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VBG Group
VBG Group - MCC should mitigate organic slowdown (Introduce)

2020-01-20 23:14
Q4 report on 20 February
‘20e-‘21e EBIT -3% on lower FX + lower MCC org growth
Stock up 11% last 3 days on no news, 11x ‘20e EBITA
Expect industrial + truck weakness to take a toll
We expect sales of SEK 862m, -1% y-o-y (-4pp organic, +3pp FX) with organic growth stemming from MCC (+4%), although not enough to offset declining sales in VBG Truck Equipment (-5%), Edscha (-32%) and Ringfeder (-9%). We believe the slowdown in truck registrations as well as in the overall industrial environment will start to become evident in the group figures, as we started to see in Q2’19. VBG TE has had strong pricing support recently, which we believe should help margins. For the group, we expect EBITA of SEK 91m, down 5% y-o-y, for a margin of 10.6% (11.0%). We expect the company to announce a DPS of SEK 4.60, up from last year’s SEK 4.50, implying a c. 40% payout ratio.

3% EBITA CAGR ‘19e-‘21e, c. 20-30% M&A headroom
We lower sales by 1-2% for ‘19e-‘21e due to a slightly lower organic growth assumption in combination with lower FX contribution. Translating this to earnings, we lower EBITA by 1-3% for ‘19e-‘21e. We believe MCC should continue to mitigate weaker end-markets in the other divisions in 2020 due to its North American HVAC exposure as well as benefitting from increasing penetration of the existing vehicle fleet. For ‘19-‘21, we estimate c. 1% organic sales CAGR and an EBITA CAGR of 3%. VBG still has ample M&A headroom, and if we assume that VBG would not like to go beyond 2.5x ND/EBITDA, we see c. 20%-30% headroom to ‘19e-‘21e sales.

12x ‘20e EV/EBIT, c. 20% above historical valuation
We believe the inclusion of MCC (c. 50% of group sales) has reduced VBG’s cyclical characteristics while also offering long-term growth potential through increased HVAC penetration of buses, off-road and utility vehicles. We note that the stock has appreciated c. 11% over the last three days on no news. On our estimates, the company is trading at 12x ‘20e EV/EBIT (11x EBITA), or c. 20% above its h

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