Vantiva — FY23 guidance maintained post difficult H1

Vantiva (PAR: VANTI)

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Research: TMT

Vantiva — FY23 guidance maintained post difficult H1

Vantiva has been operating in difficult markets for both its segments in its first half. At Connected Home (78% group H123 revenue), the customer base is holding high inventory levels against caution in their own underlying end markets, suppressing demand. At Supply Chain Services (SCS), DVD demand has been poorer than expected, dropping away before the benefits of the diversification programme have fully kicked in. Prospects, particularly at Connected Home where broadband equipment is the key driver, are better for H2 and management has maintained full year guidance. Our modelling has been reined in to match.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Vantiva

FY23 guidance maintained post difficult H1

Interim results

Technology hardware

7 August 2023

Price

€0.19

Market cap

€68m

Net financial debt (€m), IFRS basis at 30 June 2023

439

Shares in issue

355.4m

Free float

86%

Code

VANTI

Primary exchange

Euronext Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(13.4)

(1.3)

(83.0)

Rel (local)

(12.9)

(1.0)

(84.6)

52-week high/low

€1.14

€0.18

Business description

Vantiva consists of two businesses: Connected Home, a leading global supplier of strategic customer-premises equipment solutions, and Vantiva Supply Chain Services, a global leader in the production of discs and associated logistical fulfilment.

Next events

Q323 results

Late Nov/early Dec

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Vantiva is a research client of Edison Investment Research Limited

Vantiva has been operating in difficult markets for both its segments in its first half. At Connected Home (78% group H123 revenue), the customer base is holding high inventory levels against caution in their own underlying end markets, suppressing demand. At Supply Chain Services (SCS), DVD demand has been poorer than expected, dropping away before the benefits of the diversification programme have fully kicked in. Prospects, particularly at Connected Home where broadband equipment is the key driver, are better for H2 and management has maintained full year guidance. Our modelling has been reined in to match.

Year
end

Revenue
(€bn)

PBT*
(€m)

EPS*
(c)

DPS
(c)

EV/EBITDA
(x)

P/E
(x)

12/21

2.25

(126)

(61)

0

4.8

N/A

12/22

2.78

(497)

(197)

0

3.1

N/A

12/23e

2.64

(22)

(8)

0

3.6

N/A

12/24e

2.70

(14)

(4)

0

3.3

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Better H2 needed to reach guidance

Management’s FY23 guidance has been maintained for adjusted EBITDA of over €140m, adjusted EBITA of at least €45m and adjusted free cash flow (pre interest and tax) of at least €50m. Our previous modelling showed adjusted EBITDA of €151m on revenues down 1.9% year-on-year, now revised to a decline of 4.9%. This requires better performance in H2, delivering adjusted EBITDA of €91m, from the €49m posted for H1. This should be achievable if, as expected, broadband demand improves at Connected Home as inventory levels normalise. There are a number of technological advances in train and in the wings, such as DOCSIS 4.0, Wi-Fi 7 and 5G FWA, where Vantiva is at the forefront of product development, which should spur demand as these are introduced by the service providers.

Cash flow should improve through H2

Working capital is generally negative in H1 and positive in H2, and it will be the timing of the improvement that will determine the snapshot position as at the year end. Capex in the current year is also likely to have been H1 weighted, given the spend on vinyl presses to increase capacity within SCS. Vantiva has taken a €133m write-down on goodwill on SCS’s disc business with these figures. Our view is that additional funding would allow for faster growth, so quicker debt paydown.

Valuation: Appraisal pending timing

The market value of the equity is currently overshadowed by the value of the debt, which accounts for 87% of the group’s enterprise value. With management guidance maintained, there is a path to net profitability with modest top-line progress and continuing careful control of costs. The current share price is suggesting either mid-single-digit growth, based on a discounted cash flow with a weighted average cost of capital of 10%, or faster progress in building the EBITDA margin than we have currently assumed.

H1 results reflect customer caution and inventory

Better prospects in H223 at Connected Home

At Connected Home, the key issue has been the high levels of inventory held by the telco service providers that are the group’s key customers. Chipset supply conditions have now eased, although prices are still elevated and lead times long, contributing to the caution in the customer base. Broadband revenues were down 7.5% at constant currency in H1, which was nevertheless a much better performance than for Video customer premise equipment, where revenues were 19.7% below H122 (at constant currency) and against demanding comparatives. Broadband represents 80% of the division’s revenue base.

Despite the lower volumes, the Video business remains profitable and continues to be the solution for TV content distribution in countries and territories where the infrastructure for cable is either not there or is not suitable. Fibre was the main positive in H1, with good demand particularly in EMEA, and good levels of interest in new technologies. Adoption by any of the major customers of these new products and/or technologies should lead to rapid wider take-up, given the competitive nature of the market and the importance of performance delivery in maintaining market share.

Tough disc market means write-down at SCS

At SCS, the comparative period was also tough, and, again, the unwinding of inventory in the supply chain suppressed demand. Disc manufacturing volumes were down 40% versus H122, with management attributing about half of that to the industry inventory issues. Overall divisional revenues were down 22.4% at constant currency, as some pricing benefits came through and the newer initiatives start to feed through.

The investment in diversification continues apace, with new vinyl presses installed and operational in H123, taking the total to 22, and more to come in H223 and H124, including in Europe and Australia. The other non-disc activities are also making good progress, with the distribution and logistics revenues up 40%, albeit off a low base, and good interest building in precision moulding and biodevices manufacturing.

The faster decline in the disc business than previously anticipated has led to a re-examining of the longer-term growth assumptions, particularly in respect of DVDs. This has resulted in the group taking a goodwill impairment of €133m with these figures, which is the bulk of the €146m of non-recurring items.

Free cash flow set to improve in H223

With an outflow of €74m in H123 and a full year forecast of over €50m, management is assuming that the cash performance in the second half will be much stronger. Working capital is generally positive in H2, so this should be a significant boost towards this goal.

Liquidity at the end of June totalled €66m, being cash on hand of €39m plus liquidity remaining available to be drawn from the Wells Fargo facility of €27m. Gross IFRS debt was €478m at the half year (€487m nominal), including operating leases of €70m. Management has indicated that it is seeking additional financing, with more flexibility to cater for seasonal swings in working capital than its existing arrangements provide. This would allow faster progress towards building the higher-growth, potentially higher-margin, elements of the business mix, tilting value back towards the group’s equity base.

Exhibit 1: Financial summary

€m

2021

2022

2023e

2024e

Y/E December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

2,250

2,776

2,640

2,702

Cost of Sales

(1,976)

(2,439)

(2,315)

(2,356)

Gross Profit

274

336

325

346

EBITDA

 

 

105

161

140

151

EBITA

 

 

40

57

50

71

Amortisation of acquired intangibles

(30)

(28)

(24)

0

Exceptionals

27

20

(151)

0

Operating profit (before amort. and excepts.)

(13)

(11)

(130)

56

Net Interest

(117)

(177)

(67)

(70)

Joint ventures & associates (post tax)

0

(311)

0

0

Profit Before Tax (norm)

 

 

(126)

(497)

(22)

(14)

Profit Before Tax (reported)

 

 

(129)

(499)

(197)

(14)

Reported tax

(14)

(30)

(5)

0

Profit After Tax (norm)

(143)

(529)

(27)

(14)

Profit After Tax (reported)

(143)

(529)

(202)

(14)

Minority interests

0

0

0

0

Discontinued operations

4

680

0

0

Net income (normalised)

(143)

(529)

(27)

(14)

Net income (reported)

(140)

151

(202)

(14)

Average Number of Shares Outstanding (m)

236

269

355

355

EPS - normalised (c)

 

 

(61)

(197)

(8)

(4)

EPS - normalised fully diluted (c)

 

 

(61)

(197)

(8)

(4)

Dividend per share (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

(9)

23

(5)

2

Gross Margin (%)

12.2

12.1

12.3

12.8

EBITDA Margin (%)

4.7

5.8

5.3

5.6

EBITA Margin (%)

1.8

2.0

1.9

2.6

BALANCE SHEET

Fixed Assets

 

 

1,730

1,053

876

866

Intangible Assets

1,283

782

609

599

Tangible Assets

305

154

149

149

Investments & other

59

84

84

84

Deferred tax and other

83

34

34

34

Current Assets

 

 

1,268

1,290

1,096

1,109

Stocks

335

452

441

417

Debtors

359

343

334

317

Cash & cash equivalents

196

167

(8)

46

Other

377

329

329

329

Current Liabilities

 

 

(1,360)

(1,389)

(1,363)

(1,383)

Creditors

(671)

(855)

(854)

(874)

Tax and social security

(29)

(18)

(18)

(18)

Short term borrowings

(65)

(24)

(24)

(24)

Other

(594)

(492)

(467)

(467)

Long Term Liabilities

 

 

(1,505)

(633)

(625)

(625)

Long term borrowings

(1,170)

(407)

(398)

(398)

Deferred tax

(20)

(3)

(3)

(3)

Other long term liabilities

(315)

(224)

(224)

(224)

Net Assets

 

 

134

320

(16)

(33)

Minority interests

Shareholders' equity

 

 

134

320

(16)

(32)

CASH FLOW

Net profit

(143)

(529)

(202)

(14)

Depreciation and amortisation

139

135

95

85

Working capital

(98)

57

19

62

Tax and interest

(70)

(83)

(44)

(39)

Exceptional & other

61

506

72

70

Operating Cash Flow

 

 

(111)

86

(61)

165

Capex

(69)

(81)

(75)

(80)

Acquisitions/disposals

0

0

0

0

Equity financing

0

284

0

0

Dividends

0

0

0

0

Other

(33)

(14)

(40)

(30)

Net Cash Flow

(214)

275

(176)

55

Opening net debt/(cash)

 

 

812

1,039

263

430

FX

16

(25)

0

0

Discontinued

63

501

0

0

Other non-cash movements

(92)

25

8

0

Closing net debt/(cash)

 

 

1,039

263

430

376

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Vantiva and prepared and issued by Edison, in consideration of a fee payable by Vantiva. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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London │ New York │ Frankfurt

20 Red Lion Street

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United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Vantiva and prepared and issued by Edison, in consideration of a fee payable by Vantiva. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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