Hydrotor SA (HDR) recently released a – as expected – quite weak quarterly report. Revenue decreased by 24% q/q to 28.9 million PLN (38.2) and the gross margin dropped to 7.3% (12.5%). Opex decreased marginally, and HDR reported its third consecutive loss quarter (-1.8 million PLN). The company has only reported six loss quarters since 2012, so this "stretch" stands out as unusually weak.
The current problems lie in weak sales and (too) thin gross margins (long-term average is 17%). Sales of hydraulic products such as pumps, cylinders, and valves showed a significant decline. The largest drop was in the sale of materials and goods, which decreased by 50%. The share of exports has continued to increase, leading to increased FX fluctuations, which negatively impacted the results during the quarter. Continued high competition in the hydraulics market and a general economic slowdown negatively affect demand. Management does not see any clear market turnaround in the near future.
Since we published our analysis, Lewicki has made a small purchase of c. 3,000 shares (94,000 PLN). The company has also held its annual general meeting where a small dividend of 0.30 zloty per share (yield 1%) was approved. Before this year’s meeting, Sławomir Sklinda chose to leave the board. He was replaced by Jakub Leonkiewicz (with a solid financial background), who has now made a comeback to the board (left in June 2023). The company's sole institutional owner, PKO, proposed Leonkiewicz.
In conclusion, the valuation remains close to ATL levels with P/TB 0.66 and EV/S 0.96. However, the market situation remains grim, and even in the best-case scenario, a turnaround may be several quarters away. But the company remains financially solid and we believe it is in a good spot to await a stronger market.
The 2Q24 report will be published on August 14. The ex-dividend date is September 20, and the dividend will be paid out on October 4.
(Disclaimer: at the time of publication, the writer owns shares in the mentioned company)
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