First Berlin – ADVA Optical Networking SE Research Update (12/01/2021)

First Berlin Equity Research has published a research update on ADVA Optical Networking SE (ISIN: DE0005103006). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 8.20 to EUR 11.00.

Abstract
ADVA has published preliminary 2020 results and first guidance for 2021. The company decided to publish preliminary figures nearly seven weeks ahead of the annual report due on 25 February because the numbers deviate significantly from analysts' forecasts. FY/20 revenue of €565.0m (FBe: €572.5m; FY/19: €556.8m) was at the bottom end of management guidance of €565m-€580m while the proforma EBIT margin of 6% was at the top end of guidance of 5-6%. Demand for ADVA's products remained strong in Q4/20 but revenue suffered from COVID-19-related supply chain problems and the weak US Dollar (ca. 40% of revenues are denominated in USD). The operating margin benefitted from the weak US Dollar as 75% of cost of goods sold are denominated in the US currency. The mid-point of management's 2021 sales and profit guidance implies 2021 proforma EBIT of €44.6m which is 15% above our previous forecast. The gap between management guidance and our previous forecast is based on further weakening of the US Dollar since our last update of 27 October and the prospect of a favourable shift in the revenue mix towards higher margin software and services. Based on upward revision to our forecasts, we are raising our price target from €8.20 to €11.00. We maintain our Buy recommendation.