ISS (ISS DC) Denmark
Industrials
Iron Blue initiates coverage with a score of 29/60, which is top quartile (fertile ground for shorting). They highlight elevated use of provisions accounting (22% of FY22 PBT adj) and increased factoring of receivables (DKK1.3bn, up from FY21’s DKK1.1bn). FY22 profits benefitted from DKK122m Covid-19 grants and DKK15m net bad debtor provision release. Iron Blue also notes an unusual organic growth calculation methodology. Regarding governance, they flag overboarding by the Chair (9 other board positions), internal succession of both CEO and CFO, Audit & Risk Committee composition out of line with best practice, and above average non-audit payments to EY. In Iron Blue's report, they discuss a range of areas where disclosure could be improved.
Edition: 176
- 22 December, 2023
ISS (ISS DC) Denmark
Industrials
Manipulating its way to reaching targets - delivery on near-term objectives (predominantly FCF) has been driven by management’s "creative solutions". Competition, cost and wage inflation should maintain pressure on profitability. Simple cost analysis shows that sustainably lifting the operating margin towards the targeted 4% seems impossible unless costs are capitalised, provisions released or costs are reclassified to “other income and expenses”. Cash generation has been driven by deteriorating the quality of working capital. This will become increasingly difficult. At some stage stretched payables should reverse which will further increase debt. 50%+ downside.
Edition: 142
- 19 August, 2022
ISS (ISS DC) Denmark
Industrials
Q3 organic growth falls short, but once again management knows what the market demands by upgrading its margin and FCF outlook - Teun Teeuwisse continues to believe that ISS is a weak company with low profitability in a non-growing (even shrinking) market with high price competition. FCF generation was and remains unsustainable and eventually will lead to high cash outflows. In spite of all the artificial cash flow improvements, debt remains high and a serious issue.
Edition: 123
- 12 November, 2021