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Research: Industrials
paragon’s focus will return to its core Automotive operations once the disposal of the remaining 58% stake in Voltabox is completed. The strategy remains to drive sustainable profitable growth through the development of innovative proprietary technology solutions. The continuing operations showed better than expected sales growth in FY19 and are performing well as pandemic lockdowns ease. FY20 guidance was raised again following Q320 results on 30 October 2020. We expect market recovery and new product ramp-ups to drive a return to growth in FY21.
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paragon |
Refocusing on automotive innovation
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Automobiles & parts |
Deutsches Eigenkapitalforum 2020
9 November 2020 |
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paragon is a research client of Edison Investment Research Limited |
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paragon’s focus will return to its core Automotive operations once the disposal of the remaining 58% stake in Voltabox is completed. The strategy remains to drive sustainable profitable growth through the development of innovative proprietary technology solutions. The continuing operations showed better than expected sales growth in FY19 and are performing well as pandemic lockdowns ease. FY20 guidance was raised again following Q320 results on 30 October 2020. We expect market recovery and new product ramp-ups to drive a return to growth in FY21.
Innovation to drive growth
paragon has been adept at building its Automotive operations through innovative new product development and targeted acquisitions. The financial issues in FY19 largely centred on Voltabox, which bore substantial write-downs, and in March paragon announced the decision to sell its remaining stake. The process is progressing, and the operations are treated as discontinued in paragon’s accounts. Despite better than expected revenues in FY19, earnings of the continuing paragon Automotive activities were depressed by one-off integration, product start-up and IT costs. Despite a six-week production shutdown from mid-March to mitigate the effects of the pandemic, nine-month revenues fell just 8.8% to €83.8m. The Q320 EBITDA margin of 12.2% (Q319: 10.8%) was encouraging. Management indicated that as lockdowns eased customer demand was stronger than expected, with profitability further enhanced by cost reduction measures already undertaken.
Automotive recovery underway
H220 revenues are now expected to be above H219 levels. FY20 group revenues should be towards the top of the guided range at c €120m, with an EBITDA margin of up to 12%. With new product ramp-ups expected in 2021 as car producers see a likely progressive recovery in demand, the more focused paragon should return to profitable growth in FY21. Q320 net debt was €122.5m, down €7.4m in 2020 as management targeted costs and cash flow. The Q320 balance sheet shows net assets held for sale of €22.3m. Proceeds from the disposal should improve liquidity as paragon resumes investing for growth after the pandemic-induced lull in H120.
Executing the core growth strategy remains key
A more focused paragon is targeting sustained profitable growth and FY21 should benefit from a more normal first half automotive trading environment. A growing order backlog and new product introductions should support the growth, with operating leverage assisting margins. Success should see the rating improve.
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Historical financials (paragon Automotive only)
Source: Company reports. Note: *Edison estimates. |
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Research: Investment Companies
VEF is a unique, fairly young company focused on fintech in emerging markets where financial services are underpenetrated and populations are jumping straight to digitalisation, with COVID-19 accelerating this trend. It is particularly focused on Brazil, which offers enormous growth potential with over 200 million people, high online penetration, scalability, incumbents with concentrated market shares and high pricing, and regulatory support for fintechs. VEF trades at a discount to NAV (13%) following a 20% NAV increase in Q320 and could offer a very attractive entry point for growth-oriented investors who cannot easily get exposure to this asset class. Its track record is limited, but realisations so far have made a 65% IRR, and VEF is backed by highly regarded shareholders.