Equity Research Enrad, Q3 2024: Strong focus on increased production capacity

Enrad AB’s net sales of approx.8.0 MSEK in the third quarter of 2024 were in line with our estimate for the report. The company plans to introduce two shifts in 2025 to cope with the expected increase in orders next year. Within a year, Enrad should be able to move to new and larger production facilities. 

Q3 sales in line with expectations, with high gross margin

Enrad AB (“Enrad” or the “Company”) reported net sales of 8.0 MSEK for the third quarter of 2024. Since a few months ago. the Company only highlights orders worth more than SEK 1 million. unless it is a strategic partner with large sales potential. No new orders have been reported since 4 July 2024. The capacity at the factory in Borås seems to be secured for Q4 2024 and part of Q1 2025. Enrad needs to expand its production premises to cope with the expected growth. A solution is expected to be found within a year.

The Company achieved a high gross margin of 60% in Q3 2024. due to a favourable customer mix. EBITDA was SEK 1.0 million lower than our estimate. The shortfall corresponds to SEK 1.5 million more in personnel and other costs than we had estimated before the Q3 report. On 30 September the Company had cash of SEK 4.6 million, compared with SEK 3.2 million three months earlier. This corresponds to a positive cash flow of SEK 1.4 million during the third quarter. Capital tied up in inventories and receivables totaled SEK 24.1 million on 30 September. Inventories of SEK 15.6 million have been pledged to one of the main owners for approximately SEK 7.0 million.

Enrad sells in a cooling and heat pump market with property owners and grocers as key customers. Currently. the Norwegian market is very strong while the Finnish market is weaker. The Swedish market is somewhere in between. Enrad has positioned itself as a niche player in natural refrigerants for refrigeration machines. This means that Enrad should have the potential to grow faster than the underlying market.

Estimate changes

We leave our revenue estimate for FY 2024 unchanged and make only a marginal downward adjustment for 2025. We raise the revenue estimate for 2026 by 11% and the gross margin assumption from 50% to 52% starting in Q4 2024 and lasting until Q4 2028. We then assume that the gross margin gradually declines from 50% in 2029 to 45% in 2034-2037.

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