Ferronordic: Moving the Sandvik deal to Germany - ABG

Sandvik mobile crushers & screens deal in Germany

Should ramp up to ~15% of German sales, says company

We do not expect a compensation payment from Sandvik

Partnership with Sandvik in Germany and Kazakhstan
The dealership agreement between Sandvik and Ferronordic in Russia (for Sandvik’s crushers & screens) has been terminated, and a new service and sales agreement has instead been signed for Germany and Kazakhstan. The agreement is effective immediately, and the company expects it will ramp up to be ~15% of German sales (which will likely take a few years), as well as 10% of Kazakh sales (we estimate KZ is only a few percent of group sales). To our understanding, margins for these products will be in line with the rest of the German business, i.e. lower than in Russia, due to the higher competition on the German market. Therefore, the EBIT effect once the contract reaches full run-rate should also be +15%. We did not have any additional deliveries from Sandvik to Russia in our estimates, so there is no negative effect from the termination of the Russian deal.

We do not expect a compensation payment from Sandvik
When Volvo CE terminated its Russia agreement with Ferronordic, it paid out a compensation fee of SEK 321m for incurred and potential costs. However, since Ferronordic’s partnership with Sandvik had just started ramping up in Russia, we do not expect a similar payment from Sandvik.

Trading at 2x ’22e EV/EBIT (adj.), goes to 9x in ’23e
On our current estimates, the share is trading at 2x ’22e EV/EBIT (adj.). After that, we expect a significant earnings decline as inventory runs out in Russia. In ’23e, EV/EBIT goes to 9x on our estimates.
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