Nolato - A challenging quarter ahead, saved by FX (Introduce)

2019-10-09 18:47
Q3 report on 23 October
Group organic growth -1%, difficult medical comps
Trading at low end of our fair value range SEK 490-580
Q3 expectations: FX support mitigating weak organic growth
We expect Nolato to have a difficult quarter, despite growth returning to Integrated Solutions. Challenging comps in Medical Solutions and weaker end markets in Industrial Solutions are likely to leave a mark on group performance. Overall, we expect sales to grow by 3% y-o-y, but that is entirely attributable to FX tailwinds, which we expect will boost growth by 4%; organically, we estimate -1% growth. As a result, we expect sales of SEK 2,034m and EBITA of SEK 237m, on a margin of 11.6% (10.4%), driven by a better gross margin of 16.0% (14.8%), largely as a result of continued efficiency efforts in the Industrial Solutions segment. We estimate net income of SEK 175m for the period, resulting in EPS of SEK 6.62 (5.81), up 14% y-o-y.

Medical temporarily weak, growth returning to Integrated
In Q3’18, Medical Solutions grew 22% organically as a result particularly high sales from development work and additional invoicing of production equipment, making comps challenging for Q3’19e. The company has guided for H2’18 vs. H2’19e to be remain largely flat y-o-y; we expect that the delta will be seen in Q3’19e due to the challenging comps, and beyond the third quarter we expect growth to remain around historical levels of 9-10%. For Integrated Solutions, we expect Q3’19e to break the negative growth trend since Q4’18, with the normalisation of the inventory build-up from the group’s Heated-Tobacco-Products (HTP) client. We expect that the segment will grow above 25% in ’20e, supported by HTP and the recent acquisition of Ja-Bar Silicone. Detailed information surrounding HTP prospects can be found in our In-depth report published 28 August 2019.

Our sum-of-the-parts valuation methodology produces a fair value range of SEK 490-580. The share is currently trading at the lower end of our ran

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