plans for FinTech. The company's representatives are positive about the market's potential and see no risk of revenue decline in the near future.
Revenues for 2Q22:
Consolidated net sales revenues amounted to PLN 101.7 million vs. PLN 46.2 million in the same period last year, an increase of 120% y/y. The increase in sales revenue is mainly attributable to the rapidly growing EnterpriseServices segment, whose revenue growth rate in 2Q22 was +159% y/y. This is largely the result of consolidation due to acquisitions, but also organic growth. Technology Services (e. EnterpriseServices) remains the dominant segment in the company's revenues and currently accounts for 83% of sales. FinTech generated 15% of revenues, and HotelTech just over 1%. Note the favorable trend in export sales, which in the first half of 2022 already accounted for 76% of total sales. The downside of such a situation is greater openness to currency risk.
Revenues (mln PLN) and selling and administrative expenses as % of sales revenues
Segment share in revenue
Operating costs. Since 4Q19, there has been a positive downward trend in cost of sales relative to revenue, the share of the aforementioned currently accounting for 6.8% of sales. As the scale of operations increases, we expect further declines in this parameter in relation to revenues. General and administrative expenses have generally settled around the average of 10.1% of revenues since 1Q20, and for 2Q22 amounted to 10.2% vs. 10.1% a year ago and 9.6% in the previous quarter.
EBIT for 2Q22 +58% y/y; EBITDA +41% y/y.
The Group's operating profit amounted to PLN 7.0 million, compared to PLN 4.5 million in the second quarter of 2021, an increase of 58% year-on-year, for which the EnterpriseServices segment is mainly responsible (PLN 8.1 million EBIT). The operating profit of the FinTech and HotelTech segments unfortunately continues to be negative, negatively affecting, further, the result for the parent shareholders. In the case of FinTech, EBIT amounted to PLN -0.63 million, while HotelTech generated an operating loss of PLN 0.5 million. Consolidated EBITDA increased year-on-year by 41% to PLN 10.2 million vs. PLN 7.2 million a year ago. In the case of FinTech, this is due to the negative impact of the ongoing contract in the corporate part and the investment costs that are incurred in the LiveBank SaaS area.
Net profit
At the consolidated level, it amounted to PLN 8.5 million, up from PLN 2.3 million a year ago. In the case of net profit, this represents an increase of more than 271%. However, the net result attributable to the parent shareholders due to the negative contribution of FinTech and HotelTech is PLN 3.0 million, which, however positive for Ailleron's shareholders due to the growth dynamics (+58.0% y/y), can be considered a still unsatisfactory value (35% of net profit). It should be noted, however, that in financial expenses, in accordance with IFRS 3, the acquisition-related costs that Software Mind, as the acquirer, incurred in order to bring about a business combination as part of M&A processes were included as period costs - we are referring to consulting, legal, valuation or other costs for professional or advisory services. This refers to the costs of fully completed transactions. Excluding the costs of one-time events, the net result for the first half of 2022 is at a level of about PLN 15.8 million - i.e. almost 3 times higher than in 6M 2021.
Profitability earned by Ailleron since 1Q17.
The company had PLN 79 million in cash at the end of 2Q22, while financial debt is PLN 88 million. This means that net debt vs. 12 mo. EBITDA amounted to 0.20x vs. -2.98x in 2Q21. Noteworthy is the significant deterioration at the working capital level (-£10.5m), although it was -£14.2m a year ago, a y/y improvement. However, we attribute this mainly to Software Mind's rapid growth.
Cash flows for 2Q22
We view Ailleron's 2Q22 results as generally positive. The results at the consolidated level should be assessed very well. Revenues were 66% above our forecasts, EBIT and EBITDA 2% below. Net profit was PLN 8.5 million vs. the PLN 4.3 we had forecast. On the negative side, we see a significant deterioration in margins, with gross margin dropping 5.2 p.p. to 23.9%, and EBITDA profitability dropping 5.6 p.p. to 10%. However, it should be noted that this is due to one-time events charged to the period's results in the form of M&A costs in SG&A and invoicing of future periods in acquired companies. We consider the results attributable to parent shareholders to be significantly better, but still unsatisfactory. In our view, only achieving more than 60% of net income attributable to parent shareholders would be a desirable value (we consider 50% to be sufficient). The company still has an investment CAPEX of around PLN 100 million to use by the end of the year. The Management Board is convinced that further adherence to the outlined strategy will allow the company to achieve several times that amount. The company's main growth direction for the next few years is expected to remain high-margin overseas.
Last valuation: 19.1 PLN /share as of 3.03.2022. Price on the day of issue: PLN 11.40.
Dariusz Dadej
Analyst
+48 602 445 334
