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Opus: Strong Q3 numbers beat consensus

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Strong set of numbers out this morning from Swedish vehicle inspection specialist Opus, the company which was first to discover the Volkswagen diesel fraud in the USA.

Opus reports Q3 2015 revenues of SEK 385.8m, up 6.8% y-o-y. EBITDA amounts to SEK 71.2m, which implies a margin of 18.4%. Adjusted for non-recurring items of SEK 6.6m, EBITDA amounts to SEK 77.8m with a corresponding clean EBITDA margin of 20.2%.

We note that consensus was looking for Q3 sales of SEK 381m and EBITDA of SEK 69m.

CEO Magnus Greko comments in the report: 

In the third quarter of 2015, we have seen continued growth (6.8%) with good profitability (EBITDA margin of 18.4%) and strong operating cashflow (60.6 million). The DAD OBD EaaS program is now fully operational and, together with the revenues from Drew Tech, more than offsets the negative impact of the anticipated close down of the vehicle inspection program in British Columbia. In Colorado, the management of the program has been able to compensate for the changes through improved efficiency so that the impact on profitability has been limited. The total business grew by 3.6% organically during the quarter.

In the international vehicle inspection segment, we have several projects that will contribute to organic growth over the next two years. These include new geographical markets such as Chile, where Opus Inspection has won two more concessions during the third quarter and Pakistan where Opus Inspection’s vehicle inspection stations are now under construction in Lahore, Punjab. In the U.S., the new Remote Sensing program in Virginia starts during the fourth quarter, and a second EaaS (Equipment as a Service) program in California, BAR-97 has been launched. We also foresee the possibility of introducing the EaaS model in other states. In addition, we are currently working on plans to expand our range of peripheral services. The company believes that the international vehicle inspection segment clearly is the driving force behind achieving the company’s growth target of 10% (CAGR, 5 years) at 15% EBITDA.

Already in 2014, Opus Inspection identified high emission levels from Volkswagen and Audi diesel cars in the U.S. through Opus Inspection’s Remote Sensing technology. The results of the tests were presented in the U.S. months before the VW case became public. During the quarter, the interest in the company’s patented Remote Sensing technology, which measures polluting exhaust gases from the side of the road while vehicles are passing by unobstructed, has increased considerably in the wake of the VW case. Our Remote Sensing technology can play a major role for in-use compliance testing of entire vehicle groups.

In the segment Vehicle Inspection Sweden, the focus in the third quarter has been to defend its market share in the Swedish market. The segment delivered an organic growth of 6.7% during the quarter. EBITDA fell slightly due to one-time costs of about 2 MSEK related to personnel cutbacks. In October, the Transport Agency published a recommendation on how to change Swedish regulations to best comply with 2014 EU regulation on periodic vehicle inspection. Any changes, if adopted by the Swedish parliament, would be introduced successively in the period 2018-2022. The recommendation includes a reduction in inspection interval for passenger vehicles. If the recommendation is adopted, several research studies show that it will lead to reduced road safety and a higher environmental impact of cars. The company is currently reviewing the potential impact of the recommendation and necessary adjustments to its operation minimizing any impact, should the government adopt it.

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