We hosted NWG CEO Martin Ellis at today’s ABGSC investor day seminar. Mr. Ellis highlighted that NWG has no subsidiaries or employees in either Russia or Ukraine, its sales exposure to the area is negligible (0.4% of sales in 2021), and the company has cut all exports at this time. Previously, NWG had input suppliers relying on Russian raw material (mainly bitumen), but these have been discontinued and substituted with other alternative sources. Management expects no impact on its supply chain or the company's capability to deliver to its customers. It expects an acceleration of input cost inflation, however, which in the medium term may lead to softer demand for construction. Management says that margin pressure will be offset by contiued price increases, thus protecting profitability. In summary, the outlook for the Products & Solutions segment appears solid, with stable demand in the legacy business (price increases will drive organic growth). Continued tailwinds for prefab and green infrastructure are likely, and management expects some volume growth on top of the price increases.
Rebound in Installation Services
Mr. Ellis is very confident in improved profitability for the Installation Services (IS) segment in full-year ’22e, compared to the 0.9% EBIT margin in ’21, and has previously guided for an ’22e EBIT margin of 3-4% (ABGSCe 3.4%). Management highlights a very strong orderbook in the Finnish IS business, and the company has been able to increase prices to offset the margin pressure. NWG has previously had a struggling business in Norway weighting on profitability, but the management team has been replaced and improvements are already visible.
10x ’22e EV/EBIT, 4% div. yield
The share is down ~31% YTD and is trading at 10x and 9x EV/EBIT ’22e and ’23e, respectively, with a dividend yield of ~4%.
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