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Initiation of coverage Enrad: Profiting from natural refrigerants

21 Dec 2023

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Enrad develops, manufactures and markets cooling units and heat pumps that use natural refrigerants. An EU directive requires a switch from synthetic to natural refrigerants by the end of 2030 due to high CO2 emissions. Synthetic refrigerants are responsible for 63% of PFAS emissions. ECHA is working on a proposal to ban 10,000 different PFAS substances. All of this is seen as a driver for natural refrigerant conversion and growth for Enrad. Earlier this autumn, the company received a large order worth SEK 14 million. With annual sales of around SEK 27 million, the company will break even and is expected to be profitable by 2024. Carlsquare starts monitoring Enrad with a justified value per share of SEK 5.3 for the next 6–12 months.

Switch to natural refrigerants

Single-row chillers and heat pumps are being developed for the natural refrigerants R290, R1270 and R600a. Synthetic refrigerant machines, which dominate the market, will be phased out by 2030 in line with EU directives. But the industry is conservative and competitors are still mainly selling chillers that use synthetic refrigerants. A SEK 14 million order from DNV in Norway shows that customers are starting to demand Enrad’s products.

 Enrad was founded in 2008. The CEO, Andreas Bäckäng, joined in 2016 to accelerate the company, which then consisted of just the two founders. Since then, the management has improved the company’s products and adapted them to the market: Today, the company’s machines are built with standard components from global suppliers in order to keep the price level low and to be able to sell to many countries, as they have secured the aftermarket for customers. The production capacity at the Borås factory is equivalent to an annual turnover of around SEK 75 million.

EBITDA positive as early as 2024

In 2023 we expect net sales of SEK 25 million and an EBITDA result of minus SEK 0.8 million. In 2024 we expect net sales of SEK 33 million, representing growth of 29%. In the same year, we forecast a positive EBITDA of SEK 2,6 m, giving a margin of 7,9%. For the next three years, 2024–2026, we expect average annual growth of 58%, driven by the switch to natural refrigerants. With good scalability, we model the EBITDA margin to increase to around 23% in 2026. Industry peers’ EBITDA margins are typically around 15%. Enrad’s assumed margin is therefore higher than its peers, which is explained by the higher gross margin. Over time, we expect Enrad’s margins to converge with those of its peers.

Fair value of SEK 5.3 per share

By combining a DCF model with a comparable valuation, a base case justified value per share of SEK 5.3 is calculated. This equals a 2025 EV/sales multiple of 2.3x and a 2025 EV/EBITDA multiple of 13.5x. The peer group trades at a median EV/Sales 2024 of 2.2x and EV/EBITDA 2024 of 13.7x. The stock is valued at 9.5x our 2025 EBITDA forecast.


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Initiation of coverage Enrad: Profiting from natural refrigerants