CTT Systems: Near-term turbulence to subside in 2024 – ABG


• 27% org growth, 14% EBIT beat on strong AM sales
• 26% adj. EBIT CAGR ’22-’25e on >30% margins
• 23-14x EBIT ’23e-’25e, ~40-50% ROCE, net cash

Profitable growth to take a short pause in Q3
CTT continued to capitalise on strong flight traffic, but flagged softer near-term sales due to inventory adjustments during H2 among OEMs. Sales grew 27% organically (ABGSCe 27%), driven by 63% growth in Aftermarket (AM) sales (ABGSCe 33%) as system sales declined 26% (ABGSCe +30%) due to sequentially lower OEM and VIP sales. The CEO remained optimistic on growth into 2024, which we find reasonable given improving production rates among OEMs, solid air traffic and CTT’s traction within VIP/business jets. EBIT grew 44% y-o-y (+14% vs. ABGSCe) as CTT recorded an impressive 43% margin (ABGSCe 38%) and FCF of ~60m. Looking ahead, we expect a sequential sales decline in Q3 (14% org. growth y-o-y, -6% EBIT growth) due to inventory adjustments among OEMs and normalised AM sales, before accelerating in Q4 (21% org. sales, 23% EBIT growth). Finally, the continued good share of AM sales should support mix and yield a 38% margin for 2023e.

2024-2025 assumptions fairly unchanged
We lower 2023e-2024e EBIT by 6-2% due to a slower H2’23 as well as FX. For 2023, we now expect 27% adj. EBIT growth (35% previously) as the aerospace market continues to recover strongly. We forecast a 26% adj. EBIT CAGR for 2022-2025 on a 32% organic sales CAGR while delivering >30% EBIT margins, ~40-50% ROCE together with a net cash position.

Monopolistic leader, high growth, >30% ROCE+margins
We continue to believe that CTT should have all pieces in place for >20% annual EBIT growth in 2023e-2026e, as the company benefits from a close-to-monopolistic market position, recovering aerospace demand and its margin-accretive AM business. The stock is currently trading at 23-14x EBIT ’23e-’25e, and 10x EBIT ’27e in our valuation scenario


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