Nolato will host a Capital Markets Day on 1 June at Clarion Hotel Copenhagen Airport, and we expect most of the strategic focus to be on Medical Solutions as well as the electromagnetic compatibility (EMC) products in Integrated Solutions. For the past years, organic growth has been largely driven by vaporiser heating products (VHP) in Integrated Solutions, but Nolato now faces several headwinds in this area from component shortages, the largest customer contemplating dual-sourcing for its next-gen products, and lost sales in Eastern Europe. As such, we believe the company will outline how the likely lower growth in VHP will be compensated for, primarily by Medical Solutions and EMC, but perhaps also helped by a demand backlog in Industrial Solutions.
Growth target on thin ice, other targets likely unchanged
As it did at its last CMD in 2019, we expect Nolato to reiterate its financial targets of >10% EBITA margin over a business cycle, >75% cash conversion, and >35% equity/assets ratio, noting that the margin target has been exceeded for eight consecutive years. However, the company also has targets of exceeding ’21 organic growth in each segment in ’22, which we believe is unlikely to happen in Integrated Solutions given the headwinds mentioned above.
Trading at 14x EV/EBITA, fair value SEK 60-100 per share
On our current estimates, the share is now trading at 14x ’22e EV/EBITA (5Y average f12m EV/EBITA 16.1x), with the focus recently being on the struggles in VHP. In our view, the key factors that will determine the reaction to Wednesday’s event will be: 1) Any changes to the financial targets, 2) specifics on dual-sourcing in VHP, and 3) news on the M&A front (since no acquisitions have been announced since Sept. 2020).
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