TC Smelter PWR BLOK to be installed in Q2’20e

EBIT above our estimate, but net financials burden EPS

New customer leads and development of PWR BLOK 3.0

An eventful first quarter
Swedish Stirling’s Q1’20 was full of important events. Firstly, the deal with Glencore means that the company now has contract with 90% of the South African ferrochrome market. Further, the securing of financing in February provided stable ground ahead of COVID-19-related uncertainty and delays. Overall, sales were SEK 19m for the quarter (ABGSCe SEK 18m) and EBIT came in at SEK -3, SEK 2m above our estimate of SEK -5m. The beat here was primarily the result of lower than anticipated raw material expenses. EPS was below our estimate at SEK -0.14 (ABGSCe SEK -0.10) on higher financing costs.

Potential to expand with customers and industries
Despite a world “on pause” due to COVID-19, Swedish Stirling has been able to continue generating new business, with its currently active leads having the potential to see 90 PWR BLOKs sold (rather than providing a conversion service, as in Afarak Mougale). Two of the leads are S.A. ferrochrome smelters, but the third is a Ferromanganese smelter located in Malaysia. This gives us further confidence in the PWR BLOK’s versatility and value add outside of S.A. ferrochrome. We welcome the potential expansion across geographies and industries, both in terms of diversification and long-term growth opportunities. We estimate that globally ferroalloys provide a SEK 34bn market for the PWR BLOK.

Sales estimates up, but EPS down on higher financial costs
We raise our ‘20e sales estimates by 8% as we expect somewhat higher capitalised development costs during the development phase of PWR BLOK 3.0. However, our net financial estimates were revised to reflect the impact of the SEK 20m short-term loan made in Q1’20. As a result, EPS for ‘20e falls 28%. Fair value range: SEK 5–14 (8–19).

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