21% organic growth, sales and EBIT in-line with ABGSCe

Accretive aftermarket lifts EBIT 2-3% ’19e-’21e

Market drivers remain, 22% EBIT CAGR ’18-’21e

Outgrew the market by 14pp, growth looks set to continue
In a Russian CE market that grew 5% in Q1 (lower than we expected due to temporary delays among customers within the road segment), Ferronordic delivered 19% unit growth and 21% organic sales growth (ABGSCe 20%). The continued strong aftermarket and contracting services sales drove 36% EBIT growth and led to EBIT arriving 2% above our expectations. Although market growth was below our expectations, we believe this was a temporary deceleration and expect Ferronordic to continue to gain market share. In addition, we expect the increasing share of aftermarket sales to drive gross margin improvements y-o-y.

Financial target to triple revenue by 2021 well within reach
In terms of outlook, the company guided for the Russian CE market to increase, although not at the same rate as in ’17/’18 (+51%, +33%), in-line with our expectations. We remain confident in Ferronordic’s long-term financial targets for revenues to triple by 2021 from 2016 levels (25% CAGR), and an EBIT margin of 7-9%. Given the strong pent-up demand and upcoming infrastructure investments, we expect 28% sales CAGR and an EBIT margin of 8.9% by 2021, due to profitable aftermarket sales.

<6x ev ebit for high earnings growth and>50% ROIC
We believe that Ferronordic’s business model has proven itself even during times of volatile demand. To our understanding, Ferronordic’s aftermarket business alone covers the company’s entire fixed cost base. Both the board and management seem committed given their >40% share ownership, and the company has had no issue redistributing cash from Russia to its shareholders. On our estimates, Ferronordic is trading below 6x EV/EBIT ’19e on 22% EBIT CAGR ’18-’21e, >50% ROIC and >4% dividend yields. Our DCF scenario analysis yields a value range of SEK 139-254, and a range of SEK 192-265 if we assume that Russian import levels
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ABG Sundal Collier - Introduce.se