Aspo - ESL supports high profitability

Aspo upgraded its FY ‘22 guidance, thanks to ESL’s continued strong performance, and gave an update on exits. We continue to see FY ’23 EBIT well above EUR 40m.

The guidance upgrade, due to ESL, wasn’t a major surprise

Aspo’s upgraded guidance has a midpoint of EUR 54.5m as ESL will continue to drive high profitability also in H2. We view ESL’s current operating environment relatively normal in the sense that the war has had only a very limited impact (we note ESL’s performance is not sensitive to raw materials price changes), however it should also be noted the dry cargo market has gained strength since H2’20 and ESL may now have reached a point where it’s not easy to improve without additional capacity; short term outlook remains strong, while some softening may be due in the medium term. The hybrid vessel investments will support long term profitability potential. The Baltic Dry Index is down by double digits from its recent highs, but this may have only muted implications for ESL due to its differentiated positioning compared to large global dry bulk cargo carriers.

We make only small upward estimate revisions

Aspo disclosed progress regarding Telko’s Russian exit, for which the company is set to receive some EUR 9.5m from a local industrial buyer after the authorities have approved the deal. An exit from Belarus is also in the works. Leipurin is similarly in the process of looking for an exit, but in our view the integration with Kobian is a more significant short to medium term development. We previously estimated EUR 52.7m for FY ’22 adj. EBIT and our revised estimate stands at EUR 55.1m. Our updated estimate for next year is EUR 44.4m (previously EUR 43.4m). Leipurin’s EBIT will likely continue to improve thanks to the Kobian deal, whereas we estimate ESL’s EBIT to decline by some EUR 3m next year. In our view Telko’s H2’22 and FY ‘23 performance remains the biggest question mark as possible price declines could hit margins along with lower volumes.

Valuation not challenging on our ca. EUR 45m FY ’23 EBIT

We expect FY ’23 EBIT to remain well below EUR 50m, mostly due to Telko’s softening, but the below 8x EV/EBIT valuation levels are not that challenging especially when Telko and Leipurin continue to tilt West and ESL still has long term potential left thanks to its upcoming investments. We retain our EUR 9.5 TP and BUY rating.

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