Nordic Waterproofing: Renovation stable while newbuild declines - ABG

Q3 report due Tuesday, 25 October

Price increases driving 7% org. growth in Q3

’23-‘24e adj. EBIT down 12-9% on lower exp. newbuild

A solid Q3…
Despite macroeconomic headwinds, we expect a solid Q3 given that NWG is late in the construction cycle. We estimate sales of SEK 1,155m, up 15% y-o-y, whereof 7% are organic (-5% volumes, +12% price), 4% FX and 4% M&A. We expect the strong momentum within the waterproofing products to continue, whereas prefab should be somewhat slower given a higher exposure towards newbuild (90%) vs. renovation (10%). We forecast adj. EBIT of SEK 140m, 0% y-o-y, for a margin of 12.1% (14.0%). The group margin decline of 1.9 pp y-o-y is solely explained by the Products & Solutions segment (-2.2pp y-o-y) whereas we expect Installation Services to have a flat margin y-o-y.

…but ‘23e seems more challenging
NWG has a 50/50 split between newbuild and renovation. Within newbuild, we estimate ~70-75% is towards commercial properties, ~15-20% residential and 10% community properties. Looking into ‘23e, we expect a volume decline in NWG’s sector-weighted newbuild exposure of 20% y-o-y, as rising energy and building material prices, higher interest rates and declining demand take their toll on activity. Meanwhile, we expect renovation volumes to stay resilient (as they have historically been) and remain flat y-o-y. As such, we estimate a ~10% drop in volumes in ‘23e, partly offset by price hikes from ’22 spilling over into ’23, contributing 2% to full-year org. growth. Given a high share of variable costs in COGS (ABGSCe ~90%), we expect the ‘23e adj. EBIT margin to hold up fairly well at 9.8%, down 0.6 pp y-o-y. All in all, we lower our ’23-24e sales and adj. EBIT estimates by 8% and 12-9%, respectively.

10x ‘23e EV/EBIT, in line with 5Y avg.
On our updated estimates, the share is trading at 10x ‘23e EV/EBIT (in line with its 5Y avg – trough at 7x and peak at 15x). Looking ahead, we forecast a ’21-‘24e adj. EBIT CAGR of 4%. Given the solid balance sheet, ...
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