Wood maintains the target price of 1.43 lei for AROBS shares

Wood & Company maintains the "Buy" recommendation and the target price of 1.43 lei for the shares of the IT company AROBS Transilvania Software (AROBS), according to the latest report signed by analyst Bram Buring, which was published on the BVB Research Hub portal.

The software maker's shares have recently bounced back following the release of its first six months results, so Wood's target equates to a return of around 43% from yesterday's 17:00 AROBS quote of 0.997 lei.

According to the analysis report, the message from AROBS management during the second quarter results conference call was that it is focused on growth, with the objective of achieving the size necessary to attract and retain customers and large orders of more than 100 million euros.

"As we pointed out in our inception report (nr. of AROBS coverage), these relationships tend to persist-a top supplier is harder to replace-and generate higher margins over time. It is also the area where recent acquisitions have been concentrated and an indicator for future M&A activity," Wood's analysis report states.

According to the document, the details are part of the company's message regarding the planned capital increase which, although AROBS has a strong balance sheet, will give some flexibility to existing liquidity, which will allow management to close deals more quickly.

"On the other hand, while the company aims to scale the business, in our opinion the increase in EBITDA margins will be secondary at least for a few quarters", the document states. Wood's team expects AROBS to be flat earnings this year, into 2024 and beyond, but EBITDA margins will be a few percentage points below their 2022 level.

"However, this is normal for a growth company, with profitability returning once businesses are fully integrated. Under these conditions, the first half of 2023 does not change our view and we continue to see AROBS as being in this smaller niche but with great growth potential in regional markets," the report states.

According to the document, the management of AROBS is considering a budget of around 55 million euros (approximately 275 million lei) for mergers and acquisitions composed of: 1) a share issue of around 40 million euros, addressed to new investors and 2 ) additional shares to be issued later, worth approximately 15 million euros (valued at current levels).

The structure of the targeted transactions will be composed of 75% cash payment, the rest being issues of AROBS shares. Voicu Oprean, the director and majority shareholder of the company (with a direct ownership of 66.4%), will not participate in the capital increase.

For the first half of the year, the company reported a consolidated turnover of 241.1 million lei, up 90% compared to the same period last year, normalized EBITDA of 43.3 million lei, +9% and a normalized net profit of 32.5 million lei, an appreciation of 1% compared to the first semester of 2022.

For this year, Wood analysts estimate sales revenue of 446.5 million lei for AROBS and a net profit of 48.5 million lei, which will rise to 64.1 million lei in 2024 and 78.2 million in 2025, according to the forecasts presented in the report published at the BVB Research Hub on August 16.