Nordic Waterproofing: Waterproof pricing power - ABG

EBIT 113% better than ABGSCe, partly driven by…
…impressive pricing power with flat gross margin y-o-y
Fair value range of SEK 185-240

Good cost control resulted in strong operating leverage
NWG’s Q1 beat our expectations. Sales grew 30% y-o-y, of which 19% organic (13% price, 6% volumes). The P&S segment was strong, with 30% org growth (13% price, 17% volume) and the bitumen-based business showed strong double-digit growth on all four Nordic markets. Although difficult to quantify, we expect that volume growth was partly boosted by better weather compared to a harsh Q1’21. With the gross margin flat y-o-y at 26% due to NWG being proactive with price increases, coupled with strong sales growth, operating leverage was notable. The EBIT margin increased 3pp to 6.1% (3.1%), resulting in a 113% EBIT beat vs. ABGSCe. Although OCF was still muted by high inventory to secure raw material availability and higher finished product levels to secure delivery capabilities, it improved y-o-y to SEK -15m (-88m). The main reason for the improved cash flow is the improved operating result and a lower reduction in accounts payable compared to the previous year.

‘22e EBIT up 11%
We raise our ‘22e EBIT by 11%: 7% from the Q1 beat and 4% from slightly higher organic growth and margin assumptions. Management says that component shortages and cost inflation may get worse, and that demand may decrease – with the Russian invasion of Ukraine being the main reason. However, the company does not see any immediate signs of this or anything in the short term. We acknowledge the low estimate visibility, especially for ‘23e. We see upside risk to ‘23e from M&A (supported by a strong balance sheet) and intact margins y-o-y (we currently estimate a 0.7pp decrease), whereas the downside risk lays in a notable decrease in demand.

Trading at 10x ‘23e EV/EBIT
The share trades at 10x ‘23e EV/EBIT. NWG delivered a 13% sales CAGR in ’15-’21 (5% org, 1% FX and 7% M&A) and a 18% EBIT CAGR. We set a fair value rang ...
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