Ovzon had a good start to 2022, with Q1 reaching record levels in terms of sales, driven by recent services order announcements and strong deliveries of terminals. Sales (excluding divested production) grew by 79% q-o-q to SEK 97m (of which terminals SEK 58m, and services SEK 39m), 45% ahead of ABGSCe. We emphasise that services sales did not include any sold capacity to the Italian Fire and Rescue Service as that contract started as of 1 April, meaning that the Q2 outlook looks good. Although the top line results were impressive, the gross margin of 16% was well below our forecast of 34%, partly due to a large share of terminals sales together with some unsold capacity. The company reiterated its plan of launching Ovzon-3 in H2’22 (“late H2”), whereas Q1 capex was SEK 29m with accumulated Ovzon-3 capex now being SEK 1,339m (total guidance is ~SEK 1.5bn).
We forecast 68% sales growth in 2022e
We increase our sales estimates on the back of the Q1 results and continue to see strong growth in ’22e, up 68% y-o-y due to recent order announcements. That said, we reduce our gross profit and earnings forecasts on lower gross margin assumptions. Our underlying 2024 forecasts are largely unchanged, but we lift sales by 5% due to FX.
Recent geopolitical events could drive increased demand
We continue to expect Ovzon-3 to start generating sales from Q3’23e. Meanwhile, we think that the outlook for the leased capacity business looks bright, particularly because we anticipate that recent geopolitical events will increase demand for Ovzon’s services as military budgets are increasing. Lead times in the industry are long, however, so we expect a limited impact from this in the near term. Ovzon’s share is trading at 5x ’24e EV/EBIT on our new estimates.
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