Board returns initial proposal of SEK 4.25 in DPS

Solid Q2 and strong liquidity raises confidence

2.6% implied div yield, we have c. 5% yields ‘21e-‘22e

Solid development in H1’20 leads to reinstated dividend
In May, Ferronordic’s board of directors decided to withdraw its previously issued dividend proposal of SEK 4.25 for 2019. Today, the board returned with a proposal to reinstate the previously announced DPS of SEK 4.25 (SEK 3.75+EO DPS of SEK 3.75 in 2019), representing c. 25% of the net profit in 2019 and in line with Ferronordic’s dividend policy. We currently do not have the reinstated DPS in our estimates following the withdrawn proposal earlier in May.

Financial position more than supports the proposal
Following a solid performance in Q2’20 with strong operating cash flow and reduced net debt, the group’s financial position and liquidity have strengthened compared to 2019 and Q1’20. As of Q2’20, R12m ND/EBITDA was 0.4x, while new unit sales grew 6% y-o-y vs. the Russia/CIS market that declined by 40%. Looking ahead, we forecast SEK 1.3bn in accumulated free cash flow ‘20e-‘22e (c. 50% of current market cap), owing to the strength in Ferronordic’s resilient, and profitable aftermarket business (25% of sales).

EGM in October, stock trades at 6x EV/EBIT ‘21e
The Board intends to call on an Extraordinary General Meeting (EGM) of shareholders in October. The exact date and full schedule will be presented in the notice to the EGM, which will be published later. Overall, we find it positive that Ferronordic shows confidence in its view of current operations by redistributing cash to shareholders. On our current estimates, the stock trades at 6-5x EV/EBIT ‘21e-‘22e and 19-16% lease adj. FCF yields. The reinstated DPS implies a dividend yield of c. 3% for ‘20e, and we forecast yields of 5% for ‘21e-‘22e.

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