EBITA beat of 8% vs. ABGSCe

Medical soft in H2’19e, but Integrated to compensate

Share price up 45% YTD

Good quarter, Integrated Solutions issues normalised
In Q2’19, Nolato sales were SEK 1,987m (2% vs. ABGSCe 1,952m), organic growth was -17% (vs. ABGSCe -18%) and FX supported sales by 3%. As expected, Integrated Solutions was the reason for the drag and was down 31% y-o-y, but on a positive note, the inventory issued for Heating Products (HP) normalised over the quarter. Industrial Solutions was down 2%, explained by continued inventory issues for a customer in the hygiene segment. Medical Solutions impressed with 13% growth. EBITA was SEK 233m (8% vs. ABGSCe 216m), resulting in an EBITA margin of 11.7% (ABGSCe 11.1%); the main reason for the difference was a beat on margin in Integrated solutions of 13% (vs. ABGSCe 12%). Net profit came in at SEK 180m (ABGSCe SEK 161m).

H2’19 flat for Medical Solutions, Integrated picking up
The overall outlook for the group remains positive, in our opinion. We lower sales for Medical Solutions slightly in H2’19e due to updated guidance that it will remain flat in H2’19 y-o-y and see a weaker outlook for Industrial Solutions. We expect that the normalisation of inventories in Integrated Solutions, coupled with the launch of a next generation heating product in Q4’19, will help offset some of the drag from other segments. We raise our EBIT largely as result of the beat in Q2’19. For ’20-21e, we expect stable growth for Nolato at 11.5% EBIT margin. We like the fact that volumes in Integrated Solutions will be less volatile going forward, and think investors will have a better chance to understand the long-term growth and earnings potential of the segment.

ABGSCe implied value of Heating Product ~40% of MCAP
With the share price up 45% YTD at ’19e EV/EBITA of 17x, investors should consider what to pay for the HP exposure. Assuming an EV/EBITA multiple of 13x for Nolato (excluding HP) implies a value of SEK 6bn for the HP exposure, which i
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