Q2 report on 24 October

Sales growth >10%, supported by the marine segment

Share up over 60% YTD, above historical average

Q2’19/20 expectations: Organic growth 6%
We expect a good quarter for Addtech, with sales of SEK 2,645m, representing 13% growth (6% organic, 6% M&A, 1% FX). We expect the marine segment within Industrial Process to help offset otherwise moderate growth, and estimate sales growth of 37% for Industrial Process (25% organic). We note that in Q1’19/20 the marine segment accounted for roughly 50% of group organic growth. We estimate EBITA of SEK 302m, on a margin of 11.4%. We expect net income to grow 7% y-o-y to SEK 185m.

Forecast changes: Weaker outlook outside of marine
Besides some fine-tuning driven by updated FX assumptions and slightly lower organic growth, we leave our estimates largely unchanged. Overall for FY’19/20e, we expect growth of 14% (5% organic, 8% M&A, 1% FX). We expect the EBITA margin to increase by 20bp to 10.9% (10.7%), driven by a smaller opex base, and expect the gross margin to remain flat at ~31%. In FY’20/21e, we expect continued growth for scrubbers, but note the more challenging comps. We have seen and expect a lower order intake from major scrubber players Wärsilä and Alfa Laval until the end of ‘19, but we believe that significant order backlogs should help to keep Addtech busy over the FY’19/20 period. We expect an uptick in scrubber orders around mid-2020, following completed deliveries of the current backlogs.

Sector top-performer YTD, but EV/EBITA below peers
The stock is up >60% YTD, trading at 15.2x EV/EBITA (3% below Lagercrantz and 7% below Indutrade). On a NTM basis, Addtech is trading 10% above its historical 5-year average. Following the company’s CMD in September 2019, a lot of attention was paid to the less cyclical business exposures, but still we think that a slower economic environment could put a dent in group organic growth during late FY’19/20e.

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ABG Sundal Collier - Introduce.se