Orderbook growth likely to contract in tougher times
Net cash position set for dividends and investments
Mission-critical nature of Niloern’s products is comforting
Niloerngruppen’s ability to generate cash flow will likely remain largely intact as we head into a tougher retail climate, as the company’s offering is of an essential nature to its customers. We continue to believe that the company can distribute an annual dividend for each of the years in the period ‘22e-‘24e due to its strong balance sheet, which could also facilitate some expansionary capex.
GM defensible but cost inflation likely to hit opex
We assess that Niloerngruppen can defend its current gross margins rather well, but we slightly decrease our estimated gross margins for ’22e-‘24e by 10, 60 and 10bps, respectively, on the back of a challenging near-term outlook. The fixed cost base stems mostly from the company’s production apparatus, and this has led to the rather impressive margin expansion seen after the onset of the pandemic. However, as we reduce our sales estimates, we see two factors that could have a negative impact on the operating margins. Firstly, the company’s operating leverage will carry a negative effect with lower sales estimates. Secondly, we forecast incremental labour cost inflation with a 50bps impact on personnel expenses (semi-fixed). That said, we reduce our EBIT estimates by 1%, 13% and 12% for ‘22e-‘24e, respectively. Given that we expect Niloerngruppen to continue operating with net cash, we believe that the company can generate net financial income going forward on increased interest rates. This dynamic slightly offsets the EPS impact from the other items and consequently leads to EPS decreases of 1%, 12% and 10% for ‘22e-‘24e, respectively.
Implied valuation below historical median
The share is currently trading at 7.0x EV/EBIT (NTM), which is ~30% below the historical four-year median. Our revised estimates imply that the company is currently trading at a ‘23e-‘24e EV/EBIT of 7.1-6.4x.
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