Nolato - Steady as she goes

1% adj. EBITA beat vs. consensus Relatively unchanged estimates 16x ‘22e EV/EBITA on 15% EBITA CAGR Lower volumes, higher margins Nolato’s Q2 report was mostly in line with expectations. Sales were on the low side at SEK 2,786m, 2% below ABGSCe and 3% below Infront consensus.

Both Medical Solutions and Industrial Solutions faced challenges in the quarter, coming in 3% and 6% below our expectations, respectively. Medical Solutions was negatively affected by capacity constraints for the diagnostics subsegment, which is seeing high demand, while other areas such as surgical are still negatively affected by the pandemic. Industrial Solutions faced more significant supply chain disruptions than we had expected.

However, Integrated Solutions performed well, as it has for several quarters in a row, coming in 2% better on sales and 7% better on EBITA this quarter. Despite falling short on volumes, Nolato managed to deliver an adj. EBITA of SEK 336m, or 1% above consensus, on the back of a solid 12.

1% EBITA margin (we expected 11. 5%). There was a positive NRI of SEK 50m this quarter related to GW plastics and government loans, but this falls to the previous owners and has no impact for Nolato.

Minor estimate revisions with shortage downside We raise our adj. EBITA by 1% for ‘21e, and lower it by 1-2% for ’22-‘23e as we fine-tune organic growth, margin assumptions and FX. Nolato guided for sequential growth in Integrated solutions for Q3’21 (we expect 5%), but mentioned a risk of falling short due to component shortages.

This is also a risk for plastics as a category due to chemical companies lacking capacity. We are relatively confident that Nolato can handle these issues. We are positive on Nolato’s long-term prospects Nolato is now valued at 16x ‘22e EV/EBITA, 42% below compounder peers with similar financial performance and 20% below manufacturing peers.

For example, Nolato has 17% EBITA CAGR over the last 10 years (and M&A headroom of SEK 5bn ‘22e, able to su.