Hanza - Headed for calmer waters

EBITA 11% below ABGSCe We lower ‘21e-‘22e EBITA by 2-4% New fair value range, SEK 12-22/share Sweden highlights the margin potential HANZA delivered soft numbers compared to our expectations. Sales were SEK 494m, 7% below ABGSCe. Key Markets (Sweden, Germany, Finland) was the main reason behind the miss, as it came in 21% below our forecast. We believe that the slowdown of the textile industry affecting a key customer (SEK -25m effect) in Germany, combined with the lockdown, were the primary culprits.

Note that Sweden, the largest market, managed to deliver a strong quarter with EBITA margins of 9%, compared to segment margins of c. 4%. Other negative sales effects included SEK 25m from the restructuring in Q2’20 and SEK 17m from FX.

On the other hand, Other Markets managed to beat expectations on sales and EBITA by 16% and 45%, respectively. Well-positioned for a recovery We lower sales by 4% and 5% for ‘21e and ‘22e, respectively, based on continued headwinds and updated FX assumptions. Looking into ‘21e, we expect that HANZA is in a good position to capture growth as uncertainties settle, and that the several new customer contracts announced during 2020 should start to show in the numbers.

We expect sales growth in ’21 of 5%, and increase our EBITA margin assumptions by 10bp to 4. 5%. The Swedish cluster managed to deliver 9% EBITA margins this quarter, and it should continue to deliver strong results while we see a strong recovery for the lagging German region lifting overall margins, and underpinning our margin estimates.

Additionally, Other Markets has shown an encouraging margin trajectory over the past quarters, which should continue into 2021 with recovering volumes. Fair value of SEK 12-22 per share The stock is trading at 10x EV/EBIT ’21e, and we expect it to generate 14% FCF yields for ’22-’23. Based on our three-scenario model, we estimate a fair value range of SEK 12-22 per share.