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Equity research HANZA Q3, 2023: Accelerated margin expansion

10 Nov 2023

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Carlsquare Equity Research believes the Q3 report demonstrates considerable strength in an uncertain macro environment. Profitability has improved faster than we expected, and HANZA is closing the margin gap to its Nordic peer group. HANZA sees organic growth in the next year supported by, e.g., new projects and expansions in the Other markets segment. We continue to raise our estimates. In our view, the current valuation still underestimates the company’s quality and outlook. 

Main markets margin in top gear

The Main markets segment (i.e., Finland, Germany and Sweden) was seemingly unaffected by any slowdown, growing solidly at 22 per cent and increasing profit by some 115 per cent in the third quarter. As in the previous quarter, it is apparent that the German units are showing strong profitability, a scene change from 2022. The development validates HANZA’s coordination work since the acquisition of Beyers in late 2021. The segment EBITA exceeded our expectations by some 28 per cent. Although earnings for the Other markets segment did not meet our forecast, Group EBITA was overall 16 per cent better than expected.

Sales outlook underpinned by added capacity and new projects

Organic growth for the group slowed to six per cent in Q3 as the Other markets segment was burdened by expansion programs and the ramping up of new customer projects. However, we believe these initiatives should pay off next year. HANZA expects organic growth from its existing customers in 2024.

The outlook supports our previous view of low double-digit sales growth next year. We leave our sales forecasts virtually unchanged but raise our earnings estimates by approximately eight per cent. Operating profit should grow faster than sales from improved efficiency in the Other markets segment following completed capacity expansion investments and increased business with existing customers (e.g., Mitsubishi Logisnext Europe).

Higher DCF valuation, but peer group multiples have come down

In 2023, HANZA earnings have repeatedly surprised on the upside, driving estimates higher and supporting increased valuation. Since the beginning of the year, we have raised our EBITA estimates by ~60 per cent. Admittedly, sector valuation has come down since the summer, but we believe investors are too cautious as the outlook from contract manufacturers is still generally solid. Due to the recent share price volatility in the group, we estimate a comparatively wider valuation range in our base case based on relative and DCF valuation of SEK 73 (100) to SEK 104 (95) per share, respectively. Consequently, the valuation in the base case drops to SEK 88 (98) per share.  As before, the bull case assumes an increased pace of expansion via acquisitions. HANZA is currently eyeing capacity-enhancing expansions in existing geographic clusters.


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Equity research HANZA Q3, 2023: Accelerated margin expansion