Aspo - Teething problems with cranes

Aspo’s Q4 EBIT didn’t meet our expectations as ESL Shipping suffered from serious technical problems with cranes. Both MS Viikki and MS Haaga, the two new LNG vessels, were impacted, leading to inefficient operation. The warranty repairs should be completed by the end of Q1’19. Telko’s Q4 results were in line with our estimates, while Leipurin fell short. We update our rating to BUY (HOLD).

ESL is on path to EUR 25-30m EBIT in the coming years

The deployment of ESL Shipping’s new LNG vessels has been slowed down by both ships’ mechanical problems with cranes. The problem concerns all the six cranes. In the meantime, other ESL ships have been filling in the slack for the SSAB contract. The crane supplier, Cargotec MacGregor, is expected to fix the problem by the end of Q1. In other words, the first quarter of 2019 will be similarly sluggish for both vessels. While this is an inconvenient setback, the company expects the vessels to meet the high requirements starting from the second quarter. ESL Shipping has a target of net sales above EUR 200m and an EBIT margin of 12-15% by 2020. We expect ESL to reach an EBIT of EUR 23m in 2019 and EUR 28m next year. We previously expected comparable figures of EUR 25m and EUR 29m.

Telko should accelerate margin gains during 2019

Aspo has set Telko a 2020 sales target of EUR 300-350m, while the EBIT margin should be in the 6-7% range. One of the key measures for reaching this profitability level is the improvement of procurement efficiency. The company expects to see results regarding the planning and rationalization of raw material purchases by the end of 2019. Telko was able to reach an EBIT margin of 4.5% in 2018, improving by about 40bps.

Aspo long-term outlook intact, higher multiples boost SOTP

Our expectations for ESL and Telko are unchanged. Valuation multiples have lifted since late December, when Aspo revised its outlook for the final quarter. As a result, we see the sum-of-the-parts valuation providing added support for the shares. We raise our target price to EUR 9.75 (9.25) and upgrade to BUY rating.

Open Report