AKKA Technologies S.E. (AKA.PA): A Small Cap With High Aims.

Oct. 11, 2014 1:19 PM ET
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  • The slow European recovery, alongside its "Transformation Plan", weighed on the 1st Half 2014 results of AKKA Technologies S.A. (AKA.PA). It has only generated a turnover of 0.6% comparing with the same period last year.
  • The Board's strategy shows that the company is on the right track as they chose to accelerate the expansion of the firm outside of Europe. They have also established a midterm objective of €1.2B in term of operating income growth.
  • On a yearly basis, we project €28 as an objective with highs as high as €31.24 and lows that may reach €23.8.

AKKA Technologies has published its 1st half 2014 results on September 18, 2014. Its net profit decreased €3.2 m comparing to the same period last year, where it generated a net profit of €14.7 m. Its operating margin, also, fell 3.79% comparing with the same period last year. Still, the company has managed to generate a turnover of 0.6% more than the 1st half 2013. In July 2014, the company distributed €0.55 per share in dividends, up 5.77% from last year's 0.52€ per share.

The morose economic environment, as well as the delay of a project, in France, affected the company's earnings. But they were compensated by the recovery of MBtech as it soared 9%, with an operating margin 4.1% higher than the 0.6% on the same period last year.

The company has stated that it will pursue its transformation plan known as "PACT 17" in order to optimize its ability to answer the needs of its global customers. Thus, reducing its exposure to Europe's slow economy. The plan was launched in 2013 to increase the company's transnational and international expansion.

AKKA Technologies followed up on its strategy of expansion so far, as it is projecting that, in 2018, 20% of the company's turnover will come from global customers and 40% from Germany. In 2010, the company made 87.5% of its turnover in France and 3% in Germany. In 2014, 35% of AKKA Technologies turnover came from Germany and 14% from international customers. It clearly shows that the company is reaching out to customers outside of France and Europe with a very strong penetration rate in Germany throughout its subsidiary, MBtech, which was bought in 2012.

The mobility and transportation activities of AKKA Technologies represent 82% of its total sales. The partnership signed on October 3, 2014 with Dassault Systems is an important step towards the differentiation of the company's offer. It will boost the competitiveness of the company by offering more sophisticated products to its customers. In the terms of the deal, Dassault Systems will give AKKA Technologies its cloud-based 3D Exp platform. This partnership will spur the company's innovation ability on the market of connected and autonomous vehicles.

The Board of AKKA Technologies is projecting, in the midterm, that its operating income growth will double and reach €1.2B. If achieved, its betting that its operating margin will be around 8% to 10% with a profit of €100m. The Board is decisive in reaching those aims, while preserving a healthy balance sheet, with an under control gearing. Its current gearing is around 41%. If we consider the current low borrowing costs environment, 41% is a moderate rate for a small cap.

The Board's midterm objectives sound feasible according to its historical performance. For the past 10 years, its Market Capitalization has tumbled 4.6 times, reaching €460m. Its turnover has grown 13 times and its profits 17 times. AKKA Technologies is a fast growing small cap. It has managed to maintain its profitability in a gloomy environment and integrate MBtech in 2 years.

Though earnings grew slowly, the costs of the Pact 17 and the efforts to restructure the entity to make it more resilient to accelerating growth weighed on its statements. According to Portzamprac, a French based broker that tracks the equity, the H1 2014 results were undermined by the costs of the Pact 17. Throughout the 1st half, the company had to add €7m of non-recurring costs out of the €10 m that should be paid at the end of 2014. The Transformation Plan will re-profile the offer, as underperforming and non-core offers will be abandoned. The program will improve the staff training and increases the Group's flexibility in managing large projects, which will make the Group a best leader in Class. Portzamprac is projecting an annual growth of 1.3% at the end of 2014, which means a better 2nd semester.

AKKA Technologies is a small cap based in Paris, France. It provides engineering and technology consulting services in France and on a global scale. It was established by its current Chairman and CEO, Maurice Ricci, in 1984. At the end of 2011, it bought MBtech, its German rival, which gave AKKA Technologies a better position on the German Market. Over the past 11 years, the company's Turnover went from €66m to €879m at the end of 2013. Over the same period, its operating income rose 17 times reaching €57.9m at the close of 2013. Its market capitalization, on the 18th of September 2014, has reached €460m soaring from €100m in 2005. It was transformed into a SOCIETAS EUROPAE in July 2014.

AKKA Technologies's previous performance and its ability to bear the integration of MBtech amid the slouchy economic recovery in Europe makes it a good investment with a promising perspective. On a yearly basis, the price of its shares achieved a performance of 25.05% reaching €27.1 at the close of 1 October 2014. After the publication of the 1st half results, Portzamprac raised its objective from €26.3 to €31, while Oddo&Cie, which also tracks the equity, lowered its objective from €26 to €25.

Although the year-over-year net profit of ALTRAN S.A. rose 1.5% and ALTEN S.A.'s fell 5.12%, the performance of AKKA Technologies stocks is still lagging behind its two main rivals, which stocks have had a performance of 34%, on a yearly basis. Which means the stock is undervalued in its sector of activity rising only 25% over the same period.

The range between €23 and €25 represent the safest entry levels. AKKA Technologies support levels are around €23.85 and €25.4. The latter is a very rough support level. A clear cut of this level will open the way to the €23.8 level. The equity's resistance levels are around €27.1, €28 and its all-times high, 28.8€.

On a yearly basis, the trend was bullish and the stock is still following it. The pursuit of this trend will lead to €31.24. A clear cut of the trend line will lead to €23.8. While waiting for the 2nd half 2014 results, €28 seems to be a sustainable primary objective.

By Ziad Aksamawati dit Arja

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