Ferronordic: Weaker earnings, but strong cash flow - ABG
- Earnings disappointment in Q2, but strong cash flow - We lower our US and Germany EBIT estimates - Trading at 13-9x '26e-'27e EV/EBIT (peers at 13.5-12.5x)
ANNONS
Q2: weaker earnings, but net debt came down Ferronordic reported Q2 net sales of SEK 1,088m (-2% vs. ABGSCe SEK 1,111m, +5% vs. FactSet consensus SEK 1,038m), and adj. EBIT of SEK 0 (ABGSCe SEK +24m, cons SEK +26m), which excludes a SEK -5m one-off tied to an inventory write-down in the US. The adj. EBIT miss was driven primarily by the US segment, where we had expected a clearer gross margin improvement, and it seems price pressure on selected products is a bigger issue than we had anticipated. Although earnings disappointed, lease adj. FCF was strong at SEK 281m, due to lower investments and a working capital release (SEK +96m): this caused the net debt position to come down to SEK 1,679m (SEK 1,826m in Q1).
We lower EBIT in US and Germany We take a more cautious view on margins in the US and in Germany, which results in our substantial EBIT cuts at the group level. Cash flow was strong in Q2 due to low re-investment and impressive capital efficiency, however, and our impression (based on management's comments on the conference call) is that this can continue. We increase our '25e-'27e free cash flow, and we now see net debt/EBITDA falling to 2.8-2.0x in '26e-'27e (down from 3.4-2.8x).
Leverage moving in the right direction As we noted in our preview, the main hurdle for Ferronordic executing on its expansion strategy in the US is the current high leverage. As such, we find it positive that the net debt position was materially reduced in Q2 and that the company remains optimistic on cash flows. The share now trades at 13-9x EV/EBIT, which compares to our distributor peer group at 13.5-12.5x.
