Ferronordic: Germany still lagging - ABG

* Q3e: some US improvement q-o-q, Germany remains negative * Estimate cuts driven by continued subdued demand in Germany * Trading at 14-10x '26e-'27e EV/EBIT (peers at 15-14x) Q3e: sequentially better in the US, Germany still negative We expect Ferronordic to report Q3 net sales of SEK 1,091m, down 4% y-o-y, and adj. EBIT of SEK 13m, for a margin of 1.2% (2.8% in Q3'24, 0% in Q2'25). The sequential EBIT improvement stems mainly from the US segment, where higher rental fleet utilisation drove unusually high costs during Q2, an effect that should normalise in Q3e. We also see slight improvement on the gross margin in the US, which has been under pressure from both adverse mix and pricing effects recently. Meanwhile, Germany's EBIT contribution is expected to remain negative at SEK -7m. Estimate cuts once again driven by Germany German manufacturing PMIs remain sluggish at sub-50 levels, and we still see no clear signs of a near-term turnaround, leading us to again lower our estimates for Germany. For '26e-'27e, we still model positive EBIT in Germany (with 1.0-1.7% margins), although we highlight that since the company is done cutting costs, this improvement is contingent on an improved market environment driving top-line growth. For the other segments we only make minor estimate revisions, and at the group level, this results in a 30% cut to '25e EBIT, followed by 4% cuts for '26e-'27e. 14-10x '26e-'27e EV/EBIT, high leverage the main issue The share is trading at 14-10x '26e-'27e EV/EBIT, which can be compared to our distributor peer group that trades at 15-14x. However, our main concern in Ferronordic is the high leverage at 129% net debt/equity, per the Q2 report. Given Volvo CE's stated ambition to consolidate its US dealership network, we see solid long-term prospects for Ferronordic to execute on its strategy of US expansion, but we argue that this is hindered in the near term by the high leverage, which needs to come down before growth can be prioritised.

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