Ferronordic: Crippled by sanctions on Russia - ABG

Lack of CE imports means operations may come to a halt
’22e-’24e EBIT lowered by 68-95%
Fair value range down to SEK 29-48 (200-290) per share

Two normal months in Q1, and inventory to last until mid-Q3
We expect Q1 sales of SEK 1,434m, +13% y-o-y (+12% organic, -3% FX, +4% M&A) and EBIT of SEK 79m, for a margin of 5.5% (6.3%). In Q1 the company had two normal months prior to sanctions being levied on Russia in late February, which crippled the company’s Russian operations. Ferronordic still has construction equipment (CE) and spare parts in inventory that we expect will last until mid-Q3, and as such earnings should be somewhat stable for H1’22e. We also expect Germany to turn profitable at EBIT-level in Q2’22e.

’22e-’24e EBIT down 68-95% on major impact from sanctions
Ferronordic’s main supplier (Volvo CE) has indefinitely suspended its deliveries to Russia following sanctions on the country. The operations currently ongoing in Russia/CIS, to the best of our knowledge, are: 1) Contracting Services (17% of ’21 sales, we estimate that contracts will run out in mid-2023), 2) imports of Mecalac and Dressta equipment and spare parts (we estimate ~10% of sales), 3) sales of existing inventory, and 4) Kazakhstan (we estimate 1-2% of sales). After summing up the ongoing operations, we lower group EBIT by 68-95% for ’22e-’24e

New fair value SEK 29-48 (200-290), Germany now the focus
Because the future is highly uncertain for the Russian operations, we now focus primarily on the German business. For Germany, we derive a fair value range of SEK 23-42 per share, arguing that a 5% EBIT margin should be reasonable in a “steady-state”. For Russia, we expect only limited operations to continue past ’22e and thus foresee difficulties for the company to maintain a positive EBIT despite cutting opex. As such, we apply 1x EV/EBIT to our ’22e EBIT estimates for Russia/CIS, for a fair value per share of SEK 13. Including the group’s net debt, our new fair value range for the company amounts to ...
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