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#VA Automotive: Unconvincing Q4 2014 report

VA Automotive, whose share has had a rough ride ever since its IPO in December 2014, reported its FY 2014 numbers today. Two days ago, the company had announced that the numbers would be released earlier, due to their participation at an investors conference in Stockholm today. Investors apparently interpreted that as a good sign and bought the share following the announcement.

Unfortunately, today’s report is not really a pleasant reading. 2014 revenues amounted to SEK 333,2m which marked a decline of 3% compard to 2013. EBIT amounted to SEK 5m, which was up versus the SEK 3,6m in 2013, but still way short of what we had expected. Also FY 2014 EPS of SEK 0,21 was significantly below our expectations.

In the report, VA Automotive states that during Q4 deliveries of tools were at a lower level than during the same period one year ago, which had been strong. On the component side, the company is noticing a change of models at its clients which leads to a temporary decline of sales before deliveries for the new models start. VA Automotive also states that activity among its customers was lower towards the end of the year compared with previous years.

On a positive note, operating cashflow continued to improve during 2014 which was primarily due to improved working capital. Thanks to the proceeds of the IPO, VA Automotive was able to pay down a large junk of its debt, reducing interest bearing debt to SEK 72,8m, compared with SEK 100,3m at the end of 2013. This will obviously imply lower financing costs going forward. Another positive is the improved profitability which is a consequence of the different measures implement during 2013 and early 2014.

The weaker than from us expected Q4 numbers were somewhat offset by the announcement that VA Automotive has reached an agreement with an unnamed company to take over a portfolio of products which generates revenues of SEK 300m over a three years period. The takeover will take place during the summer and VA Automotive will pay a royalty as compensation for the product equipment and operations. Elsewhere, VA Automotive noticed a strong order intake on the tools side and received orders worth a total of SEK 60m from different suppliers. The majority of these orders will be delivered during Q3 2015. This also implies that capacity utilisation is more or less 100% in VA Automotive’s tool factories up until Q3.

In its outlook statement, VA Automotive says that it foresees a continuation of the trend witnessed in recent quarters with an increased share of revenues coming from tools and less from components. During H2 2015, the component share is expected to increase again. The company is also guiding for a continued improvement of its result. 2015 is expected tp start weaker than last year but H2 will be stronger.

All in all, we are left with less confidence after today’s report. VA Automotive seems to have the right prerequisites to become an interesting play on the recovering automotive sector. However, we believe it will take several quarters until the company will gain investor confidence. A report like today’s does not help. On an expected 5% revenue growth for 2015, we model a further profitability improvement of 160bp on the EBIT margin level which in combination with an improved financial net leaves us with an 2015 EPS estimate of SEK 0,30.  At the current share price of SEK 4,65 this would imply a 12m-forward PE-ratio of around 15x. This is not expensive given current market circumstances, but we do not think it is a screaming buy either, given the uncertainties and short track-record. New contracts and further acquisitions could of course, meaningful affect our assessment going forward. If VA Automotive will eventually deliver on its aggressive financial targets, the upside seems large. We’ll continue to follow the story closely, but from the sidelines for the time being.

Nordic Investor

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