Analytical Report - TIM SA - 3Q2022 Results – WSE:TIM

3Q2022 results: weaker than the two previous quarters, lower y/y

• The dynamics of revenue growth clearly weakened (+5% in the TIM cons. and 4% in TIM SA), although it was not a surprise considering the current reports informing about monthly results.

• The gross margin on goods in TIM SA decreased (to 20%, compared to 21.7% in 3Q2021 and 24.7% in 2Q2022), which resulted in a decrease in gross profit on goods to approx. PLN 70 million (-4% y/y , -18% q/q).

• General costs amounted to PLN 60 million in the entire Group (+19% y/y, -4% q/q), which means that they showed a higher dynamics than gross profit, which resulted in a decrease in both EBIT and EBITDA.

• We would like to draw attention to the large increase in financial costs (balance in Q3 at the level of PLN -6.3 million), which was due to higher interest, but above all higher exchange rate differences resulting from the valuation of the financed currency liabilities (leasing in 3LP).

• The net debt at the end of the period was higher (mainly the valuation of leasing liabilities at a higher EUR/PLN).

• Inventories (PLN -61.5 million) and receivables (PLN -5 million) decreased significantly, but at the same time the level of trade liabilities was reduced (PLN -73 million). As a result, the net working capital (NWC) increased again, this time by approx. PLN 7 million.

• In Q3, TIM paid a dividend (PLN 26.6 million), which additionally contributed to an increase in net debt.

• At TIM SA, the realization of our forecasts at the level of 75-88% allows us to hope that the plan will be implemented. The situation is worse on a consolidated basis, which is due to the weaker results of the 3LP (lower than expected margin, higher financial costs). Achieving PLN 105 million of consolidated net profit will be a big challenge, currently PLN 90 million seems more realistic.

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Companies' results

The sales of TIM SA in the third quarter of 2022 maintained an upward trend, although the dynamics decreased significantly (+5% vs +50% in Q1 and +11% in Q2), reflecting the downturn in the market. The marked drop in the margin on goods should be assessed negatively (to approx. 20%, after 5 quarters of a much higher profitability), which, in our opinion, may mean the end of the favourable situation on goods lasting for over a year, resulting, among others, from rising raw material prices (e.g. copper). The increase in general costs accelerated (+19% y/y), clearly above the margin change rate (-4% y/y). The balance of other activities and the balance of "cash" did not have a significant impact on the final result at TIM SA. There is a regression in the 3LP logistics company. Although this entity showed 11% an increase in sales to customers from outside the Group (to approx. PLN 15 million), but this is a rather disappointing result for us, our full-year forecasts assume +25%. The EBITDA profit decreased to approx. PLN 5.8 million (-25% y/y), and the net loss increased to approx. PLN 4 million (high financial costs).

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Inventories plunged sharply, but trade payables dropped even more

In 3Q2022, TIM decreased the level of inventories by as much as PLN 61.5 million, and receivables were also slightly reduced (approx. PLN 5 million). On the other hand, TIM reduced its liabilities by over PLN 73 million, which limited the positive impact of lower inventories on generated operating cash flows. As a result, the net working capital (NWC) increased by approx. PLN 7 million, and the cash rotation cycle increased to 53 days (consulted data). From the beginning of the year, the involvement in KON amounted to approx. PLN 56 million, however, the purpose has changed: currently KON finances mainly the increase in receivables (approx. PLN 48 million) and a decrease in liabilities (approx. PLN 9 million).

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The quarterly value of the operating CF was again positive (PLN +22 million), mainly due to the already slight increase in working capital, which was lower than the profits generated from business. Debt increased (PLN +17.5m, in ¼ of this was due to the weakening of PLN), which, with a lower level of cash (due to the payment of PLN 26.6m in dividends in Q3), increased the level of net debt. This change mainly concerns the 3LP logistics company, the development of which, with the postponement of the share issue, is financed with external capital.

TIM SA itself has net cash (lower by PLN 10 million q/q due to the aforementioned dividend payment). The Group's DN/EBITDA ratio increased to 0.7x, but still remains at a very safe level. At TIM SA, the implementation of our forecasts at the level of 75-88% allows us to hope that the plan will be implemented. The situation is worse on a consolidated basis, which is due to the weaker results of the 3LP (lower than expected margin, higher financial costs). Achieving PLN 105 million of consolidated net profit will be a big challenge, currently PLN 90 million seems more realistic. The lower increase in sales (and taking into account inflation in real terms, even a drop in revenues) and the lower margin indicate that the market has already entered the slump phase. In the coming periods, we should prepare ourselves for PLN 10-15 million of quarterly profits versus PLN 25-30 million that the company generated in the previous quarters.

Last valuation: PLN 54.3 / share on 06/06/2022. Price on the issue date PLN 31.4.

Analyst: Michał Sztabler Equity Analyst +48 (22) 213 22 36 michal.sztabler@noblesecurities.pl

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