Update HANZA Q4 2022: Stars still aligned for expansion

Carlsquare Equity Research raise our valuation for HANZA to a base case of SEK 66 (57) per share following the strong Q4 performance. A record backlog, the recent capital injection and plans for further capacity investments support continued solid growth and increased sales and operating earnings estimates. A bull case where the ambitious financial targets are met, and a relative valuation, suggest further upside in the shares in a positive scenario.

Unshaken growth impetus drives sales and earnings beat

Like previous quarters, HANZA sales once again topped our estimates in Q4. Organic growth accelerated to 29 per cent (vs 26 per cent in Q3) despite tougher comparables. Also similar to previous periods in the last twelve months, cost inflation impacted sales as well as margins. However, according to HANZA, it is not a major component of organic growth in the quarter. The uptick in growth in the Main markets segments was a major highlight, in our view. At the same time, growth in the Other markets segment remained stubbornly high at close to 40 per cent, helped by the capacity expansion that was completed in 2022. As a result of the stronger sales, EBITA exceeded our expectations with some ten percent while margins came in roughly in line. The rapid growth also explains the lower (albeit still positive) cash flow in the quarter, but cash generation will likely improve in 2023 as supply chain constraints should gradually ease.

Structural growth and customer mix help defy slowdown fears

HANZA still communicates a very solid near-term demand outlook, and the order back log is at record levels. The structural trend towards backsourcing appears to be benefiting HANZA even more than we had previously expected, and the cluster strategy is probably key. Also, the customer base is not directly exposed to private consumer demand, hence the current weakness among consumers has not affected orders or sales.

In November 2022, HANZA raised SEK 147m to further invest in capacity. Due to the strong outlook, continued capacity expansion and persistent price inflation we increase our sales estimates by some ten percent for 2023 and 2024. We project an average of eight percent organic growth (excluding re-invoicing of cost increases) for the coming three-year period. This is in line with historic levels but below HANZA’s growth target of at least twelve per cent, as implied by the HANZA 2025 Strategy. We have not included further acquisitions in our forecast. We raise our EBITDA estimates by the same rate, but see somewhat slower EBITA margin expansion compared to previously from, e.g., raised capex assumptions.

Shares could rally further in a bull case

We raise our base case by 16 per cent from raised estimates and a higher sector valuation. HANZA shares have gained almost 40 per cent YTD, clearly outperforming the general market. However, there is still potential upside if the valuation gap to peers narrows further and if investors embrace the bull case (i.e., 2025 targets are reached).

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