Nordic Waterproofing: Strong demand continues for now - ABG

Q2 report due Tuesday, 19 July
High estimate uncertainty going into ‘23e…
…but we find several reassuring elements

Q2 expectations – strong momentum continues
We expect the strong momentum seen in Q1 with high levels of demand to have continued in Q2, supported by factors such as the May Swedish construction confidence indicator at 105.4, down 2.4 from 107.8 in April but stronger than normal. Additionally, we expect to see a meaningful contribution from price increases on organic growth (19% org. sales growth whereof 13% is from price increases in Q1’22). All in all, we expect sales of SEK 1,255m, up 18% y-o-y (12% org, 3% FX and 3% M&A). We forecast cost inflation to have continued, although not as broadly as before (e.g. management report that input prices for wooden prefabricated elements have come down q-o-q). We expect NWG to have continued offsetting cost inflation with additional price increases, thus defending the high margins. We estimate adj. EBIT of SEK 186m, corresponding to a margin of 14.8% (15.0%).

‘22e-‘24e ests. up 4% on M&A and FX – outlook uncertain
We raise our ‘22e-‘24e adj. EBIT est. by 2%-4%, mainly on FX and the acquisition of VKP in Finland. We acknowledge the estimate uncertainty into ‘23e given a weaker construction outlook on rising material prices and interest rates. For example, Skanska announced a slower market outlook for residential construction in conjunction with its Q1’22 report. However, it reiterated its stable market outlook for non-residential buildings in the Nordic region, and we note that 70% of the value of the total waterproofing market in the Nordic region can be attributed to commercial properties and infrastructure. Additionally, 50% of NWG’s sales come from renovation, which has proven resilient to economic downturns (e.g. the Nordic renovation market did not decline during the ‘07-09 downturn, while the new construction market decreased by 27%). In an event of a significant decrease in volumes, we note that NWG’s COGS is ...
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