Nordic Waterproofing: Better to sell products than to install them - ABG

Q2 in line with expectations, estimates intact Strong M&A pipeline and balance sheet 8x EV/EBIT, attractive LT earnings growth potential Price increases driving organic growth of 11%
Q2 was fairly line with our estimates on sales and 3% below on adj. EBIT due to a minor margin miss. The Products & Solutions segment performed well, with org. sales growth of 15% (14% price and 1% volume), with its Bitumen, green infrastrucuture and synthetic rubber business showing strong growth while the prefabricated business was flat y-o-y, albeit at a high level. The Installation Services (IS) segment also showed good organic growth of 5%, although this was solely driven by price increases contributing 7%. The margin in IS, however, was sluggish at 3.1%, down 1.8 pp y-o-y (ABGSCe + 0.1 pp), explaining the small adj. EBIT miss (-3% vs. our ABGSCe). Management says the sluggish margin development is due to fierce price pressure in a fragmented market making it difficult to compensate for cost inflation.

Lower volumes in ‘23e partly offset by price increases We make only minor revisions to our estimates given the largely in-line results. The company does not provide any explicit guidance, but says that input costs have started to stabilise and that it sees signs of somewhat slower construction demand. Given that NWG is late in the construction cycle, declining demand should be visible Q4’22 at earliest. In the event of lower volumes (as reflected in our estimates from Q4’22), organic growth should be partly supported by recent price increases. Despite somewhat weaker-than-normal cash flows, NWG’s balance sheet remains strong with ‘22e ND/EBITDA of 1.1x, while management highlights a strong M&A pipeline, which could add to our estimates.

Trading 16% below L5Y avg on near-term worries The share is trading at ‘23e EV/EBIT 8x, ~16% below its L5Y avg. Although the outlook for ‘23e is uncertain, we believe NWG will be able to deliver strong EBITA growth for a long period, compounding through ... Läs mer på ABG Sundal Collier

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