Takes over Volvo’s own operations, adds c. 30% to sales

Strong sales boost, initially negative on earnings

5x EV/EBIT ‘20e, enters a more mature, less risky market

Agrees to take over truck dealerships in Germany
Unexpectedly, Ferronordic today announced that they will enter the German truck market as a dealer of Volvo/Renault trucks by taking over nine sites from Volvo Group Trucks Germany. According to Ferronordic, the acquired business has c. SEK 1.3bn in revenues and is running at break-even EBIT margins. The company sees this as an opportunity to expand further geographically, while becoming an even stronger, credible partner to Volvo. The company’s belief is that they can leverage their experience and successful aftermarket strategy in order to improve margins over time while gaining access to the more asset light truck business. This is an asset deal estimated to cost SEK 250m initially, funded by a SEK ~320m loan, where Ferronordic will also take c. SEK 40m in startup/restructuring costs during 2020 over the EBIT line.

Proforma numbers indicate c. 30% addition to sales
On a proforma basis, the estimated SEK 1.3bn in revenues would add close to 30% on our sales estimates for 2020. Although EBIT and net profit will be impacted negatively by 9-13% in 2020, we believe we could see a slight EBIT/net profit accretion in 2021 if Ferronordic is successful in improving operations. The company revised its sales growth target to only expecting the Russian/CIS business to triple from 2016 levels (prev. group sales) while lowering the EBIT margin range from 7-9% to 6-8%. We believe the revised targets are reasonable since the structural drivers in Russia/CIS remain whereas our initial proforma analysis points to an EBIT margin of 6.4% for 2020. The 25% dividend payout ratio is kept.

Reduces Russia/CIS exposure, stronger partner with Volvo
We believe this agreement makes strategic sense. Ferronordic is a recognised high-quality partner to Volvo and is in line with Volvo’s strate
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