Cerba - comment

The company reported its Q4 2023 results yesterday well below even our estimates and our initial view is that Cerba is clearly “testing” the patience of investors as it was another weak quarter. Q4 2023 revenues were down 17% at EUR 482 million vs our projections of 516 million. Weakness was driven by the Routine Lab business which was still lapping tough COVID-19 comps while in the Research division, the impact of new contracts is not yet flowing through the financials and the backlog declining to EUR 400 million in Q4 2023 from EUR 420 million in Q3 2023. Except for Routine Lab Africa, Cerba underperformed our expectations for revenues. They also reported Q4 2023 EBITDA at EUR 106 million with EBITDA margins at 22% (down from 27% in 2023) underperforming our Q4 2023 EBITDA projections at EUR 124 million at 24% EBITDA maregins due to decreased proportion of Covid-19 testing, margin contraction in the Research division and the temporary dilutive impact of recently integrated acquisitions. While working capital was positive in the quarter at EUR 69 million, capex was higher at EUR 40 million vs. our projections of EUR 25 million due to investment in a new facility for the Specialty business unit. The cash balance declined to EUR 60 million vs. our projections at EUR 170 million as Cerba repaid some debt though rather than keeping the cash on balance sheet. Reported Q4 2023 LTM EBITDA was EUR 430 million with net leverage (as per Sarria calculations) at 10.9x vs. the company reporting 8.1x (as they are adding back EUR 149 million of adjustments). The company is expecting total synergies for 2024 - 2025 at EUR 89 million. 70% of the synergies are expected to come from the French Routine Lab testing business.  This is still a “show me” story with high execution risk. There is a call today at 2 pm GMT / 3 pm CET to discuss the results.