Ferronordic reported Q1 sales of SEK 1,746m (+22% vs. ABGSCe 1,434m), up 38% y-o-y. EBIT was SEK 108m (+36% vs. ABGSCe SEK 79m) for a margin of 6.2% (ABGSCe was 5.5%). The report was stronger than expected, yet the underlying uncertainty of what will happen once current Russian inventory has been sold off remains. We therefore specifically highlight that the German business beat our expectations on sales, and that management reiterates that they expect a positive full-year EBIT in Germany. The company also released selected preliminary April figures for Russia as a standalone business. At a gross margin of 20%, the April inventory in Russia (SEK 892m) would support ~SEK 1.1bn in equipment and aftermarket sales, roughly in line with our Q2-Q4’22e estimates. In addition, April revenues in Russia were SEK 375m, which is 41% of our Q2’22e Russia/CIS estimate.
EBIT up 16% for ’22e, only minor changes for ’23e-’24e
For ’22e we raise our EBIT estimate by 16% on the stronger Q1 numbers. However, once inventory in Russia is sold off, we continue to see a drastic decline in sales, and as such we make only minor revisions to ’23e-’24e.
Fair value up to SEK 30-50 (29-48) per share
We raise our fair value slightly to SEK 30-50 (29-48) per share, derived using an SOTP valuation. For Germany, our low end stems from applying 8x exit EV/EBIT to our ’24e estimates, where Germany is estimated to be at a 2.5% EBIT margin, and our high end instead assumes Germany will reach a long-term “steady” EBIT margin of 5%. For Russia/CIS, we apply 1x EV/EBIT to ’22e due to our view that all potential earnings post-’22e in Russia are highly uncertain. We also note that a scenario where Volvo returns to Russia, even in a limited capacity, could increase the value per share of Russia/CIS to anywhere between SEK 27 ...
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