* Better-than-expected Q3 earnings, all segments up q-o-q
* We raise our EBIT estimates by 4-3% for '26e-'27e
* Trading at 12-8x '26e-'27e EV/EBIT, distributor peers at 15-14x
Sequentially better across the board
Ferronordic reported Q3 sales of SEK 1,060m, down 7% y-o-y, and EBIT of SEK 37m (ABGSCe 13m, FactSet cons 18m), for a margin of 3.5% (ABGSCe 1.2%, cons 1.7%). The beat was to an extent driven by lower group costs, which will likely normalise in coming quarters at a higher level on average. Despite this, the report marks a clear sequential step up in earnings in both the US and Germany, thanks to improved gross margins while opex was kept down. The net debt came down slightly to SEK 1,641m (1,679m in Q2), marking the third consecutive quarter of deleveraging. Overall the Q3 numbers showed sequential improvements across the board, but there is still a way to go for Ferronordic to reach its profitability target (>6% EBIT margin) as well as its leverage target (<3x ND/EBITDA).
EBIT estimates raised despite lowered top line
Despite Q3 revenue being 3% below our estimate, Ferronordic delivered significantly better profitability than we had expected, and the impressive cost control gives us more confidence to model higher margins ahead. As such, we lower our '26e-'27e sales estimates by 5% per year, but raise our EBIT margin estimates by 0.3pp, resulting in 4-3% EBIT upgrades overall.
Likely more deleveraging to go before US expansion
Ferronordic remains optimistic about its expansion opportunities in the US, and from a long-term perspective we see good prospects for it to execute on this strategy given Volvo CE's stated ambition to consolidate its US dealership network. However, as mentioned above, although the leverage is moving in the right direction it remains high, which we think limits expansion opportunities in the near term. Finally, the share is trading at 12-8x '26e-'27e EV/EBIT, which can be contrasted with our distributor peer group at 15-14x.
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