Ferronordic: Inventory keeping sales afloat for now - Nordea

Ferronordic's operations have been severely hit by the sanctions against Russia, as at least two of its suppliers (an estimated 80% of its Russian business) paused exports in late February. For Q1, we expect 12% y/y sales growth but an 8% lower adjusted EBIT, with a much larger earnings impact as 2022 progresses, due to its inventory in Russian declining. We think the most important aspect to the upcoming report will potentially be new financial targets – the expected margin in particular. We cut our group 2022-23E sales forecast by 33-62% and EBIT by 74-92%. We change to a SOTP-based fair value range, which we lower to SEK 22-51 (208-345), with our lower end based on our 2023E estimates and an inventory sell-off in 2022 valued at 1x EBIT, while our upper end includes Germany at a 5% margin (up from 2% 2023E, adds SEK 28 per share). We also find SEK 108 in value uplift if Volvo CE and Sandvik return to Russia (at 3x EBIT). The current valuation is 6x 2023E EV/EBIT, with an implied WACC of 33%. Marketing material commissioned by Ferronordic.