Ferronordic - Superior resilience in challenging conditions
34% organic growth, but a 29% adj. EBIT decline Not to be extrapolated; EBIT down 2-1% for ‘21e-‘22e 6-3x EV/EBIT ’21e-‘23e, 23% adj. EBIT CAGR ‘20-‘23e Impressive organic growth; FX and revenue mix negative Ferronordic’s Q4 report showed robust underlying growth. Group sales were SEK 1,185m (3% vs.
ABGSCe, -1% vs. Infront consensus), up 23% y-o-y (34% org, 24% M&A, -35% FX) driven by 17% growth in new units sold in Russia/CIS (vs. the market at +5%) on the back of additional market share.
Adj. EBIT was SEK 73m (-29% y-o-y) for a margin of 6. 2% (ABGSCe 8.
0%, cons 7. 1%). This was primarily due to a 5.
2% gross margin decline, driven by a less favourable revenue mix in Russia/CIS as well as ramp-up costs in contracting services. Management expects these factors to remain in place during H1’21, before seeing a more normalised situation in H2’21. We also expect continued AM growth and lower FX tailwinds to support a normalisation of gross margins.
COVID-19 hurt the German operations, as renewed lockdowns held back customer interaction. Overall, cash flow generation remained strong and FCF came in at SEK 161m (vs. a net profit of SEK 44m).
Small estimate changes, new targets reflect ambitions The Board updated the company’s financial targets and proposed a DPS of SEK 7. 50 (50% pay-out ratio). The main aspects included the doubling of sales by 2025 (15% CAGR) with an EBIT margin above 7% (7.
1% FY’20, ABGSCe 9. 0% FY’23e). We like the new targets, and note that the past five years have seen the company deliver a 22% organic sales CAGR (28% adj.
EBIT CAGR). To conclude, we keep our estimates relatively intact, but lower adj. EBIT by 2-1% for ‘21e-‘22e due to a slightly more negative mix effect.
We now forecast an adj. EBIT CAGR of 23% for ’20-‘23e, with Germany reaching positive full-year EBIT in 2022e and a ROCE of ~30% over the same period. 6-3x EV/EBIT, 9-15% lease adj.
FCF yields, ~30% ROCE We argue that Ferronordic has over time proven its ability to generate.
