Q2 EBITA 12% better than ABGSCe on high margins

EBITA estimates up 13-15% for ’21e-‘23e

Fair value range raised to SEK 24-39 per share

A solid quarter despite shortages
Sales were in line with our estimates at SEK 634m (1% vs. ABGSCe of SEK 625m, 13% y-o-y and up 10% organically). While most of the end-markets have recovered to pre-pandemic levels, sales to its largest customer, active in the textile the industry, remained low, and even fell short of the corresponding quarter of FY’20. Hanza exceeded its pre-announced EBITA guidance with adj. EBITA of SEK 40m (12% vs. ABGSCe of 36m), resulting in a record adj. EBITA margin of 6.4% (2.7%) vs. ABGSCe of 5.8%. Both segments contributed to the margin expansion, explained by strong markets driving operational leverage. The mature manufacturing clusters achieved low double-digit operating margins, while the clusters that are in the build-up phase had lower margins, resulting in approximately 70% of HANZA having an operating margin of around 10% in Q2’21 (implies that the other 30% had a margin of about -0.2%). Hanza said that without the current component shortages, both sales and earnings would have been slightly higher.

Raised margin assumptions on solid cluster synergies
We leave sales for ‘21e-‘23e relatively unchanged, and expect near-term sales growth to be driven by recovering volumes from its largest customer (textile industry in Germany) and broadly supported by the general industrial recovery seen in Q2’21, which we expect to persist at a high level throughout 2021. We raise ’21e-‘23e EBITA by 13-15% on higher margin assumptions following the highlighted margin potential in mature clusters. We note some downside risks relating to component shortages in H2’21e.

9x ‘22e EV/EBITA, 9% FCF yield and 9% ’21-’23e EBITA CAGR
The share is trading at 9x ‘22e EV/EBITA, while offering a 34% ‘20-‘23e adj. EBITA CAGR. In addition, the company says that assessments of acquisition targets are ongoing and will likely lead to more M&
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