Research: Consumer
Inchcape’s (INCH’s) FY23 results highlighted strong revenue and margin progression, with 12% organic revenue growth and a 70bp uptick in adjusted operating margin, leading to 18% EPS growth. The Derco acquisition contributed its full first year, helping to boost profits despite margin compression in the Americas and Retail. INCH anticipates another year of growth in FY24, although with caution due to expected softness in certain markets, particularly Europe and Retail. INCH will continue its disciplined approach to capital allocation as it deleverages the balance sheet, and recently announced a strategic review of its UK Retail business.
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Inchcape |
Acceleration in FY23 but more cautious FY24
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Automotive retail |
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12 March 2024 |
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Inchcape’s (INCH’s) FY23 results highlighted strong revenue and margin progression, with 12% organic revenue growth and a 70bp uptick in adjusted operating margin, leading to 18% EPS growth. The Derco acquisition contributed its full first year, helping to boost profits despite margin compression in the Americas and Retail. INCH anticipates another year of growth in FY24, although with caution due to expected softness in certain markets, particularly Europe and Retail. INCH will continue its disciplined approach to capital allocation as it deleverages the balance sheet, and recently announced a strategic review of its UK Retail business.
Robust FY23 results
INCH delivered a strong financial performance in FY23, with double-digit organic revenue growth of 12%. On a reported basis, revenue was boosted due to the Derco acquisition, up 41% to £11.4bn. The focus on Distribution, alongside the benefits from Derco as well as the organic revenue growth and operational leverage, resulted in improved levels of adjusted EBIT at £669m (FY22: £411m), at a margin of 5.8% (FY22: 5.1%). Adjusted basic EPS grew 18% to 84.8p, which allowed for an equivalent increase in the dividend to 33.9p, reflecting the company’s targeted 40% payout ratio. Adjusted net debt increased to £601m (FY22: £378m), mainly relating to Derco and three acquisitions in Asia-Pacific, reflecting leverage of 0.8x. Given the proximity to the company’s self-imposed leverage limit of 1.0x, deleveraging the balance sheet will be a priority focus in the short term.
Distribution excellence driving contract wins
FY23 highlighted INCH’s continued position as the leading global distribution partner for automobile manufacturers, through its asset-light and digitally-enabled approach. The group won 15 new contracts across geographies, while the Derco acquisition secured INCH’s leading position in Latin America. Looking to FY24, its Distribution Excellence strategy is expected to drive top-line, profitable growth. Regarding Vehicle Lifecycle Services, management flagged it would reduce the bravoauto business to its ‘profitable core’ to enable a more focused approach.
Valuation: Discount to wider peers
INCH trades on P/E multiples of 7.4x for FY24 and 6.7x for FY25, corresponding to discounts of 34% and 44% to the median of its UK distributor and automotive retail peers. Although the company is expected to deliver better margins in both years than most peers, it is also forecast to see slower growth of 2.4%, reflecting management’s more cautious outlook in certain markets.
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Consensus estimates
Source: LSEG (Note: Priced at 12 March 2024) |
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Research: Healthcare
Continued strong sales of Cresemba, Basilea Pharmaceutica’s lead antifungal asset, in the Asia-Pacific region and China, has triggered the receipt of a US$1.25m milestone payment from Pfizer (license partner). This comes on the heels of Basilea’s first sales-related milestone from distribution partner Knight Therapeutics in January for sales in Latin America. We believe these reflect sustained market traction for Cresemba, leading to in-market sales of US$445m in the 12 months ending September 2023 (+22% y-o-y) and c CHF30m in milestone payments in FY23. In December 2023, Cresemba was granted a paediatric label expansion in the US, extending its market exclusivity to September 2027 (EU decision expected Q124). Basilea is also developing a successor to Cresemba: fosmanogepix, a broad-spectrum antifungal therapy (Phase III trials to commence in mid-2024). We anticipate the Prescription Drug User Fee Act (PDUFA) date (3 April 2024) for the company’s second asset, Zevtera, will be the next near-term catalyst, as the US represents a key market.