AMS Osram - comment

A brief update ahead of AMS Osram’s analyst call this morning. The Q2 results were largely expected, following guidance from the recent tap issuance.

We recently reduced our exposure to the name following the tap issuance. Overall, today’s results are in line with expectations and are unlikely to materially impact near-term trading levels. We continue to anticipate a more favourable entry point in the coming months, as investors assess the implications of the issuance and recognise that the proceeds were primarily used to reduce RCF bank exposure.

Revenue came in slightly below our forecasts; however, stronger-than-anticipated cost savings led to improved margins, leaving EBITDA broadly in line with expectations. On the negative side, free cash flow was weaker than projected, primarily due to movements in working capital. We had expected a cash inflow based on last year’s working capital trends, but AMS reported a c. €100m outflow versus our forecasted €150m inflow. This was partly due to higher inventory levels, which is somewhat positive, as it reflects increased production in response to demand, and a €110m year-on-year reduction in trade payables. We will be seeking clarification on the latter during the call.

Guidance for Q3 is broadly consistent with Q2, implying slightly lower revenue but stronger EBITDA margins.