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Research: TMT
Riber’s order book at the end of June shows that potential customers are taking their time to place orders. While management is confident that customers will place orders for MBE systems during the second half, it is not clear that these will close in time for delivery during FY20. We therefore cut our FY20 revenue estimate by 16% to €29.6m and our PBT estimate by 88% to €0.3m. We leave our FY21 estimates unchanged.
Written by
Riber |
Pandemic causing delays in closing orders |
Q2 revenue figures |
Tech hardware & equipment |
5 August 2020 |
Share price performance
Business description
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Analysts
Riber is a research client of Edison Investment Research Limited |
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Riber’s order book at the end of June shows that potential customers are taking their time to place orders. While management is confident that customers will place orders for MBE systems during the second half, it is not clear that these will close in time for delivery during FY20. We therefore cut our FY20 revenue estimate by 16% to €29.6m and our PBT estimate by 88% to €0.3m. We leave our FY21 estimates unchanged.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
31.3 |
2.0 |
0.07 |
0.05 |
20.3 |
3.5 |
12/19 |
33.5 |
1.8 |
0.06 |
0.03 |
23.7 |
2.1 |
12/20e |
29.6 |
0.3 |
0.01 |
0.03 |
157.5 |
2.1 |
12/21e |
36.4 |
2.8 |
0.10 |
0.05 |
14.7 |
3.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H120 sales affected by parts availability
Total H120 revenues declined by 17% year-on-year to €11.6m. While revenues from sales of services and accessories increased by 39% to €6.0m, in line with management’s plan for this activity, MBE system revenues declined by 35% to €5.6m and, as expected, evaporator sales were minimal. Two production systems and one R&D system were sold during H120 as the delivery of a third production system slipped into Q320 because of previously flagged issues, caused by the pandemic, with obtaining parts from specialist sub-contractors based in France. This compared with sales of four production systems in H119, two of which had slipped from Q418.
Order book affected by export licence issues
Riber’s manufacturing facility has remained operational throughout the COVID-19 pandemic. Because Riber’s MBE systems are used in research on new materials and for the production of electronic and optoelectronic devices used in communications networks, enquiry levels remain high. However the companywide order book at end Q220 (€18.2m) was 36% down compared with end Q219 because the coronavirus pandemic is making potential customers more cautious and because Riber was obliged to cancel orders for three R&D systems that it was not permitted to export to China. While the sales pipeline gives management confidence that order intake will pick up in Q420, this does not give much time for any additional orders for MBE systems to be fulfilled by the year end.
Valuation: Trading at a discount to peers
Riber is now trading at a discount to its peers on both prospective EV/sales and EV/EBITDA multiples. While some discount for relative capitalisation and low free float is justified, the size of the discount (0.8x for Riber vs 2.4x for our year 1 EV/sales sample mean) is, in our opinion, unwarranted. This gives ample scope for share price appreciation provided investors gain confidence that MBE system demand will not be affected in the medium term by the COVID-19 outbreak and that Riber can address the delivery issues that marred FY18 and FY19 reported profits.
Estimate revisions
Exhibit 1: Changes to estimates
€m |
FY19 |
FY20e |
FY21e |
|||||
Actual |
Old |
New |
Change |
Old |
New |
Change |
||
System revenues |
23.0 |
21.1 |
15.4 |
-27.0% |
21.9 |
21.9 |
0.0% |
|
Evaporator revenues |
1.0 |
1.6 |
1.6 |
0.0% |
1.6 |
1.6 |
0.0% |
|
Service revenues |
9.4 |
12.6 |
12.6 |
0.0% |
13.0 |
13.0 |
0.0% |
|
Total revenues |
33.5 |
35.3 |
29.6 |
-16.2% |
36.4 |
36.4 |
0.0% |
|
PBT |
1.8 |
2.2 |
0.3 |
-88.3% |
2.8 |
2.8 |
0.0% |
|
EPS (€) |
0.06 |
0.08 |
0.01 |
-88.3% |
0.10 |
0.10 |
0.0% |
|
DPS (€) |
0.03 |
0.05 |
0.03 |
-2.0% |
0.05 |
0.05 |
0.0% |
|
Net cash at year end |
5.4 |
6.5 |
6.2 |
-4.1% |
7.7 |
6.8 |
-12.1% |
|
Source: Riber accounts, Edison Investment Research
We make the following changes to our FY20 estimates (our FY21 estimates are not changed):
■
Our previous estimate of four production MBE systems and eight R&D systems in FY20 assumed that Riber would receive orders for three R&D systems to replace the systems for Chinese customers for which it could not obtain export licences. Since the date that Riber was advised that the export licences for the three systems would not be granted, it has received an order for one R&D system which it will be able to deliver by the end of FY20, but other sales negotiations are not likely to complete until October or November, so Riber would probably not be able to deliver any of these orders until FY21. We have therefore cut our FY20 estimate to four production systems and six R&D systems.
■
We leave our evaporator revenue estimate unchanged. Riber has maintained contact with its evaporator customers, as demonstrated by the €0.1m revenues attributable to this category in H120, and management remains confident that it will secure some significant business in time for delivery during FY20.
■
We leave our service revenue estimate unchanged because Riber’s customers, eg IQE and those in China, remain operational so will continue to require replacement parts.
■
We had previously reduced the gross margin on MBE system sales from 28% to 25% to allow for the inefficiencies associated with the split shift working introduced in response to the COVID-19 situation. We are further reducing this to 24% as the actual number of productive hours has been less than management calculated because of staff self-isolating or shielding.
■
We reduce our DPS estimate from €0.05/share to €0.03/share, which was the rate paid in FY19, even though there is ample cash on the balance sheet to revert to the €0.05/share paid in FY18.
■
We have not cut levels of investment in either capital equipment or capitalised R&D because the French government has provided a €6m loan to support these activities.
Valuation
We base our valuation on a peer multiples approach. We restrict our sample to the two listed companies that are involved in developing equipment for manufacturing compound semiconductors because they benefit from similar growth trends to Riber, rather than the wider semiconductor industry.
Although Riber’s share price has picked up from a low of €1.10 on 16 March, the recovery since the coronavirus induced panic sell-off that month has not been as strong as that for its larger peers. Riber continues to trade at a discount to both peers with respect to both prospective EV/sales and EV/EBITDA multiples. Given the volatility in EPS, reflecting the lumpiness typical of Riber’s product revenues, we prefer to focus on EV/sales, as year-to-year fluctuations in revenues are less pronounced. While some discount for relative capitalisation, lower margins and low free float is justified, the size of the discount (0.8x for Riber vs 2.4x for our year 1 sample mean) is, in our opinion, unwarranted. This gives ample scope for share price appreciation provided investors gain confidence that demand for MBE systems will not be affected in the medium term by the COVID-19 outbreak and that future profits will not be marred by the exceptional costs relating to late deliveries and warranty issues that affected FY18 and FY19 reported performance.
Exhibit 2: Compound semiconductor manufacturing equipment peer multiples
Name |
Market cap (€m) |
EV/sales 1FY (x) |
EV/sales 2FY (x) |
EV/EBITDA 1FY (x) |
EV/EBITDA 2FY (x) |
P/E 1FY |
P/E 2FY |
Gross margin 1FY (%) |
EBITDA margin 1FY (%) |
Aixtron |
1,153 |
3.2 |
2.8 |
19.5 |
13.5 |
39.2 |
25.8 |
41.7 |
16.4 |
Veeco |
572 |
1.7 |
1.5 |
15.7 |
- |
20.3 |
14.2 |
41.6 |
10.8 |
Mean |
2.4 |
2.1 |
17.6 |
13.5 |
29.7 |
20.0 |
|||
Riber |
30 |
0.8 |
0.7 |
13.9 |
6.2 |
157.5 |
14.7 |
34.7 |
6.0 |
Source: Refinitiv, Edison Investment Research. Note: Priced at 31 July 2020.
Exhibit 3: Financial summary
€m |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
30.5 |
31.3 |
33.5 |
29.6 |
36.4 |
Cost of Sales |
(17.0) |
(19.6) |
(23.2) |
(19.3) |
(24.0) |
||
Gross Profit |
13.6 |
11.7 |
10.3 |
10.3 |
12.4 |
||
EBITDA |
|
|
5.9 |
3.3 |
2.5 |
1.8 |
4.0 |
Operating Profit (before amort. and except.) |
|
|
4.6 |
2.2 |
1.8 |
0.3 |
2.8 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(0.9) |
(2.2) |
(0.9) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
3.8 |
0.0 |
0.9 |
0.3 |
2.8 |
||
Net Interest |
(0.6) |
(0.2) |
0.0 |
(0.0) |
(0.0) |
||
Profit Before Tax (norm) |
|
|
4.0 |
2.0 |
1.8 |
0.3 |
2.8 |
Profit Before Tax (reported) |
|
|
3.1 |
(0.2) |
1.0 |
0.3 |
2.8 |
Reported tax |
1.0 |
0.5 |
0.1 |
0.0 |
(0.4) |
||
Profit After Tax (norm) |
2.7 |
1.4 |
1.3 |
0.2 |
2.0 |
||
Profit After Tax (reported) |
4.1 |
0.3 |
1.1 |
0.3 |
2.4 |
||
Average Number of Shares Outstanding (m) |
21 |
20.8 |
20.8 |
20.8 |
20.8 |
||
EPS - normalised (€) |
|
|
0.13 |
0.07 |
0.06 |
0.01 |
0.10 |
EPS - diluted normalised (€) |
|
|
0.13 |
0.07 |
0.06 |
0.01 |
0.10 |
EPS - basic reported (€) |
|
|
0.19 |
0.02 |
0.05 |
0.01 |
0.11 |
Dividend (€) |
4.93 |
0.05 |
0.03 |
0.03 |
0.05 |
||
Revenue growth (%) |
85.6 |
2.5 |
7.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
44.5 |
37.5 |
30.8 |
34.7 |
34.0 |
||
EBITDA Margin (%) |
19.4 |
10.4 |
7.6 |
6.0 |
11.0 |
||
Normalised Operating Margin |
15.2 |
7.1 |
5.4 |
0.9 |
7.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
9.0 |
9.5 |
11.4 |
11.1 |
11.1 |
Intangible Assets |
2.0 |
1.9 |
2.6 |
2.6 |
2.6 |
||
Tangible Assets |
4.9 |
4.8 |
5.1 |
4.8 |
4.8 |
||
Investments & other |
2.1 |
2.8 |
3.7 |
3.7 |
3.7 |
||
Current Assets |
|
|
28.4 |
28.2 |
26.8 |
25.5 |
30.0 |
Stocks |
9.9 |
15.3 |
11.5 |
10.1 |
12.4 |
||
Debtors |
9.1 |
8.8 |
8.0 |
7.3 |
9.0 |
||
Cash & cash equivalents |
7.4 |
3.0 |
5.9 |
6.8 |
7.3 |
||
Other |
2.1 |
1.2 |
1.3 |
1.3 |
1.3 |
||
Current Liabilities |
|
|
(17.0) |
(17.3) |
(17.3) |
(16.0) |
(18.7) |
Creditors |
(16.7) |
(11.4) |
(13.0) |
(11.7) |
(14.5) |
||
Tax and social security |
(0.2) |
0.0 |
(0.0) |
(0.0) |
(0.0) |
||
Short term borrowings |
0.0 |
(0.4) |
(0.2) |
(0.2) |
(0.2) |
||
Other |
(0.0) |
(5.4) |
(4.1) |
(4.1) |
(4.1) |
||
Long Term Liabilities |
|
|
(0.7) |
(1.3) |
(1.7) |
(1.7) |
(1.7) |
Long term borrowings |
0.0 |
0.0 |
(0.4) |
(0.4) |
(0.4) |
||
Other long term liabilities |
(0.7) |
(1.3) |
(1.3) |
(1.3) |
(1.3) |
||
Net Assets |
|
|
19.8 |
19.2 |
19.2 |
18.9 |
20.6 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
6.7 |
4.2 |
2.5 |
1.8 |
4.0 |
||
Working capital |
1.3 |
(5.3) |
4.2 |
0.9 |
(1.2) |
||
Exceptional & other |
(0.5) |
(1.7) |
(0.3) |
0.0 |
0.0 |
||
Tax |
(1.0) |
0.0 |
0.0 |
0.0 |
(0.4) |
||
Net operating cash flow |
|
|
6.6 |
(2.8) |
6.4 |
2.6 |
2.4 |
Capex |
(1.1) |
(0.8) |
(1.6) |
(1.2) |
(1.2) |
||
Acquisitions/disposals |
0.0 |
0.0 |
(0.2) |
0.0 |
0.0 |
||
Net interest |
(0.0) |
(0.0) |
(0.0) |
0.0 |
0.0 |
||
Equity financing |
(0.1) |
(0.5) |
0.1 |
0.0 |
0.0 |
||
Dividends |
0.0 |
(1.0) |
(1.0) |
(0.6) |
(0.6) |
||
Other |
(0.5) |
0.0 |
(0.4) |
0.0 |
0.0 |
||
Net Cash Flow |
4.9 |
(5.2) |
3.3 |
0.8 |
0.5 |
||
Opening net debt/(cash) |
|
|
(2.5) |
(7.4) |
(2.5) |
(5.4) |
(6.2) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.2 |
(0.4) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(7.4) |
(2.5) |
(5.4) |
(6.2) |
(6.8) |
Source: Riber accounts, Edison Investment Research
|
|
Research: Consumer
Greggs’ interim results were heavily affected by the estate closure for the majority of Q220, due to COVID-19. The key takeaways are that operating cash burn during lockdown was in line with management expectations, and current trading, albeit with limited data, indicates gradual weekly progress in revenue, described by management as encouraging. We assume recovery through H121e, before stabilising at a revenue run-rate equivalent to 90% of the level in FY19. The resulting EV/sales multiple of 1.2x for FY21e, is in line with recent multiples. It reflects lower estimated revenue in that year and uncertainty about the rate of recovery.