Margins Development of Croatian Blue Chips

Today, we bring you a brief analysis of their EBITDA and profit margins for the first nine months of 2023 for Croatian blue chips.

Before we start, we would like to note that comparing these margins across different industries is not necessarily the best way to give a comparable overview. The reason why is that the EBITDA and profit margins vary significantly across sectors, and as such, the best way to compare any of these companies through these margins would be to compare it to the companies in the same industry in the form of a peer group or a median value for the select industry. Despite this, it is still worth looking at these margins, especially as turbulent a year 2022 was, companies across industries have experienced significant cost & top-line growth, varying degrees, and as such all recorded developments in their margins.

9M results also include the Croatian tourist season. As the tourist companies make the majority of their profitability in this period, their margins will be somewhat “inflated”, as compared to using the FY data or quarter-on-quarter data only.

9M 2023 vs. 9M 2022 EBITDA margins of Croatian blue chips (%)

Source: Companies’ data, InterCapital Research

9M 2023 was influenced by the easing in inflation, and an ongoing macroeconomic uncertainty, due to high interest rates and geopolitics. In this environment of higher costs, companies have increased their prices, but the growth in OPEX remains the biggest pressure for the majority of companies’ op. profitability. Q3 also marked strong activity for Croatian tourism, with top-line growth supported by stable tourist nights and strong price increases, while profitability has been mixed due to cost growth.

As can be seen in the graph above, the highest margin recorded was by HT,  with an EBITDA margin of 42.9%, followed by Valamar Riviera & Atlantska Plovidba at 40.5% and 39.6%, respectively. HT remained resilient to inflationary pressures, despite seen cost pressures. HT noted profitability expansion despite cost growth, on the back of growth across most segments, while keeping OPEX under control. Also, HT updated its 2023 outlook as it increased prices on its products by 5% from October. This is in line with the regulation approved by HAKOM at the beginning of 2023 for all telecommunication companies due to high inflation. Valamar expects 2023E adjusted EBITDA to amount between EUR 107m and EUR 109m (+5.8% YoY). Ericsson NT achieved a margin of 14.2% during the first nine months of 2023. Podravka and Kraš are to follow with a margin of 13.8% & 11%, respectively. On the flip side, there are a few blue chips that achieved an EBITDA margin of 10% or below. Atlantic Grupa noted a 10.1% EBITDA margin during the first nine months, closely followed by Končar with an EBITDA margin of 9.3%. However, if we compare the margins to 9M 2022, we can see that almost half of the companies recorded at least a slight decline in their margins. The largest decline was recorded by Atlantska Plovidba, whose EBITDA margin decreased by 11.1 p.p, which is a continuation of a trend that already occurred during Q1 & Q2. Also, we note that it makes more sense for companies like Končar to look at normalized margins due to significant non-recurring effects during the previous year. During Q3, Končar noted an improvement in normalized margins due to strong top-line growth & stabilization on the cost side, which was not the case during the previous quarter. Finally, regarding Končar, the strong Backlog growth compared to FY 2022 should be a thing to emphasize. AD Plastik is still materially under the impact of the geopolitical situation regarding Russia and Ukraine. Further, AD Plastik’s margins were also affected due to the semiconductor shortages in the automotive industry, which is finally looking like it’s coming to an end. Combined with the disruption of the company’s operations in Russia, the pressure could continue in the upcoming period.

9M 2023. Vs. 9M 2022 profit margins of Crotian blue chips (%)

Source: Companies’ data, InterCapital Research

Moving on to the net profit margins, Valamar Riviera recorded the highest profit margin of 18.8% on the back of the aforementioned operating profitability, followed by HT with a 13% net profit margin, which represents a strong increase of 3.2 p.p. YoY due to strong top-line growth from most segments. Next up, we have Podravka with a profit margin of 11.1%, which represents a strong increase of 3.9 p.p. YoY which is due to tax incentives booked for investment in logistics, distribution, and production. Ericsson NT is to follow with a profit margin of 9.9%, an increase of 4.8 p.p.

Overall, during Q3 the companies were under partial easing of margin pressure & cost increases, a slightly improved situation compared to the previous quarter. However, inflation keeps eating away at the disposable income of customers as well, which might result in reduced companies’ ability to pass costs further down the line in the future, if the pressures do not loose up. For the upcoming period, lower economic growth is anticipated. Inflation is expected to be slightly higher than the central bank’s target, although a clear and evident downward trend in inflation is apparent. So far, in the context of high inflation, companies could pass on costs to end customers. However, we believe that this trend is coming to an end, and future wage growth will surpass companies’ ability to transfer those costs to the final customer, thus hindering further margin growth.

Category : Flash News

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