Nolato delivered Q2 sales 2% below Modular Finance IR consensus (3% below ABGSCe), but a higher margin made up for the shortfall, with EBITA coming in 2% above consensus (in line with ABGSCe). The beat, however, was driven by the Engineered Solutions segment, whereas Medical Solutions, which we see as more important, was in line. Heading into Q3, we model a sequential earnings decline due to management flagging for a larger-than-usual vacation effect this year in Q3. We estimate a Q3 EBITA of SEK 227m, up 17% y-o-y but down 7% q-o-q, for a margin of 9.9% (8.2%). This puts us 5% below the current FactSet consensus.
Estimates left largely unchanged
We lower our growth assumptions somewhat for both segments, but raise margins for Engineered Solutions given management's expression of confidence on the conference call that the higher-than-expected Q2 margin looks sustainable over time. For Q3 specifically, we lower our expectations to reflect the larger-than-usual seasonal effect flagged in the report. All in all, though, we make small revisions, only cutting EBITA by 1% for '24e and less than 1% for '25e-'26e.
Back to stability after two turbulent years
Following two quarters in a row with material margin improvements, and with the group-level EBITA margin now back in line with the financial target of 10%, we assess that the past few years' earnings volatility has been largely stabilised. There should still be room to improve from current levels, though, as utilisation rates in the Medical segment remain sub-optimal due to de-stocking among customers, while GW Plastics also remains significantly below its margin potential. The share is trading at 15.5x '25e EV/EBITA, roughly in line with its 5Y average fwd. EV/EBITA of 15.0x.
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