CTT's profitable aftermarket business (80% of sales, 20% growth y-o-y) continued to drive both group sales (5% organic vs. ABGSCe +10%, +21% Q4'23) and adj. EBIT (+28% y-o-y, +16% vs. ABGSCe, 42% margin vs. ABGSCe 34%) as system sales declined ~30% y-o-y. Considering how CTT has continued to see higher humidifier selection rates, and that both Boeing and Airbus are now ramping up production, we expect OEM sales to increase significantly in H2'24 and surpass 2019 levels in 2025. However, decision-making among VIP customers has taken longer than we anticipated, which is why we expect Q2 sales of SEK 86m (vs. guidance of 85-90m), +9% y-o-y, and that EBIT should decline 6% y-o-y against tough comparables, before accelerating to ~30% growth in H2'24. For FY'24, we expect the high AM share and favourable FX to yield margins of 37% (39% in 2023), and 19% adj. EBIT growth.
Estimates largely unchanged
We raise '24e-'26e EBIT by 3-1% mainly due to FX, as slightly higher AM sales are offset by lower system sales (mainly VIP). We still expect a strong ramp-up in system sales and ~10% annual AM growth to drive a 29% org. sales CAGR '23-'26e (27% 2024e) and a 23% adj. EBIT CAGR.
Monopolistic leader set to capitalise on strong aero demand
We continue to believe that CTT should have all the pieces in place for >20% avg. EBIT growth in 2024e-2026e, as the company benefits from a near-monopolistic market position, recovering aerospace demand and its margin-accretive AM business. The stock is currently trading at 27-18x EBIT '24e-'26e (F12m P/E 32x, 8% above L5Y avg), and 14x EBIT '28e in our valuation scenario. In addition, we believe CTT's net cash position and relatively low investment needs could continue to support dividends above its 70% payout target (~115% in 2023, 3-4% DY '24e-'26e).
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