We lower our estimates to reflect 1) Nolato's Q1 guidance of flat q-o-q growth in VHP within Integrated, and 2) a more cautious view on the margin recovery timeline both for Integrated Solutions and Industrial Solutions. Meanwhile, we leave Medical Solutions essentially unchanged, and the segment is now ~60% of our '23e group EBITA. All in all, we lower our EBITA estimates by 9% for '23e and 3% for '24e.
Margin recovery still likely, but it won't come overnight
2022 was an exceptionally difficult year for Nolato, as it dealt with component issues, high input costs, and poor sales mix effects as well as dual-sourcing, lost sales in Eastern Europe, and production permit issues in its VHP business, leading to the company reporting its lowest EBITA margin since 2012. While the Q4 report was weaker than expected and visibility on Integrated remains poor, we still argue that many of the issues mentioned above are temporary, arguing for a gradual margin recovery in '23e and into '24e. On our revised estimates, the share is trading at a 15-12x '23e-'24e EV/EBITA.
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