Ferronordic delivered Q2 sales +9% vs. our estimate, with particularly strong performance in German equipment sales due to the easing of supply constraints, meaning that the latent demand backlog can now be worked down. Both segments continue to be EBIT-positive: SEK 7m in CIS (ABGSCe 7m) and 2m in Germany (ABGSCe 7m). However, as has been the case since the Russian business (~80% of sales) was divested, the cost base remains oversized for the current, smaller operations, so EBIT amounted to SEK -10m (ABGSCe -8m) after including group costs.
Estimates up for Germany as supply constraints ease
We raise our top-line estimates for Germany by 9% and now expect the strong equipment sales to continue in H2e as pent-up demand is realised. However, the combination of higher opex in Q2 and a negative mix effect form a larger share of equipment sales results in an EBIT downgrade of SEK 7m at the group level for '23e. For '24e-'25e, higher costs were factored into our estimates, and as such EBIT comes up by SEK 16-17m on the higher top-line assumptions.
SEK 539m net cash, capital allocation is key
The net cash position decreased to SEK 539m (681m in Q1), although most of the decline (SEK 109m) is explained by the Q2 dividend payment. Given that a significant share of the current enterprise value sits in the net cash position, the key question is how this cash will be put to use. Management reiterated on the conference call that their intention is to use the cash aggressively to expand in new markets (i.e. make an acquisition), thereby scaling up operations to match the current overhead cost base. If an acquisition is not found, we see the alternative being to distribute the net cash to shareholders (for ~50% div. yield) and instead scale down costs to match the current operations.
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