Research update HANZA, Q2 2022: Solid demand and margin outlook

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Update HANZA Q2 2022 July 28

Carlsquare Equity Research believes the Q2 performance supports the view that margin improvement in HANZA is now on track and that headwinds in the beginning of the year has abated considerably. Better than expected growth in the period and a reassuring outlook also warrant a more optimistic view on earnings in coming quarters. We increase our sales and earnings estimates notably and consequently raise our base case to SEK 56 (47).

Final Q2 report surpasses preannouncement

HANZA posted 40 per cent growth in Q2’ 22 to sales of SEK 886m, and thus the company “over-delivered” on the June 20 preannouncement of more than SEK 850m in revenue. Even more encouraging, EBITA was SEK 57m (40), surpassing the lower end of SEK 50m as suggested in the reverse profit warning. The main driver was a rebound in margins in the Other markets as negative effects from expansion programs and cost headwinds abated sooner than we had anticipated. Also, group EBIT margin reached the six per cent financial target for the first time. In total, the report supports the view that profitability improvement is on track and that our previous estimates have been somewhat conservative.  There is further room for higher margins as expansion programs in Other markets and cluster integration in Germany is expected to be completed in the second half of 2022. The large swings in raw materials and component prices adds uncertainty but we argue that HANZA is relatively insulated from these effects as they do not sell their own products and are compensated for rising material costs from their customers.

Reassuring outlook also supports higher estimates

HANZA management sees growth across all customer industries and reports no slowdown in sight. Component shortage is still challenging but so far HANZA has managed the situation comparatively well and many companies including HANZA expect less constraints by the end of 2022.

Overall, we believe the solid Q2 report and outlook warrants a more optimistic view on coming quarters. We raise our annual sales estimates by four percent and our EBIT estimates by about 14 percent on average for 2022-2024.

Margin prospects, relative valuation lifts base case value

Following our increased estimates, we raise our DCF valuation range and our combined DCF and multiple valuation render a higher base case fair value of SEK 55.5 (47). We believe a solid profitability outlook warrants a higher valuation. Our base case fair value corresponds to an EV/sales multiple of 0.8x, in line with Nordic contract manufacturing peers.

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