All-time-high EBIT, exceeded our expectations

Continued good demand and aftermarket lift estimates

Rapidly growing high-yielder with a net cash position

Surprisingly good leverage on strong growth
Ferronordic kept delivering above our expectations in Q3, with EBIT growing 60% y-o-y, for a margin of 10.1% (ABGSCe 8.6%). Organic sales grew 28% and the company gained market share in key product areas, which we expect to continue in Q4. The general market grew by 40%, mainly within smaller wheel loaders where Chinese competitors are more prevalent. The main surprise was the strong aftermarket development, where Ferronordic now seems to be able to leverage its, in our view, leading digital platform to capture service opportunities before clients’ machines experience any malfunction. Even though we don’t extrapolate the >10% margin, we believe that Ferronordic’s aftermarket and contracted service sales will continue to see strong momentum, thereby offsetting the dilutive margin effect from high growth in equipment sales.

Major EBIT revisions driven by better mix and volumes
The company reiterated its previous view that the market is unlikely to grow as much (in units) as it did during 2017 (c. 70%). However, the combination of increased confidence in the company’s aftermarket sales efforts, major infrastructure investments and demand within all end-markets, lead us to increase sales by 3-5%, and EBIT by 4-11%. The accretive EBIT effect stems from our belief that Ferronordic will still be able to reduce SG&A costs while keeping a stable gross margin.

High growth, 5x EV/EBIT ‘19e, 25% EBIT CAGR ’17-‘20e
We remain confident in Ferronordic being able to reach its 2021 targets (25% sales CAGR ’16-‘21e vs. ABGSCe 25%, EBIT margin 7-9% vs. ABGSCe 8.4%) due to the pent-up demand and the drivers mentioned above. If the company does not choose to use its net cash position for expansion activities, we believe there is a possibility of extraordinary dividends, which could imply div