56% sales growth drove 142% EBIT growth

New all-time-high production levels; ’19e EBIT up 9%

20x EBIT ’20e on 5-6% div yields and 12% EBIT CAGR

Strong customer demand overcame seasonality effects
SinterCast continued to deliver new all-time-high production levels during Q3, reaching 3.5m annualised engine equivalents, which was an increase of 52% y-o-y and 6% above our estimates (ABGSCe 3.3m). Sampling cup deliveries were also strong, increasing 30% y-o-y and arrived at 55,700 (+11% vs. ABGSCe). Overall, this resulted in sales of SEK 31m, up 56% y-o-y (+10% vs. ABGSCe). However, we note that the supportive deliveries to the Cummins 6.7 litre in-line diesel engine during 2019 will face tougher comparables during 2020, so we are careful not to extrapolate too much of what was an overall strong third quarter. EBIT arrived at SEK 15m (+36% vs. ABGSCe 11m), up 142%, for a margin of 47% (ABGSCe 38%).

Strong Q3 raises ’19e EBIT by 9%, careful not to extrapolate
We raise our sales estimates by 3% for ‘19e and 1% for ‘20e-‘21e and EBIT by 9% for ‘19e and 1-2% for ‘20e-‘21e on the back of a strong Q3 report. However, even though we expect SinterCast to continue to increase its sampling cup deliveries and engine equivalents, we choose not to extrapolate the Q3 numbers. This is due to continued weakness within global light vehicle production, and an impending slowdown in the US truck market, as well as tougher comparables. Nevertheless, we expect SinterCast to deliver an 8% sales CAGR and 12% EBIT CAGR for ‘19e-‘21e.

Excess cash remains, we expect payout ratios to stay high
As SinterCast is currently delivering a ROCE above 40%, and is expected to have a net cash position exceeding SEK 40m by ‘19e, we believe that SinterCast has plenty of room to maintain its payout ratio close to, or above, 100% of net profit. Thus, we expect 5-6% dividend yields for ‘19e-‘21e. On our estimates, SinterCast is trading at 20x EV/EBIT ‘20e and has seen its share price appreciate ~90% YTD, vs. the Carneg
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