Following the turmoil within the airline industry as a result of the COVID-19 outbreak, CTT today decided to withdraw its FY’20 guidance (flat sales organically). While Q1 sales guidance was intact (SEK 72-77m vs. ABGSCe 74m), the company will not issue any new FY guidance until ‘market conditions begin to normalise’. This was expected in our view and we cut our EBIT estimates by 11% for ‘20e two weeks ago in an effort to assess the impending demand weakness. We find comfort in CTT seeing fairly low risk to OEM sales, as airliners still accept new aircraft and choose to retire their older ones. However, we acknowledge that aftermarket and retrofit sales will see a significant decline during the year, due to the increasing amount of grounded aircraft.
Significant neg. organic revisions offset by strong USD/SEK
We lower our organic sales by 24% for ‘20e, now expecting a 28% organic decline mainly due to our -38% organic decline in Aftermarket revenue. However, recent USD/SEK movements have been very favourable for CTT (sales in USD, costs in SEK), which results in an average FX boost of c. 15% for ‘20e-‘22e EBIT. To conclude, our EBIT estimates come down by 30% for ‘20e, and up by 3-10% for ’21e-‘22e. All in all, we now expect a 16% adj. EBIT CAGR in ’19-‘22e. CTT had net cash of ~SEK 80m FY’19, which together with an unutilised credit facility of ~SEK 90m, leads us to believe that the company could manage 1.5-2 years of zero (0) revenue before facing a need for liquidity.
Well-positioned to weather short-term turbulence
The company kept its ordinary proposed DPS of SEK 5.4 but withdrew the extraordinary part (SEK 2.7). In addition, CTT will seek approval for a buyback programme at the AGM. We believe that 2020 represents far from normal conditions and that the company is set to potentially generate >10% long-term EBIT CAGR, while trading at 14x EV/EBIT in ‘21e.
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