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 20.00 to EUR 21.00.
Q1/22 results were characterised on the one hand by very strong sales and order intake and on the other by pressure on the gross margin due to supply chain bottlenecks and the depreciation of the Euro against the US Dollar. Sales jumped 18.0% to €170.5m (Q1/21: €144.5m) and were 5.4% above our forecast of €161.8m. Q1/22 order intake and backlog both reached record levels. However proforma gross profit declined 3.5% to €53.4m (FBe: €51.8m; Q1/21: €55.3m) equivalent to a margin of 31.3% (FBe: 32.0%; Q1/21: 38.3%) while proforma EBIT was 39.3% lower at €7.8m (FBe: €8.1m; Q1/21: €12.9m) equivalent to a margin of 4.6% (FBe: 5.0%; Q1/21: 8.9%). Higher semiconductor costs and the decrease in the average EURUSD rate to 1.122 (Q1/21:1.205) were major factors behind cost of goods outstripping sales growth. Management expect semiconductor shortages to persist throughout H2/22 and have moved to counter cost increases by selectively raising prices. We expect this to result in some recovery in profitability in Q3 and Q4 allowing the company to meet full-year proforma EBIT margin guidance of 6-10%, which is unchanged on the Q4/21 report published on 24 February. We have reduced our full-year standalone 2022E proforma EBIT forecast for ADVA by 4.9% to €50.4m (previously: €53.0m) to reflect lower Q1/22 profitability than forecast but raised our projections for 2023 and subsequent years on the back of higher sales assumptions. Based on a DCF valuation of the future merged ADVA/ADTRAN entity, we raise our price target for the ADVA share to €21.00 (previously: €20.00). We maintain our Buy recommendation.