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Opus – soft Q4 but case intact

logoSwedish vehicle inspection specialist Opus reported its Q4 2015 numbers this morning, which came in somewhat short of expectations. Nevertheless, the numbers marked a new record and exceeded the company’s targets. The company states that the proposal of the Swedish Transport Agency is estimated to have less negative economic impact for Opus if implemented at all.While we do expect the share to react negatively on today’s numbers, we still believe the long-term case remains intact. With its stable cash-flows, growth potential in emerging markets and new technologies we consider Opus to be a takeover candidate. The proposed dividend of SEK 0,10 implies a dividend yield of around 2%.

CEO Magnus Greko comments in the report: “In 2015, Opus Group has had a record year, measured in both revenues and EBITDA. The acquired operations of Drew Technologies, consolidated as of March 23, 2015, has been integrated in the Group. In addition to the acquisition of Drew Tech, the Group has made significant investments during 2015 including new vehicle inspection programs in Chile, Pakistan and Virginia Remote Sensing program as well as the company’s new business model Equipment as a Service (EaaS).

Opus Group has a long-term growth strategy and has invested almost SEK 300 million capex
in new business during 2014 and 2015. In addition to the capex, we have taken a lot of program start-up costs, which have a ected the Group’s result negatively. For coming years, Opus Group will reap the benefits of these investments with both revenue growth and improved contributions to EBITDA. Some of these investments take longer to mature into full scale, but the contracts are expected to contribute with strong continuous cash ow generation for many years to come.

During the scal year, revenues grew by 12.8 percent and EBITDA grew by 11.5 percent with
a continued strong EBITDA margin of 16.6 percent. Both revenue growth and EBITDA margin exceeded the Group’s nancial targets of 10 percent compounded annual growth rate (CAGR) over ve years and 15 percent EBITDA margin. The Group has had a strong cash flow from the ongoing business in 2015, which rose 26.9 percent to 201 MSEK. The fourth quarter was negatively a ected by start-up costs in both Vehicle Inspection International and Vehicle Inspection Sweden. The last two years of heavy investment and the acquisition of Envirotest lead to increased depreciations, which affect the profit before tax.

Vehicle Inspection Sweden grew 3.7 percent in 2015 and 10.2 percent in Q4. We have defended our market share well, despite an 18.5 percent increase in the Swedish station network in 2015. Measured in number of inspected vehicles, the Swedish vehicle inspection market overall decreased 0.5 percent in 2015, compared to 2014. The Q4 results were negatively affected by higher costs for new station openings and training and certification of new personnel. The vehicle inspection prices in the Swedish market are developing upward and Opus Bilprovning follows the trend. In February of this year, Opus Bilprovning submitted its official response to the proposal from the Swedish Transport Agency to change the inspection interval in Sweden. During the next few months we expect the government to express their standpoint in this matter.

Vehicle Inspection International grew 5.5 percent measured in USD in 2015 with good margin growth. The EBITDA margin amounted to 22.3 percent adjusted for extraordinary costs. The new business model EaaS has been a success with more than 5,000 contracts signed for both DAD-OBD and the BAR 97 analyzer systems. The Virginia Remote Sensing program has started and is expected to grow in 2016 and 2017. New vehicle inspection programs in Chile and Pakistan will start generating revenues in 2016 and are also expected to grow further in 2017. Since the VW emission case last year, we have seen an increased interest in our Remote Sensing technology and we believe that this technology can play a role in the future for in-use compliance testing of entire vehicle groups.

We are convinced that the investments already made in the previous two years, combined with new business opportunities, will together contribute in exceeding the company’s minimum growth target of 10 percent per year (CAGR, during a 5 year period) at further improved margins. Separate quarters may deviate from the target due to close down and startup of vehicle inspection programs as well as acquisitions and divestments.

Nordic Investor

Disclaimer: Nordic Investor holds shares in Opus

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