Equity Research Enrad Q2 2024: Enrad should invest in growing markets

Enrad AB’s net sales of around SEK 12.6 million in the second quarter exceeded our estimates by 26%. With an order book of SEK 18.5 million, the Company’s factory is fully booked until November. Carlsquare Equity Research raises its sales and earnings estimates for 2024-2026. Our fair value for the Enrad share increases to SEK 9.0/share in the Base case, compared to SEK 8.1/share in the update on 2 May 2024 after the Q1 report.

Strong order intake ensures capacity utilization until November

Enrad AB (“Enrad” or the “Company”) reported net sales of around 12.6 MSEK for the second quarter of 2024. Order intake during the past five months (1 April to 30 August 2024) has been record strong at approx. 18.5 MSEK. With the current order intake, Enrad’s factory in Borås is producing at full capacity until November 2024. The Company achieved a high gross margin of 53% in Q2, but other external and personnel costs also increased more than we expected in Q2. The Q2 EBIT of around SEK 0.8m was therefore 9% better than our pre-report estimates.

Enrad sells in a cooling and heat pump market with property owners and grocers as key customers. The willingness to invest should increase when the interest rate cuts have an effect within six months. Enrad has positioned itself as a niche player in natural refrigerants for refrigeration machines. There are many ambitious competitors who are admittedly a bit conservative, but where the owners have contributed with significant capital. Enrad also needs to keep up with developments. The focus for Enrad is sales in Norway, Sweden and Finland.

Enrad’s cash and cash equivalents increased from SEK 3.0 million on 31 March 2024 to SEK 3.2 million on 30 June 2024. Inventory was pledged from SEK 14.5 million to SEK 10.0 million on 30 June 2024. The Company had trade receivables of SEK 12.1 million on 30 June 2024, which means that liquidity should increase during the third quarter.

New fair value SEK 9.0 per share

We adjust our revenue estimates by 8% and the EBIT estimate by 14% in 2024. For 2025 and 2026, we only raise our revenue estimates by 1%, however, we expect an EBIT improvement of approx. 50% as the higher revenue level should translate into a better result over the next two years. Our new fair value for the Enrad shares increases from SEK 8.1 to SEK 9.0 SEK per share, based on a combination of DCF- and peer valuations. Enrad’s share price has risen 186% so far this year. We cannot fundamentally see that such a high value is justified for the share, even though the Company’s operations are currently doing record well.

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