Research update HANZA, Q2 2022: Solid demand and margin outlook
28 Jul 2022
Read the full update here:
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.
Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, is engaged in corporate finance and equity research, publishing information on companies and including analyses. The information has been compiled from sources that Carlsquare deems reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be considered a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the analysis are intended solely for the recipient.
The content may not be copied, reproduced, or distributed to any other person without the written consent of Carlsquare. Carlsquare shall not be liable for either direct or indirect damages caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments offer the potential for appreciation and gains. All such investments are also subject to risks. The risks vary between different types of financial instruments and combinations thereof. Past performance should not be taken as an indication of future returns.
The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be disseminated to such persons. The analysis is not directed at natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.
The analysis is a so-called Assignment Analysis for which the analysed company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for the usually fixed fee.
Carlsquare may or may not have a financial interest with respect to the subject matter of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.
The analysts Niklas Elmhammer and Fredrik Nilsson do not own and may not own shares in the analysed company.