Nordic Waterproofing - Hot streak to continue in Q2

Q2 report on Tuesday, 20 July at 08:00 CET EBITA up 6% ‘21e-‘23e on higher margin assumptions 12x EV/EBITA ‘22e and 6% lease adj. FCF yield Q2 expectations Nordic waterproofing (NWG) should have a solid Q2’21 despite extremely challenging comps. We expect sales of SEK 1,016m, +7% y-o-y (+3.5% organic, -2% FX, +6% M&A). The Nordic construction industry is seeing continued strong momentum, as highlighted by the upgraded guidance from Finnish construction supplier Kesko, Danish paint company Flugger and Swedish builder’s merchant Byggmax.

NWG should be seeing rising input costs, primarily from increased lumber costs. The only direct lumber exposure is the wood-based prefab elements, and we expect that the company secures the cost of materials as it confirms an order, so there should be no negative margin impact. We also expect that it has been able to transfer raw material costs for its Bitumen products, keeping margins at a high level and supporting organic growth.

We forecast adj. EBITA of SEK 147m for a margin of 14.5% in Q2’21 (11.3% Q2’19, 14.9% Q2’20). Estimate changes We raise our EBITA estimates by 6% ’21-‘23e, partly on increased organic growth assumptions for Products & Solutions, but primarily on higher margin assumptions for the segment based on less price/cost pressure than we expected.

Anatomy of a M&A compounder at 12x ‘22e EV/EBITA In our view, NWG will be able to deliver strong EBITA growth for a long period, compounding through reinvesting FCF from its cash-generative roof felt business in M&A at attractive returns. It is currently trading at 12x EV/EBITA ‘22e, compared to M&A compounders (Lifco, Indutrade, Lagercrantz, Addtech) at 28x EBITA. Note that NWG has delivered 15% EBITA CAGR over the past five years (7% CAGR from M&A), in line with M&A compounders..