Riber — Pandemic causing delays in closing orders

Riber (EU: ALRIB)

Last close As at 21/11/2024

1.75

−0.09 (−4.89%)

Market capitalisation

38m

More on this equity

Research: TMT

Riber — Pandemic causing delays in closing orders

Riber’s order book at the end of June shows that potential customers are taking their time to place orders. While management is confident that customers will place orders for MBE systems during the second half, it is not clear that these will close in time for delivery during FY20. We therefore cut our FY20 revenue estimate by 16% to €29.6m and our PBT estimate by 88% to €0.3m. We leave our FY21 estimates unchanged.

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Written by

TMT

Riber

Pandemic causing delays in closing orders

Q2 revenue figures

Tech hardware & equipment

5 August 2020

Price

€1.42

Market cap

€30m

Net cash (€m) at end December 2019

5.4

Shares in issue

21.1m

Free float

50.4%

Code

RIB

Primary exchange

Euronext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.4

3.6

18.3

Rel (local)

3.6

(7.1)

30.2

52-week high/low

€2.69

€1.09

Business description

Riber designs and produces molecular beam epitaxy (MBE) systems and evaporator sources and cells for the semiconductor industry. This equipment is essential for the manufacturing of compound semiconductor materials that are used in numerous high-growth applications.

Next event

Q220 results

30 September 2020

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Riber is a research client of Edison Investment Research Limited

Riber’s order book at the end of June shows that potential customers are taking their time to place orders. While management is confident that customers will place orders for MBE systems during the second half, it is not clear that these will close in time for delivery during FY20. We therefore cut our FY20 revenue estimate by 16% to €29.6m and our PBT estimate by 88% to €0.3m. We leave our FY21 estimates unchanged.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

31.3

2.0

0.07

0.05

20.3

3.5

12/19

33.5

1.8

0.06

0.03

23.7

2.1

12/20e

29.6

0.3

0.01

0.03

157.5

2.1

12/21e

36.4

2.8

0.10

0.05

14.7

3.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H120 sales affected by parts availability

Total H120 revenues declined by 17% year-on-year to €11.6m. While revenues from sales of services and accessories increased by 39% to €6.0m, in line with management’s plan for this activity, MBE system revenues declined by 35% to €5.6m and, as expected, evaporator sales were minimal. Two production systems and one R&D system were sold during H120 as the delivery of a third production system slipped into Q320 because of previously flagged issues, caused by the pandemic, with obtaining parts from specialist sub-contractors based in France. This compared with sales of four production systems in H119, two of which had slipped from Q418.

Order book affected by export licence issues

Riber’s manufacturing facility has remained operational throughout the COVID-19 pandemic. Because Riber’s MBE systems are used in research on new materials and for the production of electronic and optoelectronic devices used in communications networks, enquiry levels remain high. However the companywide order book at end Q220 (€18.2m) was 36% down compared with end Q219 because the coronavirus pandemic is making potential customers more cautious and because Riber was obliged to cancel orders for three R&D systems that it was not permitted to export to China. While the sales pipeline gives management confidence that order intake will pick up in Q420, this does not give much time for any additional orders for MBE systems to be fulfilled by the year end.

Valuation: Trading at a discount to peers

Riber is now trading at a discount to its peers on both prospective EV/sales and EV/EBITDA multiples. While some discount for relative capitalisation and low free float is justified, the size of the discount (0.8x for Riber vs 2.4x for our year 1 EV/sales sample mean) is, in our opinion, unwarranted. This gives ample scope for share price appreciation provided investors gain confidence that MBE system demand will not be affected in the medium term by the COVID-19 outbreak and that Riber can address the delivery issues that marred FY18 and FY19 reported profits.

Estimate revisions

Exhibit 1: Changes to estimates

€m

FY19

FY20e

FY21e

Actual

Old

New

Change

Old

New

Change

System revenues

23.0

21.1

15.4

-27.0%

21.9

21.9

0.0%

Evaporator revenues

1.0

1.6

1.6

0.0%

1.6

1.6

0.0%

Service revenues

9.4

12.6

12.6

0.0%

13.0

13.0

0.0%

Total revenues

33.5

35.3

29.6

-16.2%

36.4

36.4

0.0%

PBT

1.8

2.2

0.3

-88.3%

2.8

2.8

0.0%

EPS (€)

0.06

0.08

0.01

-88.3%

0.10

0.10

0.0%

DPS (€)

0.03

0.05

0.03

-2.0%

0.05

0.05

0.0%

Net cash at year end

5.4

6.5

6.2

-4.1%

7.7

6.8

-12.1%

Source: Riber accounts, Edison Investment Research

We make the following changes to our FY20 estimates (our FY21 estimates are not changed):

Our previous estimate of four production MBE systems and eight R&D systems in FY20 assumed that Riber would receive orders for three R&D systems to replace the systems for Chinese customers for which it could not obtain export licences. Since the date that Riber was advised that the export licences for the three systems would not be granted, it has received an order for one R&D system which it will be able to deliver by the end of FY20, but other sales negotiations are not likely to complete until October or November, so Riber would probably not be able to deliver any of these orders until FY21. We have therefore cut our FY20 estimate to four production systems and six R&D systems.

We leave our evaporator revenue estimate unchanged. Riber has maintained contact with its evaporator customers, as demonstrated by the €0.1m revenues attributable to this category in H120, and management remains confident that it will secure some significant business in time for delivery during FY20.

We leave our service revenue estimate unchanged because Riber’s customers, eg IQE and those in China, remain operational so will continue to require replacement parts.

We had previously reduced the gross margin on MBE system sales from 28% to 25% to allow for the inefficiencies associated with the split shift working introduced in response to the COVID-19 situation. We are further reducing this to 24% as the actual number of productive hours has been less than management calculated because of staff self-isolating or shielding.

We reduce our DPS estimate from €0.05/share to €0.03/share, which was the rate paid in FY19, even though there is ample cash on the balance sheet to revert to the €0.05/share paid in FY18.

We have not cut levels of investment in either capital equipment or capitalised R&D because the French government has provided a €6m loan to support these activities.

Valuation

We base our valuation on a peer multiples approach. We restrict our sample to the two listed companies that are involved in developing equipment for manufacturing compound semiconductors because they benefit from similar growth trends to Riber, rather than the wider semiconductor industry.

Although Riber’s share price has picked up from a low of €1.10 on 16 March, the recovery since the coronavirus induced panic sell-off that month has not been as strong as that for its larger peers. Riber continues to trade at a discount to both peers with respect to both prospective EV/sales and EV/EBITDA multiples. Given the volatility in EPS, reflecting the lumpiness typical of Riber’s product revenues, we prefer to focus on EV/sales, as year-to-year fluctuations in revenues are less pronounced. While some discount for relative capitalisation, lower margins and low free float is justified, the size of the discount (0.8x for Riber vs 2.4x for our year 1 sample mean) is, in our opinion, unwarranted. This gives ample scope for share price appreciation provided investors gain confidence that demand for MBE systems will not be affected in the medium term by the COVID-19 outbreak and that future profits will not be marred by the exceptional costs relating to late deliveries and warranty issues that affected FY18 and FY19 reported performance.

Exhibit 2: Compound semiconductor manufacturing equipment peer multiples

Name

Market cap (€m) 

EV/sales 1FY (x)

EV/sales 2FY (x)

EV/EBITDA 1FY (x)

EV/EBITDA 2FY (x)

P/E 1FY
(x)

P/E 2FY
(x)

Gross margin 1FY (%)

EBITDA margin 1FY (%)

Aixtron

1,153

3.2

2.8

19.5

13.5

39.2

25.8

41.7

16.4

Veeco

572

1.7

1.5

15.7

-

20.3

14.2

41.6

10.8

Mean

2.4

2.1

17.6

13.5

29.7

20.0

Riber

30

0.8

0.7

13.9

6.2

157.5

14.7

34.7

6.0

Source: Refinitiv, Edison Investment Research. Note: Priced at 31 July 2020.

Exhibit 3: Financial summary

€m

2017

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

30.5

31.3

33.5

29.6

36.4

Cost of Sales

(17.0)

(19.6)

(23.2)

(19.3)

(24.0)

Gross Profit

13.6

11.7

10.3

10.3

12.4

EBITDA

 

 

5.9

3.3

2.5

1.8

4.0

Operating Profit (before amort. and except.)

 

 

4.6

2.2

1.8

0.3

2.8

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.9)

(2.2)

(0.9)

0.0

0.0

Share-based payments

0.0

0.0

0.0

0.0

0.0

Reported operating profit

3.8

0.0

0.9

0.3

2.8

Net Interest

(0.6)

(0.2)

0.0

(0.0)

(0.0)

Profit Before Tax (norm)

 

 

4.0

2.0

1.8

0.3

2.8

Profit Before Tax (reported)

 

 

3.1

(0.2)

1.0

0.3

2.8

Reported tax

1.0

0.5

0.1

0.0

(0.4)

Profit After Tax (norm)

2.7

1.4

1.3

0.2

2.0

Profit After Tax (reported)

4.1

0.3

1.1

0.3

2.4

Average Number of Shares Outstanding (m)

21

20.8

20.8

20.8

20.8

EPS - normalised (€)

 

 

0.13

0.07

0.06

0.01

0.10

EPS - diluted normalised (€)

 

 

0.13

0.07

0.06

0.01

0.10

EPS - basic reported (€)

 

 

0.19

0.02

0.05

0.01

0.11

Dividend (€)

4.93

0.05

0.03

0.03

0.05

Revenue growth (%)

85.6

2.5

7.0

0.0

0.0

Gross Margin (%)

44.5

37.5

30.8

34.7

34.0

EBITDA Margin (%)

19.4

10.4

7.6

6.0

11.0

Normalised Operating Margin

15.2

7.1

5.4

0.9

7.7

BALANCE SHEET

Fixed Assets

 

 

9.0

9.5

11.4

11.1

11.1

Intangible Assets

2.0

1.9

2.6

2.6

2.6

Tangible Assets

4.9

4.8

5.1

4.8

4.8

Investments & other

2.1

2.8

3.7

3.7

3.7

Current Assets

 

 

28.4

28.2

26.8

25.5

30.0

Stocks

9.9

15.3

11.5

10.1

12.4

Debtors

9.1

8.8

8.0

7.3

9.0

Cash & cash equivalents

7.4

3.0

5.9

6.8

7.3

Other

2.1

1.2

1.3

1.3

1.3

Current Liabilities

 

 

(17.0)

(17.3)

(17.3)

(16.0)

(18.7)

Creditors

(16.7)

(11.4)

(13.0)

(11.7)

(14.5)

Tax and social security

(0.2)

0.0

(0.0)

(0.0)

(0.0)

Short term borrowings

0.0

(0.4)

(0.2)

(0.2)

(0.2)

Other

(0.0)

(5.4)

(4.1)

(4.1)

(4.1)

Long Term Liabilities

 

 

(0.7)

(1.3)

(1.7)

(1.7)

(1.7)

Long term borrowings

0.0

0.0

(0.4)

(0.4)

(0.4)

Other long term liabilities

(0.7)

(1.3)

(1.3)

(1.3)

(1.3)

Net Assets

 

 

19.8

19.2

19.2

18.9

20.6

CASH FLOW

Op Cash Flow before WC and tax

6.7

4.2

2.5

1.8

4.0

Working capital

1.3

(5.3)

4.2

0.9

(1.2)

Exceptional & other

(0.5)

(1.7)

(0.3)

0.0

0.0

Tax

(1.0)

0.0

0.0

0.0

(0.4)

Net operating cash flow

 

 

6.6

(2.8)

6.4

2.6

2.4

Capex

(1.1)

(0.8)

(1.6)

(1.2)

(1.2)

Acquisitions/disposals

0.0

0.0

(0.2)

0.0

0.0

Net interest

(0.0)

(0.0)

(0.0)

0.0

0.0

Equity financing

(0.1)

(0.5)

0.1

0.0

0.0

Dividends

0.0

(1.0)

(1.0)

(0.6)

(0.6)

Other

(0.5)

0.0

(0.4)

0.0

0.0

Net Cash Flow

4.9

(5.2)

3.3

0.8

0.5

Opening net debt/(cash)

 

 

(2.5)

(7.4)

(2.5)

(5.4)

(6.2)

FX

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.2

(0.4)

0.0

0.0

Closing net debt/(cash)

 

 

(7.4)

(2.5)

(5.4)

(6.2)

(6.8)

Source: Riber accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Riber and prepared and issued by Edison, in consideration of a fee payable by Riber. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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General disclaimer and copyright

This report has been commissioned by Riber and prepared and issued by Edison, in consideration of a fee payable by Riber. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Consumer

Greggs plc — Gradual recovery expected

Greggs’ interim results were heavily affected by the estate closure for the majority of Q220, due to COVID-19. The key takeaways are that operating cash burn during lockdown was in line with management expectations, and current trading, albeit with limited data, indicates gradual weekly progress in revenue, described by management as encouraging. We assume recovery through H121e, before stabilising at a revenue run-rate equivalent to 90% of the level in FY19. The resulting EV/sales multiple of 1.2x for FY21e, is in line with recent multiples. It reflects lower estimated revenue in that year and uncertainty about the rate of recovery.

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