Strong Q2, 43% EBIT growth, close to ATH margins

We lift ‘20e, ‘21e and ‘22e EBIT by 16%, 3% and 2%

10x EV/EBITA ‘20e on >10% historical EBITA CAGR

Fourth consecutive quarter of margin expansion
Nordic Waterproofing (NWG) delivered strong volumes in a Nordic market that had seen little impact from COVID-19. Sales grew 7% organically (ABGSCe 2%), which in combination with disciplined cost control and raw material tailwinds drove 43% EBIT growth. The strong earnings growth (+32% vs. ABGSCe) resulted in an EBIT margin of 14.4% (ABGSCe 11.4%, 10.7% in Q2’19). This has not been seen since the all-time-high levels in 2016. Notably, sales in Denmark and Europe were much better than expectations, growing 23% and 16% y-o-y, respectively. NWG noted that inventory build-up could have benefitted demand in Products & Solutions, which had organic growth of 10%. The pre-fabricated element business had a weak quarter, but it has nearly all its available capacity for ’20 booked, signalling a potential rebound for the business in H2’20.

Pencilling in an accelerated margin improvement
Although we cannot rule out that H1’20 has been extraordinarily strong due to high Nordic stay-at-home demand as well as inventory build-ups, we believe that NWG continues to deliver well operationally. Hence, we lift EBIT by 16% for ‘20e, but only by 3% for ’21e and 2% for ‘22e as we do not believe that margins should be fully extrapolated; negative FX rates also offset our positive underlying revisions. For ’19-‘22e, we now forecast a 3% organic sales CAGR and 6% adj. EBITA CAGR. NWG’s cash conversion continues to strengthen the already solid balance sheet, which we believe increases the chance of more M&A in 2021.

Ready to pursue further M&A opportunities
NWG has over time delivered 100% avg. FCF conversion and 15% avg. ROCE, from operations relatively insulated from cyclical fluctuations. The share is trading at 10x the ‘21e EV/EBITA, and we believe that M&A remains a key strategic priority.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se