Ferronordic - Expect a decent end to 2020
Q4’20 due on 19 February, 07:30 CET Est. down 3-1% ’20e-‘22e, impact from lower activity 6x EV/EBIT ‘21e, 11-13% lease-adj. FCF yields ‘21e-‘22e Q4’20 expectations We expect Ferronordic to deliver Q4 sales of SEK 1,150m, up 20% y-o-y (17% org, 28% M&A, -25% FX) on softer Q4’19 comps. We note that while the Russian ruble has weakened recently, Ferronordic has historically been able to gain market share vs.
international competitors when the ruble was weak. According to market data (AEB), the number of new CE units sold in Russia held up during Q4’20, rising by 1% y-o-y (+0. 8% in Q3’20).
All in all, we expect adj. EBIT to decline by -10% y-o-y to SEK 92m, for a margin of 8. 0% (10.
6%). We assess that earnings will likely be held back by overall lower market demand as well as the negative earnings contribution from Germany. However, we expect positive momentum to continue for the AM and contracting services businesses, and forecast 14% and 20% org.
growth in Q4’20, respectively. This should support margins, in our view. Finally, we expect Ferronordic to deliver a 2020 DPS of SEK 5.
00 (~30% of FY’20e EPS). Estimate changes and outlook We keep our estimates relatively unchanged but lower EBIT by 3-1% for ‘20e-‘22e, as we factor in slightly lower market activity. In addition, the organic resilience within the aftermarket business is still affected by the weakness of the ruble.
However, we expect to see increased M&A and market activity in Germany, contributing to a solid foundation for earnings growth. All in all, we forecast a ’19-‘22e sales CAGR of 16% and an adj. EBIT CAGR of 13%.
6x EV/EBIT ‘21e on low financial risk and positive outlook We maintain our optimistic view on Ferronordic, as financial risk remains low (neg. ND/EBITDA in ‘21e) and the firm has a robust aftermarket business, while long-term fundamentals for the CE markets remain in place. The share is up c.
21% L6M, trading at c. 6x EV/EBIT ‘21e (5y historical avg. of ~7x), with lease-adj.
FCF yi.
