Eurocon - Order intake on the up going into 2021

Solid EBIT, but customers were still cautious in Q4 Raised margin assumptions offset lower sales Cyclical business trading at ‘21e EV/EBIT of 11. 2x Q4: Net sales of SEK 64. 7m (-0. 9% y-o-y) Eurocon reported Q4 net sales of SEK 64.

7m (65. 3m), which was 8% below ABGSCe. In our forecast we factored in the relatively weak Q4 ’19 but were too optimistic about how the second wave of COVID-19 would affect customer demand.

The y-o-y decline in sales was clearly better (-0. 9%) in Q4 compared to the rest of 2020 and mgmt. said in the report that it saw increased order intake in Q4 after an otherwise challenging year on that front.

Further, Eurocon said that there are more investment decisions to be made among its customer’s in H1 2021 that can lead to more business being generated. Another positive was that EBIT held up well and was SEK 2. 7m (-2.

4m), corresponding to an EBIT margin of 4. 2%. This was slightly better than our SEK 2.

6m, but we forecast a margin of 3. 8%, which Eurocon beat by 0. 4pp.

We maintain our belief of a recovery in 2021 COVID-19 is still affecting daily lives but business is still being conducted, and we would be surprised if Sweden announced a major lockdown at this stage. Therefore we maintain our view of a recovery in 2021. This aligns with mgmt.

’s words on improved order intake, and in January Eurocon announced it had won a contract with SCA, involving 10-15 engineers. However, the miss on our sales estimates in Q4 makes us lower our sales estimates by roughly 3% for ‘21e and ‘22e. We were impressed by the improved EBIT margin in Q4 and raise our margin assumption, which offsets the decline in sales.

For ‘21e-‘22e, we raise EBIT by 1. 2-4. 1%.

Dividend yield of 4. 9-6. 9% for ‘21e-‘23e Eurocon should benefit from the world going back to normal as demand from its customers tends to be rather cyclical.

We think it is through the worst, and we forecast dividend yields of between 4. 9% and 6. 9% for the coming three years.

The stock is trading at an.