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Research: TMT
PVA TePla’s (PVA’s) Q224 results were strong and management reiterated its FY24 guidance and FY25 outlook of moderate growth, despite a weak order intake. The outlook is based on the expectation of increased order momentum in Q4, especially for metrology. PVA has resolved the issue of replacing at short notice two supervisory board members. Two new board members will be up for election at PVA’s AGM on 30 August. Although the company’s share price has appreciated from its recent lows of c €13 (from c €20 earlier this year), there is no meaningful recovery yet. With FY24 and FY25 estimates unchanged, this implies much lower multiples compared to our initiation report in May.
PVA TePla |
Strong Q224 results |
Q2 results update |
Technology |
22 August 2024 |
Share price performance
Business description
Next events
Analyst
PVA TePla is a research client of Edison Investment Research Limited |
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PVA TePla’s (PVA’s) Q224 results were strong and management reiterated its FY24 guidance and FY25 outlook of moderate growth, despite a weak order intake. The outlook is based on the expectation of increased order momentum in Q4, especially for metrology. PVA has resolved the issue of replacing at short notice two supervisory board members. Two new board members will be up for election at PVA’s AGM on 30 August. Although the company’s share price has appreciated from its recent lows of c €13 (from c €20 earlier this year), there is no meaningful recovery yet. With FY24 and FY25 estimates unchanged, this implies much lower multiples compared to our initiation report in May.
Year |
Revenue |
EBITDA* |
EPS* |
DPS |
EV/EBITDA |
Yield |
12/22 |
205.2 |
30.0 |
0.82 |
0.00 |
12.7 |
N/A |
12/23 |
263.4 |
41.5 |
1.22 |
0.00 |
10.6 |
N/A |
12/24e |
284.2 |
47.9 |
1.44 |
0.00 |
6.2 |
N/A |
12/25e |
305.9 |
53.2 |
1.60 |
0.00 |
4.7 |
N/A |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Robust Q2 results
After the Q124 results, which were released at PVA’s capital markets day, the company’s Q2 results were, again, strong. Revenues increased 8.3% in Q2 to €73.9m and this was especially driven by the industrial division. Due to mix, with a larger proportion of higher-margin metrology systems and lower material and production costs, PVA increased EBIT 31.4% to €11.2m. The company reiterated its FY24 guidance of sales in the range of €270–290m and EBITDA of €47–51m. In the conference call after the results, management expressed confidence regarding its FY25 guidance of moderate growth, due to ongoing talks with clients and PVA’s order pipeline, easing investor worries about the weak order intake (excluding metrology).
Supervisory board situation seems resolved
Proxy advisors did not support the former election proposal for a two-year term extension for long-serving existing supervisory board members, which had been proposed to ensure an optimal transition. PVA did not want to take a risk with the voting and decided to postpone the AGM until 30 August. The company has now found two new well-qualified board members who will be put forward in the AGM.
Valuation: Transformation not valued versus peers
The discount at which PVA trades, compared to its peer groups in advanced material, metrology and semiconductor equipment, has increased significantly compared to our May report. We believe this was caused by the supervisory board situation, low order intake and its deletion from the MSCI World Small Cap Index. PVA’s strong results and outlook seem to be overlooked. At an FY25e EV/EBITDA of 4.7x, the company’s valuation is undemanding compared all three reference groups. Our discounted cash flow (DCF) model arrives at a value of €35.26 per share.
Uptick in industrial division revenues in Q2
After PVA’s Q124 results, released at the company’s capital markets day, PVA’s Q2 results were strong. In the industrial segment there was a healthy uptick in revenues with 18.1% y-o-y and 47.6% q-o-q growth, driven by the demand for joining and finishing technologies. The growth in semiconductor sales was much lower with 4.1% y-o-y and 10.4% q-o-q. This growth was driven by both crystal growing and metrology tools. Overall revenues increased 8.3% in Q2 to €73.9m and 6.8% to €135.3m for H124.
Exhibit 1: Profit & loss statement (€m)
Q123 |
Q223 |
Q323 |
Q423 |
Q124 |
Q224 |
y-o-y growth |
q-o-q growth |
|
Revenues Industrial systems |
16.5 |
20.5 |
20.4 |
20.0 |
16.4 |
24.2 |
18.1% |
47.6% |
Revenues Semiconductor systems |
42.0 |
47.7 |
44.1 |
52.3 |
45.0 |
49.7 |
4.1% |
10.4% |
Total revenues |
58.5 |
68.2 |
64.5 |
72.3 |
61.4 |
73.9 |
8.3% |
|
Total revenue growth y-o-y |
-21.3% |
16.7% |
-5.5% |
12.1% |
-15.1% |
20.3% |
||
Total revenue growth q-o-q |
-29.1% |
24.1% |
-0.6% |
-1.8% |
-18.0% |
47.6% |
||
EBIT Industrial systems |
1.0 |
3.0 |
3.5 |
2.8 |
1.9 |
2.3 |
-23.3% |
21.1% |
EBIT Semiconductor systems |
6.0 |
6.9 |
8.7 |
9.3 |
6.1 |
10.0 |
44.9% |
63.9% |
Operating profit (including corporate) |
5.5 |
8.5 |
9.9 |
10.5 |
7.0 |
11.2 |
31.4% |
59.6% |
EBIT margin |
9.4% |
12.5% |
15.4% |
14.5% |
11.4% |
15.1% |
||
EBT |
5.4 |
8.5 |
9.8 |
10.4 |
6.7 |
10.4 |
22.1% |
54.7% |
Net profit |
3.8 |
5.5 |
7.4 |
7.8 |
4.5 |
7.5 |
35.6% |
66.5% |
EPS (€) |
0.17 |
0.25 |
0.34 |
0.36 |
0.21 |
0.35 |
35.6% |
66.5% |
Source: PVA, Edison Investment Research
Due to mix, with a larger proportion of sold higher-margin metrology systems and lower material and production costs, PVA increased EBIT 31.4% y-o-y to €11.2m in Q224. EBIT margin amounted to 15.1%, compared to 12.5% in Q223, and it is already at the target level. Net profit amounted to €7.5m (€5.5m in Q223).
|
Exhibit 2: EBIT of divisions |
|
|
Source: PVA |
Management confirmed guidance for FY24 of achieving group sales of €270–290m and EBITDA of €47–51m. In FY25, management expects moderate growth, anticipating an acceleration of sales in FY26 and beyond. We expect this to be mostly driven by metrology systems. The medium-term sales target of €500m in 2028 was also reiterated. As a result, we have made no changes to our estimates following PVA’s Q224 results.
Order intake weak despite strong metrology division
The order book amounted to €214.4m, compared to €258.4m in Q1 and €298.3m in Q223. Order intake was €30.2m (Q1: €42.3m) and was the key focus in the conference call after the results. PVA expects order momentum in the semiconductor industry to pick up in Q4 of this year, based on leads and talks with its client base. As PVA TePla only records order book wins when a prepayment is received, we have confidence in its assessment of the order book and revenue outlook for FY24.
In the presentation of the results, PVA gave more details on the order intake for H1 (see Exhibit 3). Of the €50.5m order intake for semiconductors, roughly €41.3m should be classed as metrology, as the vast majority of metrology tools are used in semiconductors. As margins for metrology are much higher than the company average, this bodes well for PVA’s margins going forward.
|
Exhibit 3: Order intake |
|
|
Source: PVA |
Overall, this makes us confident that PVA can reach its targeted full-year margins of 15% in FY24. Instrumental for this margin target is the potential of the ultrasound metrology tools (see Exhibit 4), which are used in advanced packaging for semiconductors among other applications. This is one of the hottest areas in semiconductor manufacturing as, although Moore’s law (the number of transistors on a given area doubles every 18 months) is slowing down, the back end, packaging of chips and 3D packaging solutions are becoming crucial for technological progress. 3D packaging solutions is the market PVA addresses the most. In the conference call after the Q2 results, management reaffirmed it has the three top players in this segment as clients for PVA’s automated tools, which are used in production environments. Nevertheless, the company’s market share in automated tools has ample room to grow.
|
Exhibit 4: Selected markets outlook |
|
|
Source: PVA |
Supervisory board situation seems resolved
At the beginning of 2024, PVA’s supervisory board initiated the process of replacing itself with the help of external advisory consultants. Board members Alexander von Witzleben and Prof Dr Gernot Hebestreit have been with the company for more than 12 years and, therefore, do not comply with the German governance code. We expect that the supervisory board acted slowly in replacing itself to help PVA during its period of transition after acting CEO Manfred Bender and board member Dr Andreas Muhe left the company in June 2023.
PVA had previously set an election proposal for a two-year term extension for its existing board members. However, it became apparent that the proxy advisors would not support this proposal. PVA did not want to take a risk with voting and decided to postpone the AGM until 30 August.
At the AGM, Christoph von Seidel and Dieter May will be introduced as new candidates for the supervisory board. Alexander von Witzleben and Prof Dr Markus H Thoma will step down, while Prof Dr Gernot Hebestreit will run for a maximum of one additional year to ensure a smooth transition and optimal knowledge transfer, especially for the audit committee. There appear to be no indications that there are problems with the proposed new supervisory board members, who have tech (Dieter May, from Nanoco) and financial (Christoph von Seidel, from EY) backgrounds.
Valuation undemanding
Given PVA’s specific profile, with activities in the different fields of metrology and materials technologies, it does not have a comparable peer that carries out both activities. However, looking at PVA’s activity profile, we have separated its activities into three areas and compared the company’s valuation with those groups: advanced material peers, metrology peers and European semiconductor peers. We have also included a DCF valuation.
DCF
Our DCF model is based on the following assumptions:
■
We only consider organic revenue growth, although we expect PVA to remain active in M&A. We expect organic growth to decrease in 2024 and 2025 to around 8%, accelerate in the next few years to 13% and then moderate around 10% in 2030. We have used a terminal growth rate of 2.0%, reflecting the structural growth of the company.
■
We assume the EBITA margin will increase to 18%, from 14.9% in FY23, as PVA benefits from operational leverage and increasing exposure to higher-margin businesses related to semiconductors.
■
We assume the effective tax rate gradually moves up to 30%, based on the corporate tax rate in Germany.
■
We use a beta of 1.5 to reflect the cyclical characteristics of PVA’s end-markets, partly offset by the consistent growth characteristics of the sector.
■
We set a risk-free rate of 3.5% and an equity risk premium of 4.6%, delivering a weighted average cost of capital of 9.0%. The target capital structure we have used is 80% equity and 20% debt.
Our DCF model suggests a fair value for PVA of €35.26 per share.
Peer valuation
Because of its diversified profile, it is difficult to put PVA in a particular group of comparable companies. We have differentiated between three groups of companies that we believe share an important part of their activities with PVA TePla:
■
Advanced materials companies with an angle towards the semiconductor industry. These include US companies such as Coherent (formerly II-VI), Entegris and MKS Instruments, as well as French company Mersen.
■
Inspection and metrology peers, such as US-based KLA, Onto Innovation and Camtek, and European companies Comet and INFICON.
■
European semiconductor equipment suppliers, which includes Dutch company Besi, German-based company SÜSS MicroTec and Swiss company VAT Group.
When comparing the multiples of these groups to PVA’s multiples, the company’s multiples are not demanding (Exhibit 5) and the discount compared to our May initiation report has increased. We believe this is mostly due to the corporate governance issue and PVA’s deletion from the MSCI World Small Cap Index. The reaction to the company’s Q224 results has been positive.
At our DCF fair value of €35.26, PVA would trade at an FY24e EV/EBITDA multiple of 15.5x, which is still undemanding compared to two of the three reference groups.
Exhibit 5: Peer valuation
Market cap (€m) |
EV/EBITDA |
EV/EBITDA |
EV/EBITDA |
||
Advanced materials companies |
|||||
Coherent |
8,340 |
8.5 |
14.0 |
10.6 |
|
Entegris |
19,604 |
23.5 |
21.6 |
17.6 |
|
MKS Instruments |
8,273 |
12.5 |
12.8 |
10.9 |
|
Mersen |
906 |
5.3 |
5.4 |
4.9 |
|
Average |
12.5 |
13.5 |
11.0 |
||
Semiconductor inspection/process control companies |
|||||
Camtek |
3,808 |
34.9 |
34.7 |
29.4 |
|
Comet |
2,332 |
46.0 |
37.6 |
19.0 |
|
Inficon |
3,536 |
23.6 |
21.5 |
18.9 |
|
Onto Innovation |
10,143 |
36.1 |
37.1 |
28.2 |
|
KLA |
96,557 |
14.7 |
22.2 |
19..7 |
|
Nordson |
16.7 |
16.8 |
18.0 |
16.5 |
|
Average |
28.7 |
28.5 |
22.4 |
||
European semiconductor equipment companies |
|||||
Besi |
9,735 |
43.6 |
36.6 |
21.4 |
|
Suss MicroTec |
941 |
15.3 |
14.2 |
11.7 |
|
VAT |
13,800 |
46.6 |
40.9 |
29.1 |
|
Average |
35.2 |
30.6 |
20.7 |
||
PVA TePla |
321.7 |
10.6 |
6.2 |
4.7 |
|
Premium/discount vs materials peers |
-15.2% |
-54.1% |
-57.4% |
||
Premium/discount vs inspection/process control peers |
-63.2% |
-78.4% |
-79.1% |
||
Premium/discount vs European equipment peers |
-70.0% |
-79.8% |
-77.4% |
||
Source: Edison Investment Research, LSEG Data & Analytics. Note: Priced at 16 August 2024.
Exhibit 6: Financial summary
2019 |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
2026e |
|
Year end 31 December, €m |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
INCOME STATEMENT |
||||||||
Revenue |
131.0 |
137.0 |
155.7 |
205.2 |
263.4 |
284.2 |
305.9 |
346.3 |
Cost of Sales |
(93.3) |
(93.9) |
(109.0) |
(146.2) |
(185.9) |
(198.4) |
(211.7) |
(237.2) |
Gross Profit |
37.7 |
43.2 |
46.8 |
59.1 |
77.5 |
85.8 |
94.2 |
109.1 |
EBITDA |
16.2 |
22.7 |
23.0 |
30.0 |
41.5 |
47.9 |
53.2 |
62.5 |
Operating profit (before amort. and excepts.) |
13.0 |
19.2 |
18.3 |
25.9 |
36.5 |
43.5 |
48.4 |
56.7 |
Amortisation of acquired intangibles |
(0.7) |
(0.7) |
(0.8) |
(0.8) |
(2.2) |
(2.2) |
(2.2) |
(2.2) |
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Reported operating profit |
12.3 |
18.5 |
17.6 |
25.1 |
34.4 |
41.4 |
46.2 |
54.6 |
Net Interest |
(0.5) |
(0.7) |
(0.6) |
(1.3) |
(0.3) |
(0.6) |
(0.6) |
(0.6) |
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Profit Before Tax (norm) |
12.5 |
18.5 |
17.8 |
24.6 |
36.3 |
42.9 |
47.8 |
56.1 |
Profit Before Tax (reported) |
11.8 |
17.8 |
17.0 |
23.8 |
34.1 |
40.8 |
45.6 |
54.0 |
Reported tax |
(4.1) |
(5.1) |
(5.6) |
(6.1) |
(9.7) |
(11.6) |
(13.0) |
(15.3) |
Profit After Tax (norm) |
8.4 |
13.4 |
12.2 |
18.5 |
26.6 |
31.4 |
34.8 |
40.8 |
Profit After Tax (reported) |
7.7 |
12.7 |
11.4 |
17.7 |
24.4 |
29.2 |
32.7 |
38.6 |
Minority interests |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Net income (normalised) |
8.3 |
13.4 |
12.2 |
18.5 |
26.6 |
31.4 |
34.8 |
40.8 |
Net income (reported) |
7.7 |
12.8 |
11.5 |
17.8 |
24.5 |
29.3 |
32.8 |
38.7 |
Basic average number of shares outstanding (m) |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
Average number of shares outstanding diluted (m) |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
21.7 |
EPS (€) |
0.36 |
0.59 |
0.53 |
0.82 |
1.13 |
1.35 |
1.51 |
1.78 |
EPS - normalised (€) |
0.38 |
0.61 |
0.56 |
0.85 |
1.22 |
1.44 |
1.60 |
1.88 |
DPS (€) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Gross Margin (%) |
28.8 |
31.5 |
30.0 |
28.8 |
29.4 |
30.2 |
30.8 |
31.5 |
EBITDA Margin (%) |
12.4 |
16.6 |
14.8 |
14.6 |
15.8 |
16.9 |
17.4 |
18.1 |
Normalised Operating Margin (%) |
9.9 |
14.0 |
11.8 |
12.6 |
13.9 |
15.3 |
15.8 |
16.4 |
BALANCE SHEET |
||||||||
Fixed Assets |
52.0 |
47.3 |
71.7 |
72.8 |
82.2 |
85.6 |
87.6 |
87.6 |
Intangible Assets |
11.5 |
11.1 |
10.4 |
20.5 |
18.6 |
18.6 |
18.6 |
18.6 |
Tangible Assets |
30.2 |
28.6 |
28.8 |
34.0 |
41.6 |
45.1 |
47.1 |
47.1 |
Investments & other |
10.3 |
7.6 |
32.5 |
18.3 |
21.9 |
21.9 |
21.9 |
21.9 |
Current Assets |
128.9 |
129.8 |
168.4 |
217.5 |
223.2 |
255.5 |
308.9 |
385.9 |
Stocks |
65.2 |
67.6 |
59.2 |
75.0 |
94.6 |
102.0 |
109.8 |
124.3 |
Debtors |
27.4 |
24.8 |
32.6 |
73.6 |
57.0 |
61.5 |
61.2 |
64.1 |
Cash & cash equivalents |
25.5 |
29.6 |
57.6 |
27.1 |
20.1 |
40.5 |
86.4 |
146.0 |
Other |
10.8 |
7.8 |
19.1 |
41.8 |
51.4 |
51.4 |
51.4 |
51.4 |
Current Liabilities |
96.1 |
79.3 |
126.3 |
147.6 |
130.2 |
136.8 |
159.5 |
197.9 |
Creditors |
10.8 |
8.0 |
11.1 |
18.3 |
18.8 |
20.3 |
21.9 |
24.7 |
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
85.3 |
71.3 |
115.2 |
129.3 |
111.4 |
116.5 |
137.6 |
173.1 |
Long Term Liabilities |
27.6 |
28.6 |
31.1 |
38.7 |
47.7 |
47.7 |
47.7 |
47.7 |
Long term borrowings |
3.3 |
1.7 |
1.2 |
5.1 |
14.5 |
14.5 |
14.5 |
14.5 |
Other long-term liabilities |
24.2 |
26.9 |
29.9 |
33.6 |
33.3 |
33.3 |
33.3 |
33.3 |
Net Assets |
57.2 |
69.2 |
82.7 |
104.1 |
127.4 |
156.6 |
189.3 |
227.9 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Shareholders' equity |
57.2 |
69.2 |
82.7 |
104.1 |
127.4 |
156.6 |
189.3 |
227.9 |
CASH FLOW |
||||||||
Operating Cash Flow |
22.4 |
21.6 |
22.4 |
44.2 |
32.1 |
35.7 |
39.7 |
46.6 |
Working capital |
(23.0) |
(13.6) |
36.4 |
(58.3) |
(30.1) |
(5.3) |
15.2 |
21.0 |
Net operating cash flow |
(0.6) |
8.1 |
58.9 |
(14.1) |
2.0 |
30.4 |
54.9 |
67.6 |
Capex |
(12.5) |
0.6 |
(34.0) |
(21.3) |
(10.8) |
(10.0) |
(9.0) |
(8.0) |
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Net interest |
(1.0) |
1.6 |
0.5 |
(3.9) |
(9.4) |
0.0 |
0.0 |
0.0 |
Equity financing |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
(1.4) |
(4.3) |
3.5 |
5.3 |
1.8 |
0.0 |
0.0 |
0.0 |
Net Cash Flow |
(15.5) |
6.0 |
28.8 |
(33.9) |
(16.4) |
20.4 |
45.9 |
59.6 |
Opening net debt/(cash) |
(37.6) |
(22.1) |
(27.9) |
(56.4) |
(22.1) |
(5.7) |
(26.1) |
(72.0) |
FX |
0.1 |
0.2 |
0.4 |
0.5 |
(0.1) |
0.0 |
0.0 |
0.0 |
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Closing net debt/(cash) |
(22.1) |
(27.9) |
(56.4) |
(22.1) |
(5.7) |
(26.1) |
(72.0) |
(131.6) |
Source: company accounts, Edison Investment Research
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Research: TMT
Nano Dimension reported record revenue of $15.0m in Q224, slightly higher year-on-year and 12% higher quarter-on-quarter. The Reshaping Nano initiative continued to reduce cash burn, which was down 64% y-o-y in Q224 and 69% in H124, before share buybacks. Management is focused on completing the Desktop Metal (DM) acquisition by the end of the year. The combined entity will have a broad product offering, supporting the entire value chain from prototyping through to volume manufacturing, along with considerable cash to support organic and inorganic growth. With significant revenue and cost synergies identified, the new group should be able to accelerate the path to profitability.