Vantiva — Market demand remains weak

Vantiva (PAR: VANTI)

Last close As at 01/03/2024

EUR0.14

0.00 (2.94%)

Market capitalisation

EUR67m

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Research: TMT

Vantiva — Market demand remains weak

Vantiva’s Q3 update describes markets that are still suffering from poor levels of demand from the group’s main customers, the telecoms and cable operators, who are holding high levels of inventory. Q323 revenues were 34% constant currency (cc) down on prior year. Management is maintaining guidance on EBITDA and EBITA for FY23 (which our model matches), but we have reduced our revenue estimates to reflect the sluggish backdrop. The proposed acquisition of CommScope Home Networks should transform the combined group’s market positioning ahead of the potential rebound in demand prompted by technological improvements. The deal is expected to complete end Q423/early Q124. A new €85m bridging loan is buffering the working capital requirement in the meantime.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Vantiva

Market demand remains weak

Q3 update

Software

31 October 2023

Price

€0.14

Market cap

€49m

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

(10.9)

(30.8)

(80.7)

Rel (local)

(6.5)

(23.7)

(82.0)

52-week high/low

€0.75

€0.14

Business description

Vantiva consists of two businesses: Connected Home, a leading global designer, developer and supplier of innovative products and solutions connecting consumers, and Vantiva Supply Chain Services, a global leader in the production of discs and associated logistical fulfilment.

Next events

Full year results

14 March 2024

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5700

Vantiva is a research client of Edison Investment Research Limited

Vantiva’s Q3 update describes markets that are still suffering from poor levels of demand from the group’s main customers, the telecoms and cable operators, who are holding high levels of inventory. Q323 revenues were 34% constant currency (cc) down on prior year. Management is maintaining guidance on EBITDA and EBITA for FY23 (which our model matches), but we have reduced our revenue estimates to reflect the sluggish backdrop. The proposed acquisition of CommScope Home Networks should transform the combined group’s market positioning ahead of the potential rebound in demand prompted by technological improvements. The deal is expected to complete end Q423/early Q124. A new €85m bridging loan is buffering the working capital requirement in the meantime.

Year
end

Revenue
(€bn)

EBITDA (€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/21

2.25

105

(126)

(61)

5.5

N/A

12/22

2.78

161

(497)

(197)

3.6

N/A

12/23e

2.14

140

(34)

(11)

4.1

N/A

12/24e

2.08

134

(43)

(12)

4.3

N/A

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

Q3 sees cut or postponed orders across group

Both the Connected Home (76% of group 9M23 revenue) and Vantiva Supply Chain Services (VSCS) segments had difficult Q3 trading, with the former’s revenues down 37% (cc) and the latter retrenching 22%. Only revenue figures are given at this point and management guidance is held at €140m (at least) of EBITDA and €45m (at least) of EBITA for the full year, although this will require a strong profit performance in H2. Given the Q323 figures, our revenue estimates were clearly overambitious, and we have adjusted to a more reasonable level. Given the degree of current uncertainty in the group’s markets, we have taken a cautious approach on FY24 revenue prospects and increased finance expense on reduced cash flow expectations (now free cash flow marginally positive, from over €50m) and the recent €85m short-term financing put in place to fund working capital requirements ahead of the CommScope deal.

CommScope acquisition should rebalance power

The deal would transform Connected Home, with combined revenues of $3.6bn for 12 months to June 2023, enlarging its customer base and geographic reach. Run-rate cost synergies of $100m by FY26 have been identified and the deal should speed an improvement in cash generation, reducing the substantial debt burden.

Valuation: Equity overshadowed

The market value of the equity is currently overshadowed by the value of the debt, which accounts for 91% of Vantiva’s enterprise value. The CommScope deal shows a clearer path to net profitability with continuing careful cost control. The current share price is suggesting either mid-teen medium-term revenue growth, based on a DCF with a 10% WACC, or faster progress in building the EBITDA margin than we currently assume.

Customers playing waiting game

The market difficulties have been observed across recent results from suppliers to the telecoms and cable operators, including the likes of Ericsson and Nokia, so Vantiva’s experience is far from isolated. CommScope’s Q323 figures are set to be released on 9 November. The problems are attributed to the poor underlying economic backdrop, persistently high levels of inflation and rises in interest rates. With a fairly strong environment in FY22 as markets bounced back post COVID-19 lockdowns, the telcos and cable operators invested in inventory ahead of presumed sustained higher levels of demand. With those levels not materialising, they are sitting on excess inventory and not calling stock off their suppliers at the previously expected rate.

There are broadly two ways this situation can resolve. Firstly, an uplift in generic demand pulling through and drawing down stock levels. Secondly, technical enhancements will stimulate a desire for upgrades among households keen for improved reliability, wider bandwidths and greater energy efficiency. To be able to offer these attributes is a potentially important competitive advantage. However, while demand is suppressed, the telcos and cable operators are waiting and trying to optimise the timing of their inventory and marketing investment. They will need to be able to offer the latest attributes to reduce their own churn levels.

Vantiva has a deserved reputation for its technical capabilities and new product development addressing advances such as WiFi7, DOCSIS 4.0 and 5G FWA puts the company in a good position to take advantage. The timing of the CommScope deal is also crucial to be able to take full advantage when the demand for the new, higher specification kit comes through.

Q3 difficulties across the board

Exhibit 1: Summary revenue Q323 and year to date

Q323 revenue

% change (cc*)

9M revenue

% change (cc)

Broadband

284

-65%

931

-15%

Video

55

-26%

215

-40%

Connected Home

339

-37%

1,146

-21%

VSCS

134

-22%

365

-22%

Vantiva

473

-34%

1,511

-21%

Source: Company

Within Connected Home, the key issue has been with the North American and Asia Pacific regions in broadband, correlating with the market description above. In Europe, a drop in demand for DOCSIS product has not been matched by the growing demand for fibre. Management states that a programme of strict cost control has been put in place to protect profitability. Within VSCS, structural declines in demand for discs described in (all) previous notes is not yet being compensated by the more recent additions to activities as they endeavour to scale in weak markets.

Adjustments to estimates

Our previous revenue estimates were anticipating a good recovery in demand in Q3 and Q4, which self-evidently has not materialised. Our FY23 figure is revised down from €2.64bn to €2.14bn, with a knock-on impact on FY24 from €2.70bn to €2.08bn, with added caution. Management is keeping current year guidance for EBITDA of at least €140m, which will require a substantial degree of cost and efficiency control.

Liquidity at the end of September was €39m, including €16m of undrawn credit facility. This was tight in the context of the scale of the group’s activities and a short-term additional facility has been announced of €85m. This runs to end March 2024, at a coupon of Euribor plus 10%. We have added this into our modelled interest charge.

Focus on getting the deal across the line

The focus is on getting the CommScope deal closed, and as soon as is practicable. We would expect closure in Q423 or Q124, at which point we will be able to form a clearer picture. The enlarged group should be in a much stronger position to negotiate advantageously with both its customers and its supply base. As a reminder, the deal is on a debt-free, cash-free basis, with CommScope taking a 25% stake in the combined group, so having a continuing vested interest in the success of the larger company.

Exhibit 2: Financial summary

€m

2021

2022

2023e

2024e

Y/E December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

2,250

2,776

2,137

2,084

Cost of Sales

(1,976)

(2,439)

(1,813)

(1,754)

Gross Profit

274

336

325

329

EBITDA

 

 

105

161

140

134

EBITA

 

 

40

57

50

54

Amortisation of acquired intangibles

(30)

(28)

(24)

0

Exceptionals

27

20

(151)

0

Operating profit (before amort. and excepts.)

(13)

(11)

(130)

39

Net Interest

(117)

(177)

(79)

(82)

Joint ventures & associates (post tax)

0

(311)

0

0

Profit Before Tax (norm)

 

 

(126)

(497)

(34)

(43)

Profit Before Tax (reported)

 

 

(129)

(499)

(209)

(43)

Reported tax

(14)

(30)

(5)

0

Profit After Tax (norm)

(143)

(529)

(39)

(43)

Profit After Tax (reported)

(143)

(529)

(214)

(43)

Minority interests

0

0

0

0

Discontinued operations

4

680

0

0

Net income (normalised)

(143)

(529)

(39)

(43)

Net income (reported)

(140)

151

(214)

(43)

Average Number of Shares Outstanding (m)

236

269

355

355

EPS - normalised (c)

 

 

(61)

(197)

(11)

(12)

EPS - normalised fully diluted (c)

 

 

(61)

(197)

(11)

(12)

Dividend per share (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

(9)

23

(23)

(2)

Gross Margin (%)

12.2

12.1

15.2

15.8

EBITDA Margin (%)

4.7

5.8

6.5

6.5

EBITA Margin (%)

1.8

2.0

2.3

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

1,006

868

Stocks

335

452

392

353

Debtors

359

343

271

244

Cash & cash equivalents

196

167

15

(58)

Other

377

329

329

329

Current Liabilities

 

 

(1,360)

(1,389)

(1,284)

(1,182)

Creditors

(671)

(855)

(691)

(674)

Tax and social security

(29)

(18)

(18)

(18)

Short term borrowings

(65)

(24)

(108)

(23)

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

(27)

(73)

Minority interests

Shareholders' equity

 

 

134

320

(27)

(73)

CASH FLOW

Net profit

(143)

(529)

(214)

(43)

Depreciation and amortisation

139

135

95

85

Working capital

(98)

57

(31)

49

Tax and interest

(70)

(83)

(56)

(51)

Exceptional & other

61

506

84

82

Operating Cash Flow

 

 

(111)

86

(123)

122

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

(238)

12

Opening net debt/(cash)

 

 

812

1,039

263

491

FX

16

(25)

0

0

Discontinued

63

501

0

0

Other non-cash movements

(92)

25

9

0

Closing net debt/(cash)

 

 

1,039

263

491

479

Source: Company accounts, Edison Investment Research

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.

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United Kingdom

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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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