SinterCast
SinterCast - Strong full-year performance, shutdowns in Q4 (ABG Sundal Collier)
2020-02-24 06:56
19% sales growth, EBIT -50% (but up 36% FY’19)
Estimates intact for ’20e-’21e, 20% EBIT CAGR ’19-’22e
Long-term dividend potential, 4-5% DY ’20e-’22e
Q4 engine equivalent production down due to shutdownsSinterCast delivered a Q4 report that saw close to 20% growth in both engine equivalents and revenue. However, the 3.1m (-9% vs. ABGSCe 3.4m) in annualised engine equivalents was down from the 3.5m levels in Q3. The q-o-q decline was partly anticipated but the extended year-end shutdowns had a bigger impact than we had expected. EBIT declined by c. 50% in Q4 and was SEK 4m (ABGSCe 11m). If we adjust for certain one-offs related to implementation of new routines, revaluations and credit losses, EBIT would have been ~SEK 9m (-22% vs. ABGSCe). Nevertheless, 2019 as a whole saw EBIT increase by c. 30%, for a margin of 34%. Again, SinterCast paid out close to 100% of net profit. Looking ahead, we note that 2020 should primarily be driven by an expected increase in existing production lines, and to some extent by the ramp-ups at Scania, FAW and potentially WHB in Brazil from H2’20. One should keep in mind that 2019 saw strong growth from the launches of the Cummins 6.7L diesel engine for RAM, the Ford 6.7L diesel engine as well as the 3L Ford F-150 engine.
We remain positive on the long-term growth outlook
We keep our ‘20e-‘21e estimates essentially unchanged despite the lower than expected earnings in Q4’19. Our confidence stems from SinterCast’s expected ability to continue its expansion into new production lines, while maintaining a disciplined cost base. For ’19-‘22e, we expect an 11% CAGR in revenue and a 20% EBIT CAGR.
Long-term dividend valuation range of SEK 173-325
Given SinterCast’s history of paying out 100% or more of net profit, we believe one could use a long-term dividend discount model to evaluate the long-term potential. Our valuation approach yields a value per share of SEK 173-325 dependent on the cost of equity. On our estimates, the company is trading at 26x
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