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Nolato: Making sense of oil, plastic and energy prices - ABG

Oil coming down, ~60% of material costs linked to oil

Valuation now just 5% above 2020 trough levels

Q3 preview: margin pressure and FX tailwinds

Oil -35% since June, cost of plastic production still high
Nolato had material costs at ~50% of sales in 2021, and to our understanding ~60% of these are linked to oil prices (~50% plastics, ~10% silicone). Oil is down >30% since June, and plastic prices tend to lag by two months, but have remained high now due to plastic producers facing high energy costs, according to Nolato. If electricity prices for plastic producers retreat (naturally or through price caps or subsidies during winter), we estimate today’s oil price of ~USD 85/bbl would imply a positive effect on NTM EBITA of ~9%. On the flipside, Nolato’s operations are also electricity-intensive, and we estimate that if realising an average electricity spot price in 2022 of SEK 3/kWh (up >200% from 2021 levels), that in isolation would imply a -28% effect on ’22e EBITA. In reality, however, Nolato has already taken higher electricity costs in H1’22, and has partly offset this through price increases. Our current estimates account for normalised margins by mid-’23e.

10x ’23e EV/EBITA, cons. f12m EV/EBITA +5% vs. ’20 trough
On our current estimates, the share is trading at 10x ’23e EV/EBITA. Also, the FactSet consensus f12m EV/EBITA is at 10.7x, just 5% above the trough in 2020 during the initial COVID-19 market crash. At these levels, if we apply a range of 10-12x EV/EBITA on ’23e earnings for Integrated and Industrial Solutions, Nolato’s most exciting segment, Medical Solutions, is implicitly valued at 7-9x ’23e EV/EBITA.

Q3 preview: lower margins but FX tailwinds
We expect Q3 sales of SEK 2.5bn, down 16% y-o-y (-26% organic, +10% FX). Integrated Solutions volumes are set to decline significantly due to dual-sourcing effects, while Medical and Industrial Solutions hold up well. We expect adj. EBITA of SEK 230m, for a margin of 9.1% (11.2%), down y-o-y on mix effects in Medica ...
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