Nordic Waterproofing: Market recovery looking sluggish - ABG

- Q2e: lower top-line y-o-y, but strong GM supports EBIT
- EBIT down 5-4% on slower assumed market recovery
- Share trading at 14-10x '24e-'25e EV/EBIT

Q2e: lower top-line y-o-y, but strong gross margin
We expect Nordic Waterproofing (NWG) to report Q2 sales of SEK 1,208m, down 7% y-o-y (all organic), representing a broad-based decline in both segments, but more pronounced in Installation Services. With bitumen prices down somewhat y-o-y, however, we expect a fairly strong gross margin. As such, we estimate EBIT will rise slightly y-o-y to SEK 146m despite the lower top-line, for a margin of 12.1% (11.0%).

Market recovery pushed back, '24e-'26e EBIT down 5-4%
Our prior estimates assumed that an improving market would boost organic growth for NWG starting in Q1'25e. However, given that expectations for interest rate cuts have come down and newbuild data is currently not showing many signs of improvement, we believe that a recovery in early 2025 looks optimistic considering that NWG typically sees sales ~2-3 quarters into a newbuild project. We now push the estimated recovery into H2'25e, which lowers '25e-'26e EBIT by 4%; we also lower '24e EBIT by 5%, mainly driven by Installation Services.

Share trading at 14-10x '24e-'25e EV/EBIT
The share is currently trading at 14x EV/EBIT on depressed '24e earnings, but despite pushing back our earnings recovery somewhat, as outlined above, this still drops materially to 10x for '25e. The share also offers a lease adj. FCF yield of 7-9% for '24e-'26e. Finally, we note that since our last update, there has not been any new communication from Kingspan following its unsuccessful mandatory bid that expired on 27 March, where Kingspan only managed to accumulate an additional 4.8% of shares in NWG.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/nordic-waterproofing/Equity-research/2024/7/nordic-waterproofing---market-recovery-looking-sluggish/