Nordic Waterproofing - 2021: Focus on M&A growth

5% organic growth, 3% adj. EBIT growth ’21e-’22e sales up 5-6% on acquisitions 12x EV/EBITA ’21e on 10% historical EBITA CAGR Y-o-y improvement, but less than we expected Nordic Waterproofing delivered strong volumes, showing no signs of being slowed down by the pandemic. Sales were up 1% y-o-y, to SEK 769m, driven by 5% organic growth (ABGSCe 3%). For the first quarter in 2020, the company disappointed on earnings, with EBIT of SEK 65m (13% below ABGSCe at SEK 75m).

Products & Solutions was the main culprit for the earnings miss: the EBIT margin of 8. 5% was well below ABGSCe at 11. 3%.

The lower margins were a result of both lower gross profit and higher operational costs. However, management noted that the slight uptick in operational costs were non-recurring in nature, and they should return to normal levels already during the next quarter. Margins to come down in ’21e We raise ’21e and ’22e sales by 5% and 6% after adding the two acquisitions into our numbers.

However, this barely makes a dent on ’21e EBIT estimates because we have lowered our margin assumptions for Products & Solutions (and the larger acquisition is within the lower-margin business of installation services). Pricing was stable in 2020, but raw materials collapsed. Naturally, this was an important component of the uptick in margins.

However, with 46% raw materials hedged at higher levels for ’21, and the increase in bitumen prices seen in Q4’20, we assume lower margins in the coming quarters as COGS increase. In the Q3’20 report, NWG guided for three acquisitions in the next six months. It has delivered on two acquisitions; one medium (c.

SEK 176m) and one small (c. SEK 10m), with the contribution from M&A totalling c. SEK 174m (5% growth) to ’21e sales.

We had expectations of c. SEK 300m in total from the three acquisitions and are looking for SEK 120m from the third. More M&A should be on the horizon We believe that the company can return to 10% EBITA growth, mainly supported by.