German valuation implies 0.1-0.3x P/NAV for Russia
Q2 EBIT well above ABGSCe and consensus
Q2 sales were SEK 1,691m (+12% vs. ABGSCe, +6% vs. FactSet consensus), up 6% y-o-y. Organic growth was -15% (Russia/CIS -20%, Germany +5%), and Russia/CIS sales saw a +25% FX boost. However, margins were much stronger than expected, mostly because of: 1) the revenue mix shifting heavily to Aftermarket and Contracting Services sales as new and used unit inventory thins out, and 2) the aforementioned FX boost. The gross margin increased 310bp, to 21.1%, while the adj. EBIT margin increased 530bp, to 14.5% (ABGSCe 5.5%, cons. 5.4%), for an ATH absolute adj. EBIT of SEK 246m (+196% vs. ABGSCe, +186% vs. cons). This included SEK 99m one-off provisions for Russian inventory and receivables taken as a cost; even not adjusted for this, EBIT was still +71% vs. cons.
Q2 above expectations, but sales will still decline
Although the Q2 figures were well above expectations, we continue to expect a significant drop in sales and earnings from Q3. Also, the provision of SEK 99m taken in Russia means that we have made more cautious estimates for H2’22 earnings. We estimate that Germany will report its first EBIT-positive quarter in Q4’22.
Our German value range implies 0.1-0.3x P/NAV for Russia
The company says it is working on isolating the Russian business financially from the rest of the group, which we argue speaks to either a full divestment or a winding down of operations. We see a partial divestment or continued small-scale operations in Russia as unlikely, as a broad workshop network is an important selling point to customers. Based on our EV range for Germany of SEK 24-43 per share, this would imply a P/NAV of 0.1-0.3x for the Russian assets (NAV in Russia was SEK 1,512m as of 30 June). While the strong Q2 raises our EV per share for Russia, we also note the significant increase in net debt (SEK 25 ...
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