Nordic Waterproofing - Solid margins (for now)
Sales 9% better than ABGSCe 2021e EBIT up 7% 6% FCF yield ’22e on historical 10% EBITA CAGR Products & Solutions continues its strong performance Nordic Waterproofing delivered stellar earnings in a seasonally weak quarter, as Product & Solutions continued its strong performance. Sales came in at SEK 704m, up 5% y-o-y (organic +2%, FX -4%, M&A +7%), and 9% better than ABGSCe. This was the tenth quarter in a row that sales came in better than expected, and as usual Products & Solutions was the main reason for the positive deviation. The segment grew organically by 8%, despite facing challenging comps.
This was due to strength in bitumen products in Norway, SealEco and Taasinge Group, which all experienced double-digit growth. Profitability was impressive, with EBIT at SEK 22m (vs. ABGSCe at -2m), despite Q1 often being an unprofitable quarter.
The beat was largely on the back of a solid gross margin of 26% (ABGSCe 23%). Input costs are rising, hampering margins We raise our ’21e EBIT by 7% as a result of the Q1 beat. Isolating the Q1 beat would result in a +8% revision, but we have reduced our margin assumptions for Q2/Q3’21 in accordance with management’s guidance to expect some degree of margin compression in the coming months due to raw material prices.
We now expect Q2’21 EBIT margins of 12%, compared with Q2’20 at 14. 4%. Additionally, we expect FY’21 margins of 9.
8%, c. 40bp lower than in FY’20. Raw materials prices are broadly rising, but NWG has hedged its exposure to bitumen, providing some margin protection.
Furthermore, the company has historically been successful in transferring costs to customers, although it has generally lagged about six months. We have indications that NWG has increased its prices by less than its competitors, and that opens up the opportunity to gain market share in Q2/Q3. Reliable compounder at 13x EV/EBITA ’22e NWG has over time delivered 100% avg.
FCF conversion and 15% avg. ROCE, from operations relatively insulated.
