Report very much in line due to pre-announcement

Solid 25% organic growth (incl. FX) & 39% EBIT margin

We raise our expected dividends due to higher earnings

Strong 25% organic sales growth and 39% EBIT margin
SinterCast reported Q2 sales of SEK 33.5m (ABGSCe 33.0m), a solid 25% organic growth (incl. FX) y-o-y, with EBIT of SEK 12.9m (ABGSCe 12.5m) for an EBIT margin of 39% (ABGSCe 38%). The company in July announced Q2 production volumes of 3.4m and installations of SEK 6.6m, which is also what it reported. Sampling cups were not disclosed in July, however, and came in at 49,400 (ABGSCe 49,000), compared to Q2’18 at 68,800. We believe the 28% y-o-y drop in sampling cups was a result of one high-consuming customer (which normally uses 3-4x more cups per tonne than the average customer) having lower production volumes. All in all, we remain comfortable with our sampling cup estimates and believe that volumes will follow production volume growth of around 10%.

Do not read too much into the sampling cup figures
The Q2 report was in line with expectations, largely due to SinterCast announcing production volumes earlier in Q2. However, costs were not pre-announced, so we find it encouraging that both the gross margin and opex were in line, with a minor positive SEK 0.3m beat on EBIT. The outlook remains intact and positive, as demand is still high for SinterCast’s diesel engines in Ford and RAM pickups in addition to heavy trucks, as seen in the reported sales figures of customers. We make minor estimate revisions due to updated FX and increase our dividend forecasts due to higher expected earnings.

Higher expected dividends increase current div. yields
We expect a 15% sales CAGR and 26% EBIT CAGR for ’18-’21e. SinterCast is trading at a ’19e EV/EBIT of 23x with FCF yields of 4-5% for ’19e-’21e, dividend yields of 4-5% and net cash of SEK 33m.

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