The segments will perform far short of their potential
The nascent pandemic began to impair ESL’s EBIT early on in Q1 as the escalating situation in China had a substantial negative effect on shipping rates. ESL’s Q1 EBIT thus fell to EUR 2.3m from EUR 3.2m a year ago. ESL was able to run its operations without interruptions and cargo volumes declined only slightly to 3.5m tonnes (3.6m tonnes a year ago), helped by stable levels for smaller vessels. Demand for larger vessels, however, remains rather weak and this also negatively affects demand for loading services. Q2 is thus set to be worse. Telko’s EUR 2.4m EBIT in the face of falling volumes and prices was in our view strong show (revenue down 12% y/y), yet the operational improvements are probably not going to help figures that much in the near-term considering the kind of macroeconomic outlook e.g. vaporizing oil prices are indicating. Leipurin’s EBIT improved to EUR 0.6m, but many customers such as restaurants, cafes and small bakeries are suffering. Large industrial bakeries saw demand briefly spike but the situation has since normalized.
We now expect FY ’20 EBIT to decline almost 20%
We have cut our estimates especially for Telko. We now expect Telko’s FY ’20 revenue to decline by 14% and see EBIT down to EUR 6.4m compared to EUR 8.0m last year. For Q2 we see Telko revenue down 22% y/y. We estimate Aspo’s FY ’20 EBIT at EUR 17.4m (previously estimated EUR 20.7m) as macroeconomic recovery prospects have continued to deteriorate. H2’20 remains particularly uncertain in terms of ESL’s cargo volume outlook (on which EBIT improvement mainly relies). In our view Aspo’s creditworthiness is not in question (the company also has a EUR 67m liquidity position), but from a shareholder point of view the pace of improvement remains crucial, and right now it’s unclear just how quickly profitability could reach more attractive levels.
We see current valuation fair in the present environment
Our view is unchanged in the sense that higher profitability potential remains, but for now it’s difficult to rely on long-term estimates. Our TP is EUR 6.00 (6.25), rating still HOLD.
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