Addtech
Addtech - Good start to ’19, but tailwinds getting weaker (ABG Sundal Collier)
2019-07-15 07:34
Sales up 22% and EBITA up 32%
Q1 above expectations, but will be a tough year
Share +70% YTD, EV/EBITA 16% premium vs. history
A profitable start and good growth but at a slower paceAddtech kicked off its fiscal year above our expectations, with Q1 sales of SEK 2,934m (+3% vs. ABGSCe SEK 2,849m), up 22% y-o-y. The difference was due to stronger than expected organic growth of 12% (ABGSCe 7%) and an M&A contribution of 9% (ABGSCe 11%). Most segments performed well over the quarter, with Industrial Process a continued top performer delivering 64% growth. As expected, Power Solutions delivered a weak performance, flat y-o-y. Surprising for the quarter was the impressive EBITA margin of 11.6% (ABGSCe 11.2%), resulting in EBITA of SEK 341m (7% vs. ABGSCe SEK 318m). The margin benefitted from organic growth and a favourable product mix. Net income for the period was SEK 226m, up 40% y-o-y, resulting in EPS of SEK 3.35.
Higher margins, but soft outlook and tough comps ahead
We raise our EBIT estimate for ’19e by 2%, given a 10bp higher margin and fine-tuned sales estimates. The margin improvement is driven by higher margins in Power Solutions (favourable product mix) and Industrial Process (organic growth scaling costs). Organic growth should suffer in H2’19, due to a weaker outlook and difficult comps, but we believe growth will be supported by M&A and favourable currency rates. For ’20e-21e we have cut our sales estimates by around 1%, reflecting a generally softer market outlook. Addtech is largely exposed to the Nordic industrial sector and we note softer PMIs across its main markets. Still, we expect structural growth trends such as renewable energy, emission control, etc. to help offset some of the slowdown.
Nice rally since January, trading above historical average
The share is up >70% YTD and currently trading at 15.4x EV/EBITA (16% above 5y historical average). While the sector has re-rated YTD, we fear that the market may not have accounted for Addtech’s weaker organic
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