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Balco: We expect soft orders but solid operations - SEB

Continuing on a similar note as in Q2
We forecast Q3 to be similar to Q2, with solid deliveries, strong utilisation, and good cost control, but weaker orders. We forecast Q3 sales of SEK 320m, up by 9.6% y/y and EBIT of SEK 36m, which implies a margin of 11.3%. However, we expect orders to remain soft, still impacted by social distancing practices and meeting restrictions. We forecast orders of SEK 179m, down by 10% y/y compared with -36% y/y in Q2.

Weaker order estimates the main reason for lower 2021 sales estimates
Given the soft orders in Q2 2020 and our lower order intake forecasts for H2 2020, we lower our 2021 sales estimates by 4%. We continue to argue that the long-term case in Balco remains intact with solid underlying demand. We expect orders to return to normal once COVID-19 related restrictions are lifted but see some short-term challenges with restrictions weighing on operations longer than first expected. In addition, we find Balco’s recent announcement of starting to provide façade renovations in conjunction with its balcony renovations as an interesting opening, but we do not yet factor in any additional sales from this announcement.

Fair valuation range marginally adjusted
Following the minor estimate changes, we have revised our DCF-based fair valuation range to SEK 99-121, with a mid-point of SEK 109. The mid-point valuation implies 2022E EV/EBIT of 11.5x.
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