Alcadon beat our expectations by 8% on adj. EBITA in Q3, partly due to higher sales (+2% vs. ABGSCe), but mostly due to impressive cost control. The UK saw sequential improvement, while the ramp-up in Benelux was better than we expected, but Denmark and Norway both continue to struggle. In terms of product verticals, data centres remain the stand-out performer, while network infrastructure is described as stable and fibre-to-the-home (FTTH ) remains pressured, which can be seen in the softer performance of Alcadon's more "FTTH-heavy" regions of Denmark and Germany.
Lowered financial risk mitigates a key concern
What stood out most in the report, in our view, was the exceptionally strong cash conversion (~250% FCF/EBIT), which was driven by a net working capital release equalling 6.4% of the company's market cap prior to the report. As a result, our '23e-'24e ND/EBITDA (excl. leasing but incl. earn-outs) now comes down to 3.1-2.1x (compared to 3.8-2.7x on our pre-Q3 estimates). The high leverage on near-term estimates has meant that the risk of a defensive rights issue has been a key concern, and although leverage is still fairly high, we argue that financial risk has come down notably after the Q3 report.
Adj. EBITA raised by 1-5%
All in all, we raise adj. EBITA by 1-5% for '23e-'25e, (rep. EBITA +7% for '23e due to a positive NRI in Q3). Our revisions are driven partly by higher sales estimates (mainly in Benelux) and partly by lowered opex.
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