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Q423 Earnings review, part II
Today I bring the second installment of comments on the 2023 results presentations, which combine Q4 and the overall performance for the year. These presentations usually are very positive events for our portfolio, as they showcase the market the significant cash generation capacity of our companies and, furthermore, they often come with generous returns to the shareholders. However, in this instance, the market reacted very negatively, in my opinion, perhaps due to a lack of understanding of some of these results. Specifically, in this publication, we will discuss the results of the following companies::
Inmode
Warrior Met Coal
Scorpio Tankers
Whitehaven Coal
Here we go.
Inmode
Inmode, the Israeli company specializing in minimally invasive aesthetic treatments, presented the eagerly awaited (having adjusted guidance twice in the last three months) results for Q4 2023. The overall figures for 2023 have been very positive, with an 8.3% growth in revenues and a 6.1% increase in net profit. However, all the growth was concentrated in the first half of the year, with a challenging and difficult H2, resulting in significant weakness in the stock price (indeed, we can see a negative year-over-year comparison for Q4).
As mentioned, the second half of the year posed several challenges for the company (and the sector in general), tarnishing its fundamentals and forcing them to downwardly revise annual guidance for the first time in their history:
Over 80% of sales are made through leasing agreements, and in the current interest rate environment, credit approval cycles are prolonged and tightened, affecting Inmode's growth.
Economic slowdown reduces discretionary spending, which includes aesthetic medicine products.
They maintain a very strong balance sheet, with cash and equivalents totaling $741.6M and a robust cash generation capacity, even in a low-growth context. They plan to leverage this financial strength to address stagnating fundamentals through two avenues:
Pursuing M&A targets, although finding candidates with comparable margins to Inmode is challenging.
To streamline the leasing process, they will advance credit themselves to accelerate sales.
The most accretive action for the stock would be the use of cash, especially when it represents 50% of the market capitalization, for shareholder remuneration (with buybacks generating more value than dividends in this case), which they have stated they will not implement. However, we will see if the path of inorganic growth and business simplification achieves the same effect.
The management also provided guidance for 2024, implying the persistence of the challenges identified in 2023:
Revenues between $495M and $505M (1.6% growth at the midpoint).
Gross margins of 83%-85%, in line with current levels.
EPS between $2.53 and $2.57, flat year over year.
At the beginning of this year, they continue to see a slowdown in consumption, so any recovery and acceleration in their fundamentals would, in any case, occur in H2. Despite poor capital allocation and a growth slowdown, the company is very cheap, and I anticipate an interesting revaluation throughout 2024.
Warrior Met Coal
Warrior Met Coal, which has shown spectacular performance in the last year (+65%), experienced a sharp decline (-7%) following the results presentation in a market that assigns no value to its significant growth project (Blue Creek) or the rationale for its shareholder return strategy, prioritizing dividends over buybacks. Let's examine the results and understand what to expect in the future.
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