Initieringsanalys Hanza: Clustered Advantages

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Initial coverage report Hanza March 8 2022

Carlsquare Equity Research initiates coverage of HANZA Holding. We believe HANZA is well-positioned for manufacturing trends towards increased outsourcing and shorter supply chains. We expect continued strong growth in sales and earnings in 2022.  In our view, Germany will be an important driver from key customer demand bouncing back and positive effects from recent acquisitions. We calculate a fair value of SEK 44 in a base case. In a bull case of continued successful expansion via acquisitions, we see significant further upside to SEK 74. 

Well-Positioned in New Manufacturing Environment

European contact manufacturers benefit from parallel long-term trends as customers move production back closer to regional end-markets and increase outsourcing. Increased focus on sustainability and risks in the supply chain are essential drivers. HANZA’s expansion into manufacturing technologies and geographical clusters in several European markets puts it in a good position, we believe, and it already boasts leading European industrials among its customers. We see strong qualities in the people behind HANZA, as demonstrated by experience and track record. The major owners include former top management from some of the most successful Swedish industrial companies in the last 20 years.

German Expansion Adds to Positive Momentum

HANZA was hard hit by the pandemic, especially in the German operations, but continued to invest, and demand is now bouncing back, as demonstrated by 12 per cent organic growth in 2021. We believe, e.g., the 2021 acquisition of German electronics firm Beyer will prove timely and improve prospects. We expect increased top-line growth and profitability in the current year and the margin gap vs Nordic peers to narrow significantly. Although cost inflation is a growing concern in the industrial sector, we view HANZA as comparatively insulated. It does not sell its own products, and material costs are passed through to the customer. In sum, we expect some 40 per cent earnings growth (EPS) in 2022.

Attractive Valuation After Pullback in the Shares

Despite a tremendous share run in 2021, we believe HANZA’s valuation multiples are attractive in relation to its Nordic peers. In contrast, since the beginning of 2022, the HANZA share is down 45 to 50 per cent without any negative company-specific news. Increased retail investor flows and low free float have likely contributed to high share price volatility. After the pullback, we believe the company valuation represents growth at a reasonable price, and we calculate a fair value of SEK 44 in a base case. Our SEK 74 bull case reflects significant further upside from acquisitions. We expect coming quarterly reports to be the primary catalyst for the shares on anticipated strong earnings growth. Risks include severe disturbances in the supply chain, which could negatively affect growth momentum and cash flow.

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The analyst Niklas Elmhammer, Markus Augustsson and Fredrik Nilsson does not own and is not allowed to own shares in the Company analyzed.