Ferronordic - The post-Russia renaissance - ABG
Russian divestment leaves ~SEK 800m net cash
On 23 December 2022, Ferronrodic announced the divestment of its Russian operations (~80% of sales, ~100% of EBIT), gaining SEK 1,090m in cash (SEK 75/sh), taking our estimated '22e net cash position to ~SEK 800m. Since the majority of the market cap now sits in the cash position rather than the remaining German and Kazakh operations, the key question is how this cash will be used; we have a '22e DPS of SEK 8/sh, assuming the majority of the cash will be used for M&A. For Q4e, that last quarter including the Russian business, we expect sales of SEK 1,149m, down 32% y-o-y (-64% org, +31% FX, +1% M&A), and adj,. EBIT of SEK 43m (116m), for a margin of 3.7% (6.8%). We expect discontinued net profit from Russia of SEK 26m, with SEK -2m from the remaining business.
Estimates changed to reflect new, smaller operations
Operationally, Ferronordic now becomes a much smaller entity, with its remaining German and Kazakh operations generating annual sales of ~SEK 2bn, and it is currently around break-even on EBIT.
Valuation update: fair value range SEK 85-100 (35-55) per share
We step away from our prior SOTP valuation, which we mainly used as a tool to isolate the value of the now divested Russian business. We now argue that the remaining business should be valued similarly to industrial distributor peers, as the reason for Ferronordic's historically lower valuation was its high-risk Russian exposure. By applying an EV/EBIT range of 8-12x to the average of our '23e-'24e EBIT (to capture the EBIT growth in the still immature German business), we derive an EV range of ~SEK 440-660m. After adding the '22e net cash position, twe get an equity value range of SEK 85-100 (35-55) per share.
Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ferronordic/Equity-research/2023/2/ferronordic---the-post-russia-renaissance/