During this week, The Italian Sea Group ($TISG.MI) and SanLorenzo ($SL.MI) have presented the preliminary 2023 results and have provided some colour on the near future of the companies. Although the 2023 results are as good as expected, the growth for the coming years may decelerate and after the recent rally in share prices, it a perfect time to re-evaluate our theses.
We will expose our view on the 2023 results for both companies, the guidance for the next few years, and the current status of the industry to come up with a conclusion on our position in both companies.
The Italian Sea Group- Results & Capital Market Day Notes
TISG presented revenues on the high end of the previously communicated guidance and significantly higher versus figures in 2022. Revenues grew by 23% yoy up to €363 million with an EBITDA margin of 16.8% (15.9% in 2022).
As we are already used, the cash generation has been as impressive despite the working capital normalization. TISG closed the year with a net cash position of €2 million and we believe this balance will continue growing now that no additional funding is needed, capex will be limited (we believe below 7 million for 2024 and 2025), and a probable sale of the former Perini Navi yard in Viareggio that could suppose an inflow of over €12 million. With it, there is plenty of room to continue with the generous dividend policy while maintaining a net cash position.
Setting aside the results, the operational performance of TISG since the IPO has been brilliant: they have been the first to anticipate the Capex cycle, they bought Perini Navi when it was in bankruptcy, and have had best-in-class partnerships with Lamborghini and Giorgio Armani. This is why the stock has had a great run, the average daily liquidity is three times higher than last year and the number of people attending the call is 70 compared to some calls where we were less than 15. We believe it is a good example of what has to be sought in small caps.
During the three years, TISG has become one of the world market leaders following closely the best brands such as Lurssen and Feadship. This improved market positioning and the boom of the industry have allowed the company to increase the EBITDA margin from 10% in 2019 to 15.8% in 2024 and we believe it will continue to increase to over 20% thanks to the increase in scale, the limited supply of mega yachts, the close in the price gaps, and the internalization of some phases of the value chain as woodwork with Celi 1920. In fact, in 2023, the group has invested €5.6 million to increase the production capacity for Celi 1920 which will focus on providing to TISG and should increase revenues and marginality at a good pace.
However, the results were not fully positive, there has been a decrease in net backlog which is €609 MM at year-end 2023 vs €647.5 MM in Q3 (3 large yachts were delivered during these months – Perini Art Explorer, Tecnomar This is It and Admiral Silver Star) or €620 MM in FY 2022. In the same way, it was easy to estimate an increase in sales some years ago given the growth in the backlog, the current backlog makes us preview a more complicated environment in the mid-term which made us to update and look carefully at the model again
An important insight of the Capital Market Day was the intention to focus on semi-custom and serial production for yachts below 60 meters. They believe they can have success with them in the US. We have doubts about this approach and think it may be an effort to continue growing given the limited market in the mega yachts.
2024 will be a busy year for TISG with 6 deliveries, three of them above 70 meters. The company is also busy with negotiations (around 10) that should help grow the net backlog in the mid-high single digits as per our estimations.
The guidance for 2024 and 2025 is broadly in line with our expectations:
2024 revenues between €400-420 MM and EBITDA margin between 17%-17.5%
2024 revenues between €430-450 MM and EBITDA margin between 18%-18.5%
Moreover, Mr. Constantino has already envisaged €500 MM in revenues for 2027 with an EBITDA margin over 20%. This would suppose a 13.6% EBITDA growth CAGR 2023-2027. To achieve this, the firm should sell some of the current negotiations and launch new projects for the collaborations with Lamborghini and Giorgio Armani. We should know more about this soon.