H1 2021 results comment

So, RBL share price had again a severe correction today.
Looking at these results (mainly Q2 as Q1 was already known), I found them quite good, with a strong top line growth in Q2 (+ 84 %) and again a clear operating leverage (EBITDA margin went from 2.6 % in Q2 last year to 11.2 % in Q2 this year).

So I tried to figure out what are the elements the market did not like :
- "lower margin for the month of December",
- decrease of the gross margin qoq from 43.7 % in Q1 to 38.7 % in Q2.
If I understood well the company's explanation (need to read their transcript to check), there was some delays in December. So a lot of customers went for express shipping, but the company does not take any margin on express shipping.
The main point here is that the company considers this as a specific problem for December and does not expect any further impact.
In fact, the company has reiterated that they expect a "normal" gross margin of around 40 % going forward.

Overall, Q2 EBITDA was 23.1 m (vs 25.7 m for Q1), while I saw some expectation for a Q2 EBITDA of 35 m.
To be honest, Q2 should be higher as it is expected to be the strongest quarter of the year.

Once again, the key element for me is the level of cash generation. During Q2, they increased their level of net cash by 45 m (qoq) which was above expectation.
The problem with their cash generation is that a significant part of the cash flow in Q2 came from the working capital impact (around 20 m+ here), which will reverse during the next quarter.
This is a normal seasonality for them as they receive a large part of their cash from customers in Nov/Dec and pay a significant part of their suppliers (designers and fulfillers) during the next quarter (Jan-March).

So the difficulty with them is to estimate the cash flow/free cash flow for the year, as we can't annualize their H1 figures.
Based on my estimates, they should generate at least 90 m of FCF in FY 21 (vs 75 m during H1).
This still represents a free cash flow yield of 6.3 %.
Decent figure given the growth of the company.