CTT Systems - Delayed flight, but destination remains
Signs of market improvement likely to occur first H2’21 Sizeable 2021 estimate cuts (-37%), less for 2022 (-8%) 14x EBIT ‘22e-‘23e, 10% LT EBIT CAGR, 40% ROCE Flight hours vs. AM sales discrepancy expected to improve CTT continued to suffer from a very challenging aerospace industry. Sales declined 54% organically (vs. ABGSCe -47%), while adj.
EBIT fell from SEK 22m in Q4’19 to c. -4m (ABGSCe +5m) as a result of the low volumes. After a sequentially lower Q1’21 (ABGSCe SEK 32m vs.
guidance of 30-35m), we expect improvements to become visible from Q2’21 and onwards. However, the updated production rates at Boeing in combination with a slower than expected air traffic recovery lead us to expect 2021 OEM sales c. 30% below 2020 levels.
AM sales on the other hand should recover at a faster pace as the modern fleet utilisation is high, leading to FY’21 AM sales of SEK 110m vs. 136m in 2019. Thus we expect FY’21 sales of SEK 193m vs.
201m in 2020. Due to the accretive mix impact from the aftermarket, we expect adj. EBIT to reach above 2019 levels (32% margin) in 2022 (38% margin).
EBIT -8% ‘22e, significant mid-term potential from VIP We lower our sales estimates substantially (31-15%) for ‘21e-‘22e due to the slower pace of recovery. However, our adj. EBIT estimates may be down 37% for FY‘21e, but only 8% for FY’22e as the accretive aftermarket effect in combination with FTE reductions support margins.
On the positive side, we see substantial potential from the VIP platforms highlighted by the CEO. According to CTT, this represents a SEK 200m annual market in a few years, where CTT has a very high likelihood of grabbing a 50% penetration, in our view. We currently factor in SEK 50m of VIP sales (on ~25% margins) in 2023e.
Challenges far from over, but earnings growth will return Although we expect continued negative sentiment in the near term regarding airliners’ liquidity concerns, low air traffic during 2021 and less business travel, we argue that CTT has.
