Mrkt BUZZ, HANZA: Preview Q4, 2022

Equity Research, HANZA

Carlsquare Equity Research remain confident in our forecast of robust organic growth and increased margins for Q4, 2022, ahead of the HANZA’s earnings report on February 14. We believe our view is supported by recent company reports from EMS companies including Swedish peer Note.

Swedish contract manufacturing (EMS) peer Note reported sales growth of 28 percent in Q4, 2022 (to SEK 1,038m), slightly ahead of previous guidance of some 25 percent increase. Organic growth was some eight percent. Underlying operating margin improved to 11.2 percent (10.2). According to the Note CEO, order backlog increased by more than 40 percent during 2022. Note targets SEK 1bn in sales also for Q1, 2023 (+25 percent growth) and continues to stand by the previous outlook of at least SEK 4bn in sales (e.g., ten percent+ growth) for 2023 as communicated in December.

Overall, we believe the Note report was a good signal, especially the positive margin trend and continued solid demand outlook despite general economic uncertainty. For Hanza, we assume some 15 per cent organic growth excluding FX effects in Q4. Note still see some delayed sales due to component shortage. Company reports, e.g., from industry giant Flex, suggest that while the semiconductor supply situation has improved overall, shortages in large node semiconductors remain a challenge. This affects, e.g., some automotive, and industrial customers.

In the fourth quarter, we expect HANZA’s margins to have improved mainly due to better operational efficiency in Other markets and higher profitability in Germany (from low levels). The impact on sales and margins from re-invoicing with cost inflation is uncertain, however. A possible slight risk to our earnings estimate is if the coordination program in the Beyers unit in Germany has taken longer than planned.

We expect that the board will propose a dividend of SEK 0.75 per share compared to SEK 0.5 last year, with the relative increase roughly corresponding to the expected earnings growth for 2022.

We believe HANZA will provide a generally positive outlook in a similar vein to Note, on the back of a solid order backlog. As recently as the Q3, 2022 report, the company lifted its financial goals. Recently HANZA also reported an example of expanded business with existing customers. Heat pumps manufacturer Thermia will increase its orders by some SEK 35m in 2023. This news supports our view of continued volume growth in the current year.  For detailed estimates, please see our latest update.

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