Bell Potter Price Target $27.10

BELL POTTER

12 month Price Target: $27.10

Solid 1H18 result in line with forecasts
CTD reported 1H18 Underlying EBITDA up 32.4% to $53.5m, marginally below our $54.8m forecast. Currency movements had a negative impact in both North America and Asia and on a constant currency (CC) basis Underlying EBITDA was up a solid 35%. Timing of BSP payments again impacted cash flow, however adjusting for these payments saw operating cash flow conversion of 114%. A fully franked interim dividend of 15.0cps (BPe 15.0cps) was declared.

Solid organic growth contribution
EBITDA growth was split evenly between organic and M&A ($6.7m contribution each) implying CC organic earnings growth of 19.3% on pcp. The standout contributors to organic EBITDA growth (in $AUD) were ANZ up $2.7m (+17.5%) and Europe up $2.9m (+77.3%), followed by North America up $1.0m while Asia EBITDA was flat on pcp. North America was modestly below our forecasts however this was driven by a softer top line due to lower client activity, on a positive note underlying EBITDA margin expanded 220bp which was close to our 250bp forecast.

Guiding to top end of range
CTD has guided to the top end of the existing EBITDA range of $120-125m (our forecast is now $126.6m). We sit slightly ahead of the guidance range given the 2H skew in the business, our expectation for a pickup in North American client activity in the second half and continued strong momentum in the ANZ business.

Earnings Changes and Valuation
Following the result our EPS forecasts rise by 0.9%, 4.9% and 7.6% across FY18e, FY19e and FY20e respectively primarily due to lower effective tax rates in North America and higher EBITDA margins. Following these changes our Target Price rises to $27.10 (prev. $24.20). In our view the 1H18 result demonstrates CTD’s organic growth story is well and truly intact, we retain our Buy recommendation.