Q4 report due on 12 February

Negative FX revisions partly offset by pricing tailwinds

Margin expansion in ’19e, 9x P/E ’19e, >5% div. yields

Raw material headwinds to persist in Q4, better Services
For Q4e, we expect sales of SEK 656m, up 18% y-o-y (2% organic, 5% FX, 11% M&A), mainly driven by acquisitions within Products & Solutions. We believe that demand has been stable across all regions (although flat in Sweden y-o-y), while Norway is expected to show positive organic growth for the second quarter in a row. However, we estimate that the price increases implemented earlier in the year will not be enough to offset bitumen headwinds during Q4e, resulting in a 20bp adj. EBIT margin contraction, since we also expect a considerable margin improvement within Installation Services y-o-y. As a result, we expect adj. EBIT to arrive at SEK 51m, for a margin of 7.8%.

Full-year guidance within reach, if normal weather conditions
The company has previously guided for adj. EBIT to “increase” vs. 2017 (SEK 208m) given “normal weather conditions”. We believe that the weather has been stable during Q4, which would result in the company likely increasing adj. EBIT y-o-y (we have +7%). We revise our sales estimates downwards by c. 2% for ’19e-’20e, mainly due to FX. EBIT is up slightly in 2019e, due to our improved confidence in NWG’s ability to implement price increases. Furthermore, should bitumen prices remain at current levels, we expect the company’s hedges to start providing headwinds first at the end of FY’19. For 2018, we expect NWG to raise dividends by 5% (c. 60% payout ratio), resulting in a DPS of SEK 3.95.

Margin expansion for the first time since ’16, M&A headroom
We believe that the effect of double price increases will already be visible in 2019, which is the main contributor behind the 100bp adj. EBITA margin improvement for 2019 vs. 2018. In turn, we expect adj. EBITA to increase by 17% and adj. EBIT by 29%. The company has an active M&A agenda and enough headroom to add c. 30% to sales. The stock is currently trading at c. 9x P/E ’19e and with >
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ABG Sundal Collier - Introduce.se