Nolato: Headwinds in Integrated Solutions - ABG

Guiding for -20% q-o-q growth in Integrated Solutions…
…and largest customer might switch to dual sourcing
14x ’22e EV/EBITA, fair value SEK 60-100 (80-120)

Q1 EBITA ~10% above pre-announced numbers
Nolato reported Q1 sales of SEK 2,879m (+8% vs. ABGSCe 2,665m, +7% vs. Infront consensus 2,690m), up 9% y-o-y, of which +1% organic (ABGSCe 0%). EBITA was SEK 267m (+12% vs. ABGSCe 239m, +10% vs. cons 242m), which was ~10% above the pre-announced EBITA and resulted in a margin of 9.3% (ABGSCe 9.0%, cons. 9.0%). The company is guiding for -20% q-o-q growth in Integrated Solutions in Q2, with a similar margin as in Q1, implying a Q2 EBITA 30% below our prior estimate for the segment (the deviation is ~3% of ’22e group EBITA).

EBITA down 10% on lowered Integrated Solutions estimates
In Integrated Solutions, the negative q-o-q trend into Q2’22 is driven largely by lost sales in Eastern Europe, a meaningful end-market for vaporiser heating products (VHP), and these lost sales are not likely to come back for some time. However, we also note that Q1 Integrated Solutions sales were greatly affected by component shortages, which we estimate will get better from H2’22. In addition, Nolato’s VHP customer is assessing a potential dual sourcing option rather than sourcing only via Nolato (we estimate VHP to be ~80% of Integrated Solutions and ~35% of group sales). With the above, we take a more conservative view on Integrated Solutions, and we lower the segment’s EBITA by 23% for ’22e-’24e, which results in a 10% downgrade on group EBITA.

Uncertainties for VHP, but expectations have been lowered
Given that Nolato’s VHP customer is yet to decide on its sourcing strategy, we (and likely also Nolato’s management) still do not know exactly to what extent this will affect earnings. With that said, we note that expectations have been lowered, as the share is down 43% YTD. Also, if we apply a 20x and 10x ’22e EV/EBITA to Medical and Industrial Solutions, respectively, in an SOTP valuation, Integrat ...
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