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Equity Research Enrad, Q4 2023: New orders may pick up later in 2024

28 Feb 2024

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Enrad AB’s net sales of SEK 18.6m in the fourth quarter exceeded our forecasts by 31%. Profits after financial items were twice as good as expected. However, Enrad’s share price fell, probably due to the weak order intake so far in Q1 2024. We are making forecast adjustments leading to our new price target for the Enrad shares in the base case of SEK 5.0 per share (5.3).

A very strong finish to the year 2023

Enrad AB (” Enrad” or” The Company”) reported net sales of SEK 18.6 million in Q4 2023, compared to our forecast of SEK 14.3m. The order for a larger heat pump from the Norwegian DNV is estimated to account for some SEK 14m of the SEK 18.6m that Enrad invoiced in Q4 2023. The start of 2024 is not expected to be as strong. This is because Enrad’s order intake to date during Q1 2024 is only expected to be between SEK 2 and 4 million. Nevertheless, conditions for the rest of 2024 still look good. The company is seeing a record level of enquiries from its customers. Enrad has also established its own sales company in Norway, where two senior employees have been hired.

The company sells to a market for cooling and heat pumps that have been affected by interest rates for its key customer group of property owners. Order intake is expected to increase from the second half of 2024 when interest rates are expected to fall. Enrad’s marketing is facilitated by the European Parliament, which adopted two new F-Gas regulations on 29 January 2024, as the company has positioned itself in the natural refrigerant chiller segment.

No capital requirements for the next few quarters

The company pledges its inventory through the main owner’s company. As of 31 December 2023, the fund amounted to approximately SEK 6m. The company’s personnel and other external costs amounted to just over SEK 4m in the fourth quarter of 2023. CEO Andreas Bäckäng estimates that the company’s cash will be sufficient during 2024, considering the company’s ability to mortgage its inventory. Carlsquare Equity Research believes that a capital increase later in 2024 is not out of the question.

New target price of SEK 5.0 per share in a Base case scenario

Considering the order book, we have lowered our revenue and profitability forecasts for 2024 and beyond. By combining a cash flow and a comparative valuation, we have determined a new target price for the Enrad share of SEK 5.0 (5.3) per share in a base case scenario. The downward revision is due to lower forecasts. Although the valuation multiples for the peer group have increased somewhat,  they have parttially offset the impact of our revised forecasts. The fair value of Enrad’s shares equals EV/Sales 2025 of 2.4x and EV/EBIT 2026 of 12.0x. The peer group trades at EV/sales NTM of 2.4x and EV/EBIT NTM of 15.1x.

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Equity Research Enrad, Q4 2023: New orders may pick up later in 2024