Q4 report on 6 February

Minor estimate changes, 9% adj. EBIT growth in Q4e

11x ‘20e adj. EV/EBITA, 5% dividend yield

Continued sales growth expected, despite tougher comps
We forecast sales of SEK 742m, up 7% y-o-y (1pp organic, 2pp FX, 4pp M&A), as we expect continued positive volume trends in Finland, Norway and Europe. We expect Sweden and Denmark to show a 2% organic decline, mainly due to tough comps as well as ongoing challenges in Denmark. The financial issues of the supplier Nynas should have a limited financial impact while weather in Q4 should have been neutral, in our view. We forecast adj. EBIT to increase by 9% and arrive at SEK 56m, for a margin of 7.6% (7.5%). Despite higher costs related to Denmark and growth investments in Norway, we expect volumes and a favourable raw material impact to drive a margin improvement for the third quarter in a row. We expect the company to announce a DPS of SEK 4.4 (+10% y-o-y), implying a payout ratio of c. 60%, compared to its target of paying out >50% of net profit.

FY’19 EBIT growth target should be achieved
The company is targeting an increase in EBIT y-o-y in 2019. Given our ‘19e EBIT growth of 20% and that Q4 is a seasonally small quarter, we believe that the financial target should be achieved. We make minor estimate cuts of 1-2% on adj. EBIT for ‘19e-‘21e, mainly due to a lower contribution from FX. For ‘19-‘21, we forecast an adj. EBITA CAGR of 5% on a 2% sales CAGR.

Ability to execute on M&A pipeline if opportunities arise
If we assume that Nordic Waterproofing would be willing to lever up to 3x ND/EBITDA, we believe there is M&A headroom for c. 12-15% on ‘20e-‘21e sales. The company has delivered an historical adj. EBITA CAGR of above 10% and has on average acquired two companies per year. Therefore, we believe there is a high likelihood of more M&A activity. On our current estimates, the stock is trading at c. 11x the ‘20e adj. EV/EBITA, while offering a 5% dividend yield and >7% FCF yields (before M&A).

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se