Warsaw Stock Exchange: Action - 4Q22 financial results review
Aa
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Sector: IT – hardware distributors
Market Cap: US$ 88 m
Fundamental rating: Buy (→)
Bloomberg code: ACT PW
Market relative: Neutral (→)
Av. daily turnover: US$ 0.09 m
Price: PLN 18.02
12M range: PLN 10.82-18.52
12M EFV: PLN 20.8 (↑)
Free float: 59.55%
Recommended action
The Company’s FY22 profits bore the impact of a falling revenue dynamic and mounting pressure on OPEX which resulted in a 22% yoy slide of the Company’s adj net profit. We expect profits to stabilize in 2023 due to an improving revenue dynamic and high gross profit margin on sales maintained. Besides, the pressure on OPEX should soften due to the fact that significant part of it was reflected in last year’s base. Thus, we expect Action’s operating profitability and adj net profit to be flat yoy.
We still see a double-digit upside towards our 12M EFV and uphold LT fundamental Buy recommendation while expecting negative dynamics of the upcoming quarter’s profits we do not change our ST Neutral relative rating as well.
Guide to adjusted profits
FY22 net profit adjusted for a PLN 2.8 million tax interest receipt.
Key data
4Q22 financial results review
On April 24 Action released 4Q22 financial results which featured a 5% yoy slide of revenues to PLN 674.6 million and were in line with the preliminary figures published earlier.
â– The gross profit margin on sales stood at 9.0% turned out to be on line with our forecast and materially higher than the preliminary monthly figures published which implied 7.8%.
â– EBITDA and EBIT at PLN 21.7 million (down 23% yoy) and PLN 19.5 million (down 26% yoy), respectively, were lower by 5% and 6%, respectively, than we expected.
â– The SG&A costs/ sales ratio stood at 6.1% vs 5.3% in 4Q21.
â– 4Q22 EBITDA margin fell to 3.2% from 4.0% a year earlier and was lower than our expectations at 3.4%.
â– Gross profit was elevated due to a reversal of a discount from the liabilities under the arrangement procedure (PLN 2.1 million) and reached PLN 22.6 million (down 13% yoy) vs our forecasts at PLN 20.1 million.
â– The Company’s NI arrived at PLN 19.0 million (down 18% yoy) vs our expectations at PLN 16.3 million.
â– The effective tax rate was 15.9% while we expected 19.0%.
â– Operating cash flows were negative and reached PLN 17.2 million vs PLN 15.4 million in 4Q21.
1Q23 financial results preview
On May 30 the Company will publish 1Q23 financial results. Based on the sales figures and gross margin on sales reported monthly by the Company we expect a single-digit yoy revenues growth. Though the gross profit margin on sales stays high, given a mounting pressure on OPEX we assume the Company’s operating figures to deteriorate.
On the back of the monthly data reported for January, February, and March we forecast an 8% revenue yoy growth in 1Q23 to c. PLN 592.2 million. We expect, on the one hand, falling revenues from hardware coupled with a growth of revenues in the remaining categories. In January/February/March the Company’s gross profit margin on sales stood at 7.2%/8.0%/8.1% vs 7.8%/7.5%/7.5% reported in the corresponding months of last year. We assume that final gross profit margin on sales will exceed the preliminary figures, as it was the case in the previous periods, and forecast it at 8.8% (flat yoy).
Given: (i) an 8% yoy growth of revenues (positive operating leverage effect), (ii) high gross profit margin on sales, and on the other hand (i) mounting pressure from sales costs (costs of logistics, packaging materials (stretch foil and cardboard) or cost of salaries) we project the Company’s 1Q23 EBITDA at PLN 13.6 million (down 12% yoy) which implies a decline of the EBITDA margin to 2.3% (down 0.5 pp yoy). We assume D&A at PLN 2.3 million and expect the Company’s EBIT to reach PLN 11.3 million (down 10% yoy). With the effective tax rate assumed at 19% we forecast Action’s 1Q23 net profit at PLN 9.1 million (down 11% yoy).
Buyback
The Company’s buyback is pending with the funds for a purchase of own shares increased recently from PLN 20 million to PLN 30 million by the extraordinary shareholder meeting. The maximum number of shares to be purchased in the buyback is 2,003,700 with the maximum price per share set at PLN 35. As of May 11, Action owns 1,317,082 shares which corresponds to a 6.57% share in capital and votes.
Fig. 1. Action; 1Q23 financial results preview
Stock performance
Upcoming events
- Release of 1Q23 financial results: May 30
- Release of 1H23 financial results: September 29
- Release of 3Q23 financial results: November 29
Analyst: Jakub Viscardi
