2Q2022 results: positive trends maintained
Sales dynamics higher in TIM SA (+11% y/y, according to the company's monthly sales reports) than in 3LP (only +5% y/y).
Very high margin on goods at TIM SA (nearly 25%, a level not recorded since 2007) - the effect of the policy of building inventories at lower prices.
Overhead costs under control (in relation to revenues at a similar level y/y). No extraordinary gains from the sale of assets (vs. ca. PLN 1.3m in 2Q2021).
Increase in financial costs (mainly interest); a year ago, the company showed over PLN 2 million of positive exchange rate differences.
Weak quarter for 3LP: EBITDA drop by 33% y/y (including no one-off), loss of PLN 1 million at the net level (weaker "financials").
Further increase in working capital in the Group (PLN +42 million in Q2, PLN +50 million YTD), mainly due to an increase in inventories (PLN +35 million). Operating CF negative. Net debt increase.
Performance of NS forecasts higher on an individual level than on a consolidated basis. After six months, TIM realized almost 60% of the expected consolidated profit and 67% of standalone profit (at the EBITDA level, 56% and 66% respectively). It is realistic to meet our full-year forecasts despite the expected slowdown in the second half of the year (a repeat of 2H2021 results would exceed our forecasts). Possible write-offs on inventories may pose a threat.
Companies' results
The sales of TIM SA in the second quarter of 2022 maintained an upward trend, although the dynamics decreased significantly (+11% y/y vs +50% in Q1), reflecting the deterioration of the market conditions. The strong increase in the margin on goods (to almost 25%, a level not recorded since 2007), resulting from an effectively implemented policy of building inventories at lower prices, should be assessed positively. General costs remain under control, their increase (+13% y/y) was similar to the sales growth rate and clearly lower than the margin increase (+18% 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.
The logistics company 3LP performed less well in the reporting period. The estimated increase in sales to customers from outside the Group amounted to only 5% (to approx. PLN 18 million) - the result is quite disappointing, our full-year forecasts assume +25%. The EBITDA profit decreased to approx. PLN 6.5 million (-33% y/y, a year ago the company had an additional profit on the sale of assets of approx. PLN 1.2 million), there was also a loss of approx. PLN 1 million (high financial costs).
Stock increases further
In 2Q2022, TIM increased the level of inventories again (PLN +35 million q/q), and the decrease in receivables (approx. PLN 22 million) corresponded approximately to the decrease in trade liabilities (PLN 29 million). The result of these changes was an increase in expenditure on working capital (PLN +42 million), and the cash rotation cycle increased to 51 days. From the beginning of the year, the involvement in WC amounted to approx. PLN 50 million, mainly by financing the increase in inventories (PLN 60 million).
Cash conversion cycle
The quarterly value of the operating CF this time was negative (PLN -3 million), mainly due to the increase in working capital, which was higher than the profits generated from business. The debt increased significantly (PLN +40 million), which, with a similar level of cash, increased the level of net debt. This change concerns mainly the 3LP logistics company, the development of which, after postponing the issue of shares, is financed with external capital. There is net cash in TIM SA itself. The Group's DN/EBITDA ratio increased to 0.5x, but still remains at a very safe level. In our opinion, TIM is well prepared to implement the development program announced in the strategy, both in the parent company (CAPEX PLN 25-30 million in 2022-23) and in the subsidiary 3LP (approx. PLN 90 million in 2022-23) even despite the lack of proceeds from the 3LP issue.
Last valuation: PLN 54.3 / share on 06/06/2022. Price on the issue date PLN 31.4.
Michał Sztabler
Equity Analyst
+48 (22) 213 22 36
