Ferronordic: Rising from the rub(b)le - ABG

Q2 report due on Wednesday, 17 August Major Q2 RUB rally partly offset by lower prices Fair value SEK 33-53, 6x ’23e EV/EBIT

Extreme RUB volatility and continued inventory sell-off We expect Q2 sales of SEK 1,507m, down 5% y-o-y (-28% org, +21% FX, +2% M&A). The RUB rallied sharply against the SEK in Q2, but we note that part of the FX tailwind will likely be offset by lower prices (in RUB). We foresee continued strong organic growth in Germany (+17%), but the outlook for the Russian operations is still highly uncertain. For Q2, lack of inventory should not be an issue, but we expect inventory of new and used Volvo CE machines to be depleted by mid-Q3, while spare parts supply (for aftermarket sales and maintenance of Contracting Services machines) should at least last into ’23. We expect EBIT of SEK 83m, for a margin of 5.5% (9.0%). It is likely that opex in Russia will be gradually lowered going forward as the organisation is scaled down, but we believe that this effect will not be seen yet in Q2. For Germany, we estimate a SEK -3m contribution to EBIT for the quarter.

Raised FX component partially offset by lower prices We raise our ’22e-’24e EBIT estimates by 23-33%, mostly a sales-driven upgrade following the RUB rallying during the quarter, which in turn is partially offset by lowered prices. We continue to see a significant sales decline in Russia in ’23e as operating the Contracting Services segment becomes more difficult (we estimate a hard stop in mid-’23 and see any sales beyond this as a “bonus”). Our current estimates include Germany reporting its first quarter of positive EBIT in Q4’22 and reaching EBIT of SEK 54m (2.6% margin) in ’24.

Fair value SEK 33-53 (30-50) on raised Russia/CIS estimates Due to extreme uncertainty in Russa/CIS beyond ’22e, we value the segment at 1x ’22e EV/EBIT. For Germany, our lower end applies 8x EV/EBIT to our ’24e estimates, while our high end applies 8x EV/EBIT to ’26e earnings, when we estimate a “steady” EBIT margin of 5.0%. A ... Läs mer på ABG Sundal Collier

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