Ferronordic: Evaluating Russia divestment - ABG

Conducting business in Russia becoming more difficult Evaluating a potential divestment 2-7x ’22e-’23e EV/EBIT on pre-Q2 numbers

Q2 outcome
Sales were SEK 1,691m (+12% vs. ABGSCe 1,507m, +6% vs. FactSet cons. 1,597m), gross profit was 356m (+38% vs. ABGSCe 257m, +34% vs cons 266m) and EBIT 147m was (+77% vs. ABGSCe 83m, +71% vs cons 86). However, the positive FX effects that helped drive the EBIT margin beat were offset by FX hedges in net financials, leading to net profit of 32m (-43% vs. ABGSCe 56m, -48% vs cons 62m). Germany was 13% below our estimates on sales, and as expected is not yet profitable on EBIT-level. Most importantly, the company says it is evaluating whether to divest parts or all of the Russian business, which has not been explicitly stated before.

Estimate changes and outlook We do not expect major consensus EBIT upgrades despite the beat, considering that inventory of new and used machines is drying up, which should lead to a drop-off in sales during Q3 (although parts for aftermarket sales should last longer). Preliminary July sales figures for Russia amounted to SEK 392m (31% of ABGSCe Q3 sales). Finally, outlook for Russia is poor, as it is becoming difficult to conduct business, but for Germany demand is strong even though high energy prices pose a risk to the general economic situation.

Final thoughts and conf call details On our pre-Q2 estimates, the share is trading at 2x ’22e EV/EBIT, however following this, uncertainties are high and we expect a significant earnings decline, taking ’23e EV/EBIT to 7x. Finally, the company will host a conference call at 10:00 CET, dial-in SE: +46856642704, UK: +443333009273. The presentation can also be viewed at: https://tv.streamfabriken.com/ferronordic-q2-2022.

Läs mer på ABG Sundal Collier

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/ferronordic/Equity-research/2022/8/ferronordic---evaluating-russia-divestment/