Ferronordic: Bumpy road ahead - Nordea

Ferronordic delivered a decent Q1 report with earnings significantly stronger than expected (EBIT 41% above our estimate and up 30% y/y). This was driven by Russia/CIS, however, which we expect to materially decline ahead. For the German operations, where most of our fair value is derived, sales were 5% below our estimate and the EBIT loss was larger than expected, but the company reiterated its 2022 guidance for positive EBIT in Germany. Ferronordic released April sales figures for Russia, which we find supportive for our 2022 estimates. We raise 2022E EBIT by 27% due to the the Q1 beat. We lower our SOTP-based fair value range to SEK 21-49 (22-51), however, with the lower end based on our 2023 estimates and an inventory sell-off in 2022 valued at 1x EBIT, while the upper end includes Germany at a 5% margin (up from 1.7% in 2023E, adds SEK 28 per share at 7x EBIT). We also find SEK 106 in value uplift if suppliers return to Russia (at 3x EBIT). The 2023E valuation is now 5.6x EV/EBIT, with an implied WACC of 35% and a 3% dividend yield. Marketing material commissioned by Ferronordic.

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