Bertrandt issues a profit warning
After the profit warning of EDAG in July, Germany’s largest automotive ER&D pure-play, Bertrandt, also issued a profit warning. The company lowered its EBIT margin range guidance to 5%-7.5%, down from 7%-9% previously. Bertrandt is suffering from project delays and low utilization rates.
As a result, the company will be restructuring its businesses and focusing its service portfolio on the four key pillars of digital automotive (EV, AV, connectivity, and new mobility services). Also, Bertrandt maintains its Capex investment around high-voltage batteries and vehicle emissions test centers.
Despite its low utilization rate and contract delays, the company has not changed its revenue growth guidance (2%-5%), suggesting its revenue guidance was conservative.
Bertrandt also unveiled its Q3 FY19 results: revenues were up by 3.1% yoy, impacted by one lesser working day, driven by the Physical Engineering division (+8.0%). Digital Engineering, the company’s largest division was up by 1.9%. E/E, the “digital” division was up by 6%.
Bertrandt continues to have a high risk profile, with heavy reliance on the German automotive sector and is taking some action. The company highlights that international revenues are growing fast (+26% in Q1-Q3 FY19), while the domestic business is flat (+1%). Yet, this international high growth is contributing little to the company’s overall growth.
Bertrandt also continues to diversify its client base away from VW, which represented 34% of revenues in Q3. The diversification is, indeed, happening but is moderately fast, given the market conditions, and is bumpy (non-VW revenues were down by 1.1% in Q3).
Finally, Bertrandt reiterated its analysis that it is going through a low growth period that is only temporary and that growth will accelerate again in the near future.
This may be true. However, Bertrandt could accelerate its diversification and recovery through acquisitions in automotive digital offerings, in international markets, or to other verticals. So far, Bertrandt has not been active in M&As, and its portfolio mix shift effort is mild. The company wants to expand its vertical focus to the medical technology industry, and its capabilities to VR, cloud and Industry 4.0. In other words, Bertrandt is only taking limited steps in limiting its risk profile.
Stock markets reacted sharply to Bertrandt’s profit warning and results, with the stock down by almost 30% this week Bertrandt’s market cap is now below EUR 0.5bn!