Equity research update HANZA Q2 2023: Higher profitability confirmed

Equity research

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Carlsquare Equity Research believes the Q2 report supports a more optimistic view of margins as the progress in the Main markets segment is more robust than expected. Solid order intake, ongoing capacity expansions and a differentiated offering support the growth prospects. We raise the valuation range in our DCF model following higher estimates in the mid-term and a lower discount rate.

Main markets showing great form

Despite some headwinds in the period, such as fewer working days and component shortages in some areas, HANZA’s operating earnings increased by over 60 per cent in Q2 2023 and exceeded our estimates by about ten per cent. The primary driver was the Main markets segment as growth accelerated to 25 per cent, and segment margins reached an all-time high of eleven per cent. Greater efficiency in the German units appears to be the most important factor behind the profitability improvement. We believe this validates the expansion into Germany and the coordination program that HANZA undertook last year. Growth in Other markets was below our expectations, partly due to internal temporary factors; however, new orders (e.g., Mitsubishi Logisnext Europe) are a promising sign.

Solid growth and margin outlook supported by a broad offering

Overall, the Q2 report demonstrates that HANZA is well on its way to reaching its financial goals for 2025. Already in the first six months of 2023, EBITA (excluding electricity subsidies) was on target at 8.1 per cent, and there should be room for profitability improvement in the Other markets segment. Sales are growing at double digits, and there is no sign of tapering of demand immediately ahead, as order intake is still strong. On the contrary, HANZA is taking new steps to increase capacity primarily in Other markets and also in Sweden. The news of increased business with existing customer Mitsubishi Logisnext Europe demonstrates that HANZA has an attractive offer of multiple manufacturing and related services. It validates the company slogan, “All you need is one”, and should support future growth and profitability if additional customers catch on. We raise our earnings forecasts by about eight per cent and believe HANZA’s operating performance will be at the top of the Nordic peer group over the next few years.

We raise the DCF valuation range

We raise our base case DCF valuation markedly due to higher mid-term earnings estimates, as discussed above, and a lower WACC assumption following the solid operating performance since 2021. This compensates for a lower valuation in our multiple valuation model. In conclusion, we raise our base case somewhat to SEK 98 per share (96). Our fair value range is adjusted upwards from the changed input to the DCF model. As before, the bull case assumes an increased pace of expansion via acquisitions.

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