Aspo - Q4 needs to be strong

Aspo’s EUR 6.7m Q3 EBIT fell short of our EUR 7.6m estimate, yet we see the key segments making progress despite the prolonged series of disappointing earnings. Macro weakness hit both ESL and Telko in Q3; we see the segments positioned to improve despite macro headwinds. Our TP is now EUR 9.25 (9.50); we rate Aspo HOLD (BUY).

ESL’s cargo volumes disappointed projections

ESL Shipping’s Q3 EBIT of EUR 4.4m is a step forward on the path towards a materially elevated earnings level. However, we expected the dry bulk carrier to achieve a EUR 5.3m EBIT for the quarter and as such view the result disappointing. ESL shipped 4.2 million tonnes of dry cargo in Q3, which according to our view fell almost 10% short of expected levels. The company comments the volume miss was especially due to low Nordic steel industry shipments, although softness was seen also in other cargo categories such as forest products. Besides the weak Q3 cargo development, the report had a silver lining as Aspo says the LNG-powered vessels and AtoB@C are performing strong.

Chemicals prices remained soft, pressuring Telko earnings

Telko’s underlying Q3 volumes grew by 8% y/y, yet revenue decreased by 4% as plastics and chemicals prices extended their slide. The cited 16% y/y and 3% q/q chemicals price decreases meant Telko’s EUR 74.7m in Q3 revenue and EUR 2.4m EBIT fell short of our respective EUR 81.5m and EUR 2.7m estimates. This led to EBIT margin decreasing by more than 100bps y/y. However, such a comparison is not very meaningful due to the big drop in prices, and we note the 3.2% Q3 EBIT margin a clear improvement relative to Q2 as prices have continued soft. We view the figure as evidence that Telko is making progress in improving working capital management.

Aspo’s key segments were affected by macro weakness

We leave our Q4 estimates for ESL intact despite the earnings miss as we see certain positive comments (such as good demand for loading operations) balancing the negatives regarding transportation volume softness. We expect ESL to achieve EUR 5.5m in Q4 EBIT, thus bringing FY ’19 EBIT to EUR 15.7m. We update our estimates for Telko to reflect the latest market developments. We now expect Telko to achieve EUR 2.7m in Q4 EBIT (we previously expected EUR 3.0m) and thus see the chemical distributor’s FY ’19 EBIT at EUR 9.8m. We note the uncertainty is elevated concerning Telko’s profitability going forward. On the positive side, we see the company making progress with its efficiency improvement program, and thus in an improved position to post better results should markets stabilize. On the other hand, the market and price outlook stays clouded for now. Leipurin’s machinery business continued to strain profitability, and Aspo sees the business line will post an annual loss. A change in schedule for a significant Russian machinery delivery leads us to cut our Q4 EBIT estimate for Leipurin to EUR 1.0m from the previous EUR 1.3m. On the positive side, Aspo’s group administration costs only amounted EUR 0.9m (has been previously hovering around EUR 1.3m).

We update our TP, rating now HOLD (BUY)

We update our estimates, and now expect Aspo to record EUR 24.0m in FY ’19 EBIT. We expect ESL to further improve going forward and see Telko improving materially should markets and plastics and chemicals prices stabilize. Aspo left its FY ’19 guidance intact, indicating accelerating performance for Q4 and a minimum of EUR 8.3m in EBIT. Our new TP is EUR 9.25 (9.50), rating now HOLD (BUY).

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