MORAM - Intred $INTD.MI Analysis (Unidata peer)+ Earnings season Kick-off $HZO $MPX $SLG $FTAI $FIP
Sunday 30th July 2023
Today, we are sharing the analysis of Intred, an Italian small-cap company that competes with Unidata (investment thesis published a few weeks ago). We believe it is very interesting both to gain a better understanding of the sector and to make a comparison with Unidata.
Also, as we mentioned in our last email, we are going to publish our analysis and comments on the results of all the companies we follow (analysis published in the last 12 months) and others that are on our radar. Today we share we are sharing the 5 that reported this week .
The objective is to cover almost 40 companies among the entire team in the coming weeks. We have created a special page within the premium section of Moram where we publish, on the earnings day, our analysis, point of view, and the strategy we are following for each company (with a special focus on those in the portfolio).
For those interested, we are offering a subscription to these analyses for €39.95 (VAT included) with access until October 1st, 2023 (All the other subscription options include the 2Q23 Earning Season). If you want to follow the earnings with us:
Earnings Season Apr - Jun 2023
MarineMax $ HZO
Record revenue in 3Q23 was $721.8 million (+4.8%), mainly due to the acquisition of IGY Marinas in Oct-22. However, Net Income decreased to $46.5 million (-35%). Gross profit margin was 33.8%, which decreased 50 basis points from 34.3%. SG&A expenses represented 23.4% of sales compared to 20% in 3Q22 (this continues to be one of the main points we dislike about $HZO). As we mentioned, interest expenses also rose significantly (from $1 MM in 3Q22 to $14 MM this quarter).
MarineMax narrowed/confirmed its fiscal year 2023 guidance for adjusted earnings to a range of $5.10 to $5.50 per diluted share, compared with a prior range of $4.90 to $5.50. Adjusted EBITDA guidance was also narrowed to a range of $225 MM to $245 MM, compared with a prior range of $220 MM to $245 MM. (We understand this movement as a confirmation of its guidance)
Season started later (as advanced in Marine Products post) but May & June were the strongest months in the company's history
Industry is returning to seasonality (after 2021 & 2022 which were quite different)
Acquisition of C&C boats (boat dealer but with significant storage capacity - 600 boats)
IGY Marinas partnership with NEOM (Global waterfront development in the Red Sea - IGY will develop & operate a new super yacht marina in Sindalah) - THIS is quite interesting, we will email them to get more info
They expect Same Store Sales to be down in FY23 5-6% & tax rate to be around 27%
After 2 consecutive quarters of lowering the guidance, the market has taken this quarter's numbers well. We are concerned that while the gross margin has increased by 3%, SG&A expenses have gone up by 20% (apart from the interests, but this has been a trend across the industry and is inherent to the cycle). What we don't like at all is that inventories have increased from $711 million to $740 million, when this is the quarter where they should be decreasing. On the positive side, due to the acquisition of the marinas, the percentage of revenue derived from the sale of new boats continues to decrease, dropping 3 points to 69%. The number of shares has increased by 2% year-to-date.
In summary, we find it very interesting how the Marina segment is evolving, and we hope that someday they will spin off this part with its own management. We continue to follow the company closely because it provides valuable information (also, they always report a week before $ONEW). However, we still see red flags in the company and have no intention of adding it to our portfolio in the short-term.
Marine Products $ MPX
We think it is very interesting to follow the earnings of yacht manufacturers as they offer another perspective on the industry and serve to contrast expectations. Manufacturers sell to dealers, and just like during Covid, manufacturers had a tough time while dealers performed quite well. Now, we are experiencing the opposite scenario.
In the second quarter of 2023, Marine Products reported a significant increase in net sales, showing a 21% growth compared to the same period last year. This growth can be attributed to two main factors: an 11% increase in sales volume and a 10% rise in product prices.
During the quarter, unit sales also experienced a positive trend compared to the previous year. This improvement was partly driven by efforts to clear inventory of partially completed units, which had been affected by supply chain disruptions (These issues have not yet fully recovered to 100%.)
Despite the positive performance, the retail selling season started later than usual due to colder weather in various parts of the country (Florida represent its main market). However, dealer inventories are relatively low for this time of the year (below pre-pandemic levels),
Dealers are quite optimistic for the upcoming model next year, but are aware of concerns about potential headwinds affecting consumer confidence (in a high interest environment). They plan to modify its production if demand dries
Our take: Over the last year, yacht manufacturers have performed much better than the dealers. This is because, as supply chain problems started to be resolved, manufacturers sold everything they agreed upon and did not deliver to the dealers. On the other hand, dealers, who had almost no inventory during the arrival of Covid, sold everything they had, but the demand for small yachts has decreased, leading dealers to accumulate inventory.
In this industry, it is crucial to understand that everything boils down to the potential decrease in size and its Beta related to the Federal Reserve's decisions on interest rates. The key is to be on the right side (Manufacturer / dealer / long / short)
FTAI Aviation $ FTAI
Fortress Transportation and Infrastructure is a company that we have been eyeing in the last years because it is another one of the companies founded by Wes Edens (New Fortress Energy CEO). Exactly one year ago, they made the (wise) decision to divide the company into two parts: one for aviation and the other for infrastructure ($FTAI & $FIP)
FTAI has two segments: Aviation Leasing and Aerospace Products (providing maintenance solutions for the CFM56 engine). Aviation Leasing constitutes 70% of their revenues and 80% of their EBITDA. $FTAI (Aviation Leasing) has a portfolio of 97 aircraft and 247 standalone engines (15 aircrafts and 23 engines bought in 2Q23). The engine maintenance segment is expected to grow at 7% from 2022 to 2030, and the leasing model continues to increase in developed countries.
EBITDA in 2Q23 was $153MM ($612MM run rate) and net income $46.4MM (+105% last Q). In the last 3 years, they have more than doubled their EBITDA and significantly reduced leverage (decreasing from 4.3x to 3.5x in the last 3 quarters).
Strong demand for assets - FTAI sold $69.6MM book asset for $31.9MM margin gain. They assume $25MM gains per quarter in 2023 from asset sales ($100MM in FY23)
Aviation Leasing: 77.1% utilisation rate ( 61.6% Engines, 90.7% aircrafts)
Very tight MRO market (plus issues in new engines) - resulting in strong demand for A320 CF family - Anyone with existing flying assets is going to keep them (leases) and look for more
EBITDA margin for Aerospace Products 44% (37 modules in 2Q to 9 unique customers - 3 new customer and 6 repeating) - Target is $100MM EBITDA in 2023 from this segment
Module factory (Aerospace products) demand is growing a lot, backlog visibility is increasing - It is a different approach to the aftermarket engine "traditional solution" and once the customer prove it, it easier to continue doing it.
Included in Russell 2000 in May and considering addition to the S&P Small Caps 600 addition at end of Q3
They expect BB rating at the end of the year
Interest expense has diminished around 20% compared to the same period last year (Debt structure: $2050MM Corporate bonds + $145MM revolving)
The company is interesting enough for us to carry out further analysis - we are in contact with an industry expert to help us to understand some points of the aviation industry - and we hope to publish an analysis in the coming weeks.
The rest of the companies commented ( Fortress Infrastructure and SL Green $ FIP $ SLG) and our strategies are on the premium side. Next week is a very busy one: Ferretti, Sanlorenzo, Vermilion, Good Times Restaurants, Cheniere, Intred… are reporting. We will update the 2Q23 Moram website daily, as we will focus on that and portfolio management, the next Substack email will be in 2 weeks. We invite you to follow with us the earnings season and take advantage of what we believe it is a very good deal!
Intred Analysis $ INTD.MI
What is Intred?
Intred is an Italian small-cap operating in the telecommunications sector with a market capitalization of ~€185 million. It is the most comparable listed company to the previously analyzed Unidata. It provides fibre network infrastructure, data, and voice services to retail, public administration, and business clients in the richest and most populated region of Italy, Lombardy.
Although it was founded in 1996, it was not until 2010 that they started to build their fiber proprietary network. The growth since then has been impressive with a 26% CAGR in revenues since 2015. And all this growth comes with solid profitability (+40% EBITDA and +25% EBIT margin in FY 2022) and a good cash positioning (net debt less than 1x EBITDA) to continue to invest in the fiber network. Since the IPO in 2018, the company has had spectacular growth, multiplying revenues by more than 2.5x in just four years.
Moreover, the company has been awarded two tenders valued at around €60 million to provide connectivity to over 5,300 schools in the region of Lombardy. With over 9,700 kilometers of fiber optic network and 46,700 clients, Intred is ready to continue growing maintaining excellent margins and customer service quality (churn rate<5%).
The company is controlled by Daniele Peli (the CEO and one of the founders) and his wife. Between them, they own more than 60% of the shares. After a tremendous rally after the IPO, the stock price has recently dropped almost 50% from all-time highs. And although the valuation remains exigent (c.P/E 20), the recurrence of revenues, the attractiveness of the sector, and the growth prospects could justify an opportunity on the stock.
The opportunity in the sector, School tenders, and Intred’s approach
In Unidata’s thesis, we already analyzed the opportunity that connectivity providers are addressing. Italy is behind the European average in terms of fiber penetration. This problem is being strongly pushed forward by local, national, and European institutions. A new report published by the FTTH Council Europe indicated that Italy is one of the fastest-growing countries in the number of new homes covered by FTTH.
Intred can be one of the multiple players that will help to accelerate the digital transition and connectivity in Italy. It is key to be the first in building the infrastructure because once built, it is not worth it for the rest of the competitors to develop the infrastructure in the same exact place. And if another player wants to operate these areas, they will have to sign an IRU that will generate stable and long-term revenues and profit for the proprietaries of the network.
Intred and Unidata are both specialized in FTTH, which is the connectivity solution with the highest speed and most secure. FTTH is growing much more than the rest of the solutions and this trend will continue.
We can also see this tendency in Intred’s revenues, with FWA and Broadband Connectivity decreasing the share of revenues to the detriment of Ultra Broadband Connectivity