Ecoclime: Rate hikes a risk to Evertherm rollout - ABG

Q2 report due on Thursday 18 August

Higher ’22e opex, building for long-term growth

Evertherm fairly resilient, but not immune to rate hikes

Continued sequential growth in Circular Energy
We expect net sales of SEK 66m, up 66% y-o-y (+9% org, +57% M&A), with a continued ramp-up in Circular Energy, which we argue to be most important as this will be the main earnings driver in coming years. Although rate hikes pose a risk to Evertherm demand, as we discuss below, this should not affect Q2. Moreover, we expect softer margins as the company is in the process of increasing the opex base to facilitate long-term growth. As such, we expect adj. EBITDA of SEK 5.8m, for a margin of 8.8% (11.9%).

Raised opex assumptions for ’22e, ’23e-’24e unchanged
We lower ’22e adj. EBITDA by 23% (SEK -6m), an entirely cost-driven downgrade. We leave Evertherm sales estimates unchanged as the rollout so far seems to be going as planned, although we now expect that the cost base will need to grow more in ’22e to facilitate this growth. For ’23e-’24e, we make no changes, as we had previously modelled in an opex spike from ’23e onwards, which we have now essentially moved to ’22e.

The effects of rate hikes on Evertherm demand
Real estate companies tend to evaluate investments both on payback time and property value increase (NOI/yield). In this regard, higher interest rates do not affect the payback time of an Evertherm system, but the increase in property value becomes smaller when yields increase, which could have an adverse effect on demand. On the other hand, rising energy prices improve the unit economics of Evertherm. Also, we note that Evertherm is a system that competes on quality rather than price, with no heat exchangers on the market matching its recycle rate or low degradation rate. As such, the lack of equivalent-quality substitutes should, in our view, mean that Evertherm demand is relatively resilient (but of course not entirely immune to market conditions). Finally, on our estimate ...
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