Covid Over, Dollar Up, Growth Stocks Down
Small Cap Earnings Review 22/04/22
Starting this week, I will provide a weekly update of interesting earning results in the EU small cap space.
Vitrolife AB
The in-vitro equipment and service provider’s stock is down 18% after reporting earnings on the 21st of April, despite posting a 98% increase in revenues.
Investors were surely disappointed on the margin of the newly acquired company (Igenomix) which accounted for the vast majority of revenue growth. The underlying margin is down 4 points on a pro-forma basis, probably due in part to the sharp decrease in covid related revenues (down 90% quarter on quarter).
On top of that, organic growth has slowed to a low double digit growth rate & the long-run market growth rate of 5-10% that the company guided for was not enough to satisfy the high expectations embedded in the stock price.
The stock remains highly valued, trading at 50x forward earnings.
Basic-Fit
The gym subscription provider has reaffirmed its revenue and EBITDA targets for the full year, despite inflation putting pressure on consumer discretionary spending. It seems that Europeans are eager to go back to the gym, and are willing to pay for it.
Basic Fit is looking to grow locations by 16% in the next 9 months, and targeting 240m in EBITDA (+60% vs 2019).
This would explain the stock’s high valuation compared to its historical average (>5x EV/forward sales).
IPSOS
Ipsos posted a 10% top line beat in Q1, and guided for 7% growth of which 4% organic for the rest of the year. However, positive exchange rate effects contributed to a little under half of the revenue growth.
After years of flat revenue, the survey maker is returning to growth, driven by the Americas region. Management has comforted the market on its ability to pass on costs to customers and to preserve its 12-13% operating margin, extremely elevated compared to its historical average.
At 10x 22 earnings, the valuation is clearly undemanding.
Bufab
Bufab is provides supply chain solutions for C-type products, basically small & cheap elements used in industrial manufacturing. Aggregating the offer of 150,000 suppliers, it plays a key role in the supply chain of many companies, and is therefore a very important company to follow in the current environment.
The stock is down just under 10% after reporting earnings, despite posting strong results (21% organic growth and 43% total revenue growth).
Perhaps the sharp decline in gross margin in the “West” segment has been interpreted as a leading indicator that Bufab is going to be increasingly unable to pass cost increases to its customers.
Furthermore, the CEO’s comments point to the current situation getting worse, something he hasn’t seen in “24 years”.
2G Energy
This German company provides solutions allowing its clients to be energy independent, and some of its products take natural gas as an input. Therefore, the Q1 order report was an interesting report to mention given the tensions in Ukraine.
The company stated that customers were reluctant to order more natural gas devices, however, this effect was counterbalanced by increased interest towards products running on other forms of energy.
It is however too early to tell what the overall effect will be according to management.
Bookings were up 15% YoY and stock was down 7% on Friday.
Common themes:
Strengthening of the dollar is a significant tailwind for EU stocks, an effect that will probably be felt in Q2 as well.
Supply chain issues are getting worse.
Growth stocks continue to disappoint and to suffer valuation re-ratings.
The Covid theme seems to be at the lowest it has ever been in terms of market attention since the discovery of the virus.