Exel continued to perform despite the pandemic. In our view the company remains positioned for strong organic growth in the years to come. The strategic priorities now work solid. Our TP is EUR 11 (10); retain BUY rating.
Exel continued to perform despite the pandemic. In our view the company remains positioned for strong organic growth in the years to come. The strategic priorities now work solid. Our TP is EUR 11 (10); retain BUY rating.
The strategic priorities have already delivered results
In our view Exel Composites is a competitively positioned player in the materials value chain and operates in a niche that has a strong long-term growth outlook. The company manufactures composites for demanding industrial applications. Strategy execution paid off in 2019-20 as adjusted operating profit almost doubled to EUR 9.7m in FY ’20 from the level seen in FY ’18. The excellent financial performance was due to a pick-up in organic growth as well as successful cost reduction measures, both of which helped the company to scale the relatively high fixed cost base. Exel seems to have found an advantageous positioning within the Wind power customer industry but also in areas like Buildings and infrastructure, among many others.
Growth outlook continues to support profitability gains
Exel posted a 5% organic top line growth last year despite the pandemic. Wind power was a big driver but there were other notable positives such as Machinery and electrical. Transportation and Telecommunications were the only two customer industries, out of the seven, with revenue declines. The pandemic may still hurt Transportation demand this year but in our view the area has good long-term outlook. Telecommunications is the one industry with a bit muted outlook but even there the situation may improve with the rollout of 5G. Exel guides increasing revenue and adjusted EBIT for this year. We estimate 7% growth and an additional EUR 1m EBIT gain. We view Exel positioned for ca. 5-6% CAGR in the years to come.
We see more room for earnings-based multiple expansion
Exel has been historically valued around 8x EV/EBITDA and 0.9x EV/S. The current valuation is ca. 8.5x EV/EBITDA on our estimates for this year, in other words not that high in the historical context even though the shares have appreciated a lot. Profitability gains have justified the rally. The valuation is now historically rich in terms of EV/S, but we also find this justified since the strategy is poised to deliver more in the years to come. Our TP is now EUR 11 (10) per share. We retain our BUY rating.
Pihlajalinna held its CMD yesterday, 30th of March. The focus of the event was on the company’s strategic priorities and the future of the social and healthcare market. Financial targets remained unchanged. Thus, there were no changes in the big picture. We keep our rating “BUY” with TP of EUR 13.0 (12.0).
New opportunities in both, public and private side
Pihlajalinna highlighted its strategic priorities for the upcoming years as the market is changing in many ways (SOTE-reform, aging population etc.). The company aims to strengthen its already strong partnership with the public side and to engage in close cooperation with the future wellbeing services counties. In addition, Pihlajalinna will make renewals to its private services with new service concepts and digital innovation. Further, the company will continue to strengthen digitalization. The company has already had a strong focus on this and the importance of developing new digital solutions has only increased during the pandemic. The long-term financial targets (EBIT margin of over 7% and net debt/EBITDA under 3x) remained unchanged.
Big picture is unchanged
The main market drivers are unchanged as the Finnish population is rabidly aging which increases social and healthcare expenditures. Digitalization offers new opportunities and can improve efficiency. In addition, individuals’ interest in their own health is increasing which creates new opportunities in the preventive social and health care. The company seemed to be relatively positive about the future wellbeing services counties and cooperation opportunities stemming from these. However, Pihlajalinna has also strengthened its positioning e.g. in the occupational healthcare market and has widened its cooperation with insurance companies which reinforces our view that the company can grow in both, public and private side. Expanding the service network should also provide support for future partnerships.
“BUY” with TP of EUR 13 (12)
We have kept our estimates intact and expect 21E revenue growth of ~10% and adj. EBIT of EUR 27.3m (adj. EBIT margin of 4.9%). In 22E and 23E, we expect revenue growth of 5% and 3%. We expect profitability improvement to continue and expect adj. EBIT margin of 5.4% in 22E and 5.6% in 23E. With our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.3x and 13.8x which is 14% discount compared to the peers. We keep our rating “BUY” with new TP of EUR 13 (12).
Eltel has signed an agreement to divest its German High Voltage business to ENACO, a German service provider in the energy sector. Eltel classified its German High Voltage business as assets held for sale at the end of 2020 and the revaluation had EUR -5.7 million impact on Group EBIT in Q4/2020. The transaction is estimated to have negative cash flow effect of EUR 3.8 million. Eltel will as part of the divestment engage ENACO as a subcontractor for the completion of certain projects, which are expected to be completed during 2021 and 2022. The divestment is subject to customary approvals, and the transaction is expected to close during Q2/2021.
The divestment is in line with Eltel’s strategy and strengthens Eltel’s focus on the Nordic countries in which it has a market-leading position and the business model is more stable and repetitive. In 2020, Eltel’s German High Voltage business had about 75 employees and net sales of about EUR 10 million. After the divestments of the High Voltage and Communication business (in Q2/2020), Eltel has only the Smart Grids business left in Germany, which accounted for a smaller share of German net sales in 2020.
The divestment is relatively small and therefore has no effect on our current forecasts. In our estimates, we have already forecast the net sales of other business to decrease by EUR 26.9 million and we expect the share of other business to be ~10% of group net sales in 2021E. We maintain our TP of SEK 30 with BUY.
Talenom announced the acquisition of two accounting firms in Sweden and raised its net sales guidance to EUR 78-82m (prev. EUR 75-80m). We retain our HOLD-rating and target price of EUR 11.5.
Two acquisitions in Sweden, net sales guidance raised
Talenom continues to expand in Sweden by acquiring accounting firms Crescendo AB and Progredo AB and raised its net sales guidance for 2021. The acquired businesses had combined net sales of EUR 2.3m in 2020 and operating profit of EUR 0.3m. With the acquisitions Talenom expands to two new municipalities in Sweden, Östersund and Åre. As a result of the acquisitions Talenom raised its net sales guidance to EUR 78-82m (prev. 75-80m). The acquired businesses will be transferred to Talenom on April 1st, 2021. The acquisitions will not increase operating profit in the short term due to integration costs and the depreciation of the transaction and the operating profit guidance remains intact at EUR 14-16m. The purchase price at maximum corresponds to 1.1x and 8.0x net sales and EBIT respectively.
Minor increase to sales estimates
We have raised our 2021 net sales estimate to EUR 78.9m (prev. 76.7m) due to the acquisition and an overall minor increase in net sales expectations, with our operating profit estimate intact at EUR 15.3m. With the net sales guidance being revised this early on in the year, potential further acquisitions could likely prompt further revisions later on during the year, although the impact on earnings would likely not be as significant. The increased growth through the acquisitions, however, provide an additional base for continued organic growth and ramp up of operations in Sweden in the coming years.
HOLD-rating and target price of EUR 11.5
With only rather minor revisions to our estimate revisions we retain our target price of EUR 11.5 and HOLD-rating. Our target price values Talenom at approx. 43.5x 2021e P/E.
We initiate coverage of Enersense with a BUY rating and a TP of EUR 9.7. Enersense’s turnaround in profitability progressed well in 2020 and, in our view, the valuation looks moderate considering Enersense’s increased and healthier order backlog as well as potential synergies of the Empower acquisition.
2020 was a big year for Enersense
Enersense International Oyj is a service provider of emission-free energy solutions in the industry, energy, telecommunication, and construction sectors. In 2020, Enersense’s business changed significantly. Enersense acquired Empower, thus expanding its business from recruiting and resource management services to a solution provider for the Smart industry, Power, and Connectivity markets. Enersense also managed to improve its EBITDA from EUR -0.8m in 2019 to EUR 7.2m in 2020. The focus in 2021 is on improving profitability, growing in domestic and selected international markets, and continuing the integration of the Empower acquisition.
Our estimates for 2021E are at the midpoint of the guidance
In 2021E, we expect Enersense’s net sales to grow strongly as Empower’s figures are included in net sales for the full year. The order backlog has increased significantly from EUR 130m in August 2020 to EUR 300m at the end of 2020 and we expect this strong order inflow to support Enersense in reaching net sales of EUR 230m. In 2022-23E, we forecast the group revenue to grow by 3.2% and 3.0%, respectively. We estimate adj. EBITDA to increase from EUR 8.9m (6.2% margin) to EUR 13.5m (5.9% margin) in 2021E driven by the consolidation of Empower’s full-year figures, a healthier project portfolio, and streamlining of operations. We expect the synergies of the Empower integration to be more visible in Enersense’s profitability from 2022 onwards and EBITDA margin to increase to 6.5% in 2022E and 6.8% in 2023E.
BUY with a target price of EUR 9.7
In our view, the valuation looks moderate considering Enersense’s increased and healthier order backlog as well as potential synergies of the Empower acquisition. On our estimates for 2022E, Enersense is trading at EV/EBITDA of 5.5x and adj. P/E of 10.7x, which translate into discount of 21-28% to our peer group median. We initiate coverage with a BUY-rating and a target price of EUR 9.7. Our TP values Enersense at EV/EBITDA of 6.1x and adj. P/E of 11.8x for 2022E, which are still at 13-21% discount to peer group, reflecting Enersense’s lower profitability profile and as we look for more signs of further margin improvement and faster organic growth. If Enersense manages to increase net sales and improve margins in line with the midterm financial targets, there is further upside potential in valuation.
Gofore’s H2 results showed little signs of weakness and with the more recent acquisitions the growth pace is set to continue well into double-digit figures. We upgrade our rating to BUY (HOLD) with a target price of EUR 21.0 (16.0).
Strong organic growth in 2020 despite pandemic
Gofore reported H2 revenue of EUR 40.6m (pre-announced) and EBITA and adj. EBITA figures of EUR 5.0m/5.1m respectively (Evli EUR 4.8m/5.5m). The BoD proposes a dividend distribution of EUR 0.24 per share (Evli EUR 0.25). In 2021 Gofore expects that its revenue and adj. EBITA in 2021 will grow compared to 2020. Despite the pandemic, Gofore posted solid organic growth figures of 15.5% for the full-year 2020 and total growth of 21.7%.
Rapid growth to continue
Gofore completed the acquisition of change execution consulting specialist CCEA and its fully owned subsidiary Celkee, expected to have a revenue impact of approx. EUR 6m in 2021. With the newest acquisition and the Qentinel Finland acquisition in the latter half of 2020 as well as expectations of around 10% organic growth we now expect revenue growth of 28% in 2021, rapidly closing in on over EUR 100m annual sales. We expect adj. EBITA margins to remain relatively flat near the 15% adj. EBITA-% target, with the low scalability of the business model providing little further upside. Gofore had a healthy cash position of EUR 21m at the end of 2020, supporting potential further acquisitions. Overall demand appears to have remained at good levels after the initial dip in the early stages of the pandemic and the outlook remains favourable.
BUY (HOLD) with a target price of EUR 21.0 (16.0)
On our revised estimates we adjust our target price EUR 21.0 (16.0), valuing Gofore at approx. 30x 2021 P/E, and raise our rating to BUY (HOLD). Compared to peers, near-term valuation is quite stretched, but the solid performance and expectations of rapid growth along with further M&A potential certainly merits a higher valuation.
Gofore’s EBITA/adj. EBITA of EUR 5.0m/5.1m in H2 were somewhat in line with expectations (Evli 4.8m/5.5m). Revenue grew 32.5% to EUR 40.6m in H2 (pre-announced). Revenue and adj. EBITA in 2021 are expected to grow compared with 2020. Gofore’s BoD proposes a dividend of EUR 0.24 per share (Evli EUR 0.25).
Cibus’ Q4 report didn’t serve surprises. Our view on Cibus remains to a large extent unchanged, however we update our TP to SEK 170 (165) to reflect minor yield compression in the Swedish market. We retain our HOLD rating.
Transfer to the Nasdaq Stockholm main list happens in H1
Cibus’ EUR 16.7m Q4 net rental income was in line with our EUR 16.6m estimate. Administration expenses amounted to EUR 1.8m vs our EUR 1.5m estimate (there were non-recurring costs to the tune of EUR 0.5m). The planned switching to the Nasdaq Stockholm main list, to be completed in H1’21, as well as costs for conducting an inventory of fittings and equipment in the Swedish portfolio elevated administration expenses temporarily. Operating income was therefore EUR 14.8m vs our EUR 15.1m estimate. Net financial costs amounted to EUR 5.5m, compared to our EUR 5.2m estimate. There was a negative EUR 0.5m charge due to currency exchange rates. Net operating income then amounted to EUR 9.3m while we expected EUR 9.9m.
Still plenty of smaller property deals in the pipeline
Portfolio net rental income performance remains stable. Cibus has some small-scale plans to develop e.g. parking lots attached to the properties. The company also says it has plans for some adjacent residential developments in the Swedish portfolio. We understand these would entail only limited balance sheet risks. Cibus sees the Finnish market values stable and slight yield compression in the Swedish market. Last year was a banner for Cibus in terms of acquisition volume. The EUR 386m spree however doesn’t eat from this year’s target; Cibus is confident about completing another EUR 50-100m of add-ons in 2021.
There is upside if the underlying market yields compress
Cibus remains valued at 1.12x EV/GAV and 1.35x P/NAV. We view this premium level appropriate as Cibus still delivers high yields in comparison to other listed Nordic property portfolios. In our opinion the Nordic grocery and daily-goods store property space has some additional yield compression potential, considering the attractive 6% valuation levels where Cibus has been lately able to transact even relatively large (above EUR 100m) portfolios. We update our TP to SEK 170 (165) in anticipation of modest Swedish yield compression. We retain our HOLD rating.
Solteq reported slightly better than expected Q4 results. The solid performance is set to continue, and we see clear potential for a doubling of EPS in the coming years. We retain our BUY-rating with a target price of EUR 4.5.
Q4 slightly above expectations
Solteq reported slightly better than expected Q4 results. Revenue amounted to EUR 16.4m (Evli EUR 16.1m) and comp. EBIT to EUR 2.0m (Evli EUR 1.7m). Comp. growth amounted to 9.3%. The BoD proposed a dividend distribution of EUR 0.15 per share (Evli EUR 0.06). To our understanding the high payout ratio is due to no dividend payment in 2019, as such corresponding to an accrued two-year distribution, and we do not expect as high relative payout in the future.
2021 outlook favourable
In 2021 Solteq expects Group revenue to grow clearly and operating profit to improve. The profitability guidance sounds soft but with the on-going pandemic and the related uncertainties the guidance is understandably more cautious this early on in the year. We expect sales growth of 8.9% (prev. 3.7%) and an approx. 14% improvement in comp. EBIT to EUR 6.6m (prev. 5.5m). Growth and profitability is on our estimates largely attributable to Solteq Software, in particular due to project implementations and thereafter following accrual of recurring revenue from the Utilities-sector orders received in 2020. We see clear potential for a doubling of EPS during 2021-2022 compared with 2020, noting that 2020 was affected to some extent by non-recurring financial expenses.
BUY with a target price of EUR 4.5 (1.9)
Solteq’s share price has over doubled since our previous update. Compared with the Nordic software peers, valuation is still not very challenging. With Solteq Software on our revised estimates contributing more clearly to growth and earnings along with overall higher earnings estimates higher multiples are certainly justifiable. We raise our TP to EUR 4.5 (1.9), valuing Solteq at approx. 23x 2021 P/E, BUY-rating intact.
We initiate coverage of Eltel with BUY rating and a TP of SEK 30. We see that Eltel has the potential to succeed in its turnaround and, as such, we expect Eltel’s profitability to improve in the coming years and net sales to turn to growth in H2/2021. In our view, the margin improvement potential is not fully reflected in the current share price.
Eltel is in the midst of its turnaround journey
Eltel is the leading Nordic field service provider for critical power and communication networks. Eltel’s development since the IPO in 2015 did not meet expectations, and following a strategic review in 2017, Eltel has focused on its core businesses, Power and Communication in the Nordics, and the company is currently in the midst of a turnaround journey. The focus is on improving profitability, restructuring non-performing businesses, and strengthening its financial position, with first signs of operational improvement already visible.
We expect the recovery in margins to continue
In 2021E, we expect that net sales will decrease by 2.3% to EUR 916.8 million due to the focus on improving profitability and restructuring non-performing businesses. We expect net sales to turn to growth in H2/2021 and we see the targeted growth rate of 2-4% in the Nordics achievable from 2022 onwards. In 2022-23E, we forecast net sales to grow by 1.6% and 1.9% driven by growing 5G demand in the Nordics, as well as new frame agreements and contract expansions. Eltel has continued to take measures to improve operational efficiency and its exposure to risky and unprofitable projects has reduced over the past couple of years. In line with the guidance, we forecast operative EBITA margin to grow from 1.2% in 2020 to 2.6% in 2021E. Despite the right actions, we are more cautious in our profitability estimates compared to Eltel’s 5% EBITA margin target by 2023 and expect operative EBITA margins to be 3.3% and 3.8% in 2022-23E.
BUY with a target price of SEK 30
Eltel is currently moving in the right direction thanks to a healthier balance sheet, better quality of the order book with a focus on stable Nordic countries and a reduced risk-level of projects. On our estimates for 2022-23E, Eltel is trading at EV/EBITDA of 7.7x and 7.0x, which translate into discount of 11-14% to our peer group median. In our view, Eltel has potential to improve its profitability and the margin improvement potential is not fully reflected in the current share price. We initiate coverage of Eltel with a BUY-rating and a TP of SEK 30. Our TP values Eltel at EV/EBITDA of 8.3x and 7.6x for 2022-23E, which are still slightly (~7%) discount compared to our peer group, reflecting Eltel’s lower profitability profile and as we look for more signs of further transformation progress.
Cibus’ Q4 report was unsurprising, although administration and financial expenses were slightly higher than we estimated.
Solteq’s Q4 was slightly above expectations, with revenue at EUR 16.4m (Evli EUR 16.1m) and comp. EBIT at EUR 2.0m (Evli EUR 1.7m). Solteq expects that Group revenue in 2021 will grow clearly and for the operating profit to improve. Dividend proposal EUR 0.15 (Evli EUR 0.06).
Tokmanni - The era of discount retailing Equity Research Read full report here → Tokmanni’s 2010-2020 revenue CAGR was 5.4%. At the end of 2020, Tokmanni had 192 stores across the country and it is the largest general discount retailer in Finland. We expect 21E revenue growth of 1.5% and adj. EBIT margin of 9%. We keep our rating “BUY” with TP of EUR 20.
Largest general discount retailer in Finland
Tokmanni is the largest general discount retailer in Finland. Tokmanni’s revenue CAGR in 2010-2020 was 5.4%. Tokmanni reached its targeted EUR 1bn in sales in 2020 with further store network expansion and strong LFL growth. Revenue grew by 13.6%. The company also reached its adj. EBIT margin target of ~9% (9.3%) last year. The company had 192 stores across Finland at the end of 2020 and 98.8% of Tokmanni’s revenue came from physical stores.
2020 was a record year
2020 was exceptional year due to the coronavirus and the company clearly benefited from the changed environment and consumer behavior as LFL revenue increased by 12.3%. It is also noteworthy that the company has been able to attract new customers with broad product assortment and affordable prices as the share of new customers was 20% in 2020. The company targets to increase its retail selling space annually by 12,000m2 which means approx. 5 new stores per year. Additionally, Tokmanni’s long-term target is to achieve low single digit LFL revenue growth. The company will set its refined strategic targets in connection with the CMD which takes place in March.
“BUY” with TP of EUR 20
We expect 21E revenue to increase by 1.5% to EUR 1089m. In 22E-23E we expect revenue to grow by 3.5% and 3.4%, respectively. We expect 21E adj. EBIT to be on a par with last year and adj. EBIT margin of 9%. In 22E, we expect adj. EBIT margin of 9.2% and in 23E, 9.3%. We approach Tokmanni’s valuation through our scenario analysis and valuation multiples. Our scenario analysis consists of three scenarios: base case, optimistic and pessimistic. The scenario analysis yields a fair value of EUR 20. On our estimates, Tokmanni trades with 21E-22E EV/EBIT multiple of 13.8x and 12.9x, which is 6-7% discount compared to the Nordic non-grocery peers and 17-18% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 20.
Fellow Finance reported H2 results in line with our expectations. Growth is expected in 2021, with investments into growth and new products seen to keep net earnings negative. We retain our HOLD-rating and target price of EUR 2.8.
H2 results in line with expectations
Fellow Finance reported H2 results quite in line with our expectations. Revenue amounted to EUR 5.3m (Evli EUR 5.5m) and adj. EBIT to EUR 0.7m (Evli EUR 0.7m). Adj. EPS amounted to EUR -0.02 (Evli EUR -0.01). Commission fees declined 44% y/y while interest income increased 16%. Facilitated loan volumes declined some 30% y/y. The BoD as expected proposes that no dividend be paid for FY2020. Fellow Finance expects revenue growth in 2021 compared with 2020 and to remain slightly unprofitable on net earnings level due to investments into new products and growth.
Supportive factors for growth in place
We expect growth of 7.5% in 2021 and adj. EBIT and adj. EPS of EUR 0.9m and EUR -0.04 respectively. We expect growth to be supported by a good traction in business financing, invoice funding in particular, and easing of temporary regulations on consumer financing in key markets. Investor sentiment also appears better compared with mid-2020 and new co-operation agreements such as the recently announced co-operation with Dynamic Credit also aid loan funding concerns. The new strategic initiatives within payment and e-commerce financing will also aid growth but the impact on 2021 will likely not yet be significant.
HOLD-rating and target price of EUR 2.8
We have made some larger downward revisions to our near-term estimates based on the new guidance. Without clearer signs of Fellow Finance moving towards its targets of around EUR 23m revenue and 15% EBIT-margin in 2023 we currently do not see clear upside potential to valuation. We retain our HOLD-rating and target price of EUR 2.8.
Cibus reports Q4 results on Feb 25. We update our estimates to include the latest purchase. We see no big picture changes; we retain our SEK 165 TP, rating HOLD.
Cibus’ GAV grew by 43% last year
2020 was an extraordinary year for Cibus only in the sense that the company was very busy with acquisitions. Cibus acquired about EUR 375m worth of properties in Finland and Sweden, financed in part by two equity issues that raised a combined EUR 125m. The first large Swedish portfolio acquisition was completed in March just before the pandemic lockdown. Cibus completed another large Finnish portfolio acquisition in December, and we update our estimates accordingly before the Q4 report. The latest deal adds some EUR 7m in annual net rental income capacity but will only contribute around EUR 0.3m in Q4. Cibus’ quarterly administration expenses are budgeted at EUR 1.1m; we estimate the Q4 figure a bit higher at EUR 1.5m due to the acquisition. We thus see operating income at EUR 15.1m. There should be no major extraordinary financial expenses and so our bottom-line Q4 estimate, before taxes, is EUR 9.9m.
Some more acquisitions are to be expected
The pandemic has had very limited impact on Cibus. Portfolio performance is unchanged. Cibus still has a long pipeline and is likely to add another EUR 50-100m of assets through smaller transactions this year. Cibus will probably expand to either Norway or Denmark (or both) in the coming years. The expansion is somewhat unlikely to happen this year as Cibus would prefer to inspect the properties on location. Vaccination progress now suggests travel remains difficult until at least the end of the year. Meanwhile Cibus has plenty of prospects in Finland and Sweden. The recent EUR 116m in Finnish additions imply 6% net rental yield. The figure represents some 100bps extra on Cibus’ similar metric, meaning add-ons are attractive. These relatively low valuations however limit Cibus’ shares current upside potential.
We continue to view valuation neutral
Cibus is valued at 1.13x EV/GAV and 1.37x P/NAV. The premium on book value is warranted considering Cibus’ still attractive ca. 4.75% yield, compared to the below 4% yield seen in the wider Nordic property sector. We continue to consider Cibus’ current valuation neutral. We retain our SEK 165 TP and HOLD rating.
Fellow Finance’s H2/2020 results were quite in line with expectations, with revenue of EUR 5.3m (Evli EUR 5.5m) and an adj. EBIT of EUR 0.7m (Evli EUR 0.7m). Fellow Finance expects growth in 2021 but for the result to remain slightly unprofitable due to growth investments. The BoD proposes that no dividend be paid for FY2020 (Evli EUR 0.00).
Pihlajalinna’s Q4 result and dividend proposal outpaced the expectations. We have increased our 21E estimates and expect revenue growth of 10% and adj. EBIT margin of 4.9%. We upgrade to “BUY” (“HOLD”) with TP of EUR 12 (10.5).
Positive surprise with Q4 result
Pihlajalinna’s Q4 result outpaced the expectations. Revenue increased by 2.6% y/y to EUR 137.2m (135.2m/135.5m Evli/cons). Revenue growth was driven by increased COVID-19 testing volumes which increased by 67% compared to the previous quarter. At the same time, customer volumes in private clinics locations were 10% lower compared to the comparison period. Adj. EBIT improved by ~31% to EUR 7.3m (5.3m/4.8m Evli/cons). 2020 dividend proposal of EUR 0.20 beat also clearly the expectations (0.12/0.09 Evli/cons).
Revenue streams from several sources
Pihlajalinna’s measures taken towards improved profitability have worked and we expect the company is able to increase its profitability further. Pihlajalinna has growth opportunities in several markets and the company has strengthened its positioning e.g. in the occupational healthcare market (e.g. Työterveys Virta). The company has expanded its operations in the public side as the services of Selkämeren Terveys Oy began in the beginning of the year. The Huhtasuo health center outsourcing started in December. Additionally, Pihlajalinna won a significant proportion of a competitive bidding process for the outpatient clinic, surgery, and inpatient services of the Northern Ostrobothnia Hospital District in early 2021.
“BUY” (“HOLD”) with TP of EUR 12 (10.5)
Pihlajalinna expects 2021 revenue to increase clearly and adj. EBIT to improve clearly compared to 2020. The company will introduce its updated strategy soon and we expect to get more color on that in connection with the CMD which takes place in late March. We expect 21E revenue growth of ~10% (EUR 559m) and adj. EBIT margin of 4.9% (EUR 27.3m). On our estimates, the company trades with 21E-22E EV/EBIT multiple of 15.6x and 13.2x which translates into 12-13% discount compared to the peers. We upgrade to “BUY” (“HOLD”) with TP of EUR 12 (10.5).
Next Games H2 results were overall rather neutral, with the highlight being the continued good publishing operations profitability. The new games appear to be well on the way but larger scale ramp-up will likely have to wait until H2/2021. We retain our SELL-rating with a target price of EUR 1.8 (1.6).
Rather neutral H2, good publishing operations profitability
Next Games H2 revenue was EUR 12.8m (Evli 13.6m) and adj. EBIT EUR -0.2m (Evli 0.5m). Apart from an overly optimistic view on the contribution of the new projects on our part the H2 figures were quite as expected, with the gross bookings of the NML and Our World games in line with our expectations. NML continued on a rather steady trajectory while Our World metrics continued on a declining trend. Publishing operations EBITDA was at a good level of EUR 3.0m (Evli EUR 3.4m) and FY2020 publishing operations EBITDA-% was at a commendable 24%.
New games key factor in 2021
Next Games expects revenue in 2021 to amount to over EUR 40m and for EBITDA to remain positive. Based on the comments for the plans to scale the new games (Blade Runner Rogue, Stranger Things: Puzzle Tales) we see that in our former estimates our scaling assumptions may have been too optimistic. The Blade Runner Rogue game is set for launch in its main market the US in Q1. The Stanger Things game was launched in certain markets in December 2020 and is set for certain feature updates before larger scale up. We have adjusted our 2021 revenue estimate to EUR 44.2m (prev. 50.5m) and EBITDA estimate to EUR 2.1m (1.7m). We expect larger ramp-up in scaling of games during H2.
SELL with a target price of EUR 1.8 (1.6)
Next Games remains a growth company, with yet little proof of growth on group level in previous years. Success of new games is crucial, both for growth and improvements in cash flows, with the proportionately high share of R&D affecting profitability and cash position. On our new estimates and with increases in peer multiples we raise our TP to EUR 1.8 (1.6), SELL-rating intact.
Vaisala’s Q4 missed expectations, but overall Vaisala managed to perform well in 2020 despite the pandemic affecting especially W&E. IM’s performance was once again strong, even in difficult environment. Vaisala’s guidance for 2021 was cautious, despite Vaisala seeing market starting to gradually recover and new orders picking up nicely. Based on the report, we’ve lowered our 2021-23E estimates and continue to see valuation expensive, thus we maintain our TP of 32€ and SELL rating.
Q4 orders received picked up nicely in both BU’s
Vaisala’s Q4 result missed ours and consensus expectations, but strong order intake growth for both BU’s surprised positively and order book remains at good level. Q4 net sales decreased by -10% to 106.9 MEUR (109.5 Evli /108 cons). Q4 EBIT came in at 12.2 MEUR (14 Evli / 13.6 cons), resulting in 11,4% EBIT-margin (Q4’19: 17.7 MEUR, 15% EBIT-margin). Orders received grew +8% to 111.9 MEUR vs. 103.3 MEUR last year. Orders received grew +7% in W&E and +11% in IM. Order book was 137.8 MEUR vs. 139 MEUR in Q4’19. W&E fell short of our expectations; net sales decreased by -16% to 67 MEUR vs. 73.5 MEUR our expectation. W&E EBIT was 5.2 MEUR (7.3 MEUR Evli), resulting in 7,8% EBIT-margin (Q4’19: 14,7%). After a few weaker quarters, IM continued its strong performance, beating our estimates; net sales grew 10% to 39.9 MEUR vs. 36 MEUR our expectation. IM EBIT was 8.3 MEUR (6.8 MEUR Evli), resulting in 20,8% EBIT-margin (Q4’19: 15,1%). Dividend proposal is 0.61 (0.63 Evli / 0.63 cons).
Despite solid performance and expected market recovery, outlook remained cautious
Looking at 2020, Vaisala managed to perform well despite the pandemic affecting especially W&E and creating uncertainties regarding deliveries. IM’s performance was once again strong, even in difficult environment. While W&E 2020 net sales and EBIT declined -10% and -17,5% respectively (on high comparison figures), IM 2020 net sales and EBIT grew 1% and 22%. In addition, IM is currently seeing strong growth led by pharmaceutical customer segment which includes COVID-19 vaccine suppliers. Despite continued uncertainties due to the pandemic, Vaisala sees market gradually recovering in 2021, except for meteorology market in developing countries. Vaisala issued 2021 guidance expecting net sales between 370–400 MEUR and EBIT between 30–45 MEUR. Pre-Q4, both we and consensus 2021E expectations were above the EBIT guidance. The outlook was a disappointment, given the decent performance last year, new orders picking up, lower opex level and expected market recovery.
With the rather successful completion of the rights issue, raising some SEK 214m, Endomines is now looking to restart production, with first significant production likely to be seen in H2. We retain our HOLD-rating with a target price of SEK 2.7 (2.9).
Earnings clearly short of estimates
Endomines as expected did not report any significant revenue in Q4 (SEK 0.7m/0.5m act.*/Evli), as Friday has been under care and maintenance. EBIT fell clearly short of our estimates (SEK -99.0m/SEK -16.9m act.*/Evli) due to payments for claims of the US Grant project and write-downs of assets performed at the year-end. As expected, no dividend distribution was proposed. *Figures not reported, derived from Q1-Q3 and 2020 figures.
Production to ramp-up in H2
Endomines did not give a production guidance for 2021, aiming to give a guidance in connection with the Q1 release. Deepening of the Pampalo is expected to start mid-H1 while the goal is to have the first gold production by the end of the year. Production start at Friday will be somewhat dependent on how long the spring thaw will last but Endomines expects to be able to ramp-up production by early summer. Endomines completed its rights issue in January, raising approx. SEK 214m, which is a much-needed support to the previously very tight liquidity situation. Although the proceeds fell short of the target, the outcome is in our view still quite decent given the pressed financial situation the company has been facing. The Coronavirus pandemic is still causing some stir in supply chains but should not have any major short-term impact given the time the company has had to prepare for restarting production at Friday.
HOLD with a target price of SEK 2.7 (2.9)
We have made changes to our estimates, with the outcome of the rights issue vs. the assumed full subscription causing the largest changes to our SOTP model, along with the slight pressure to gold prices in Q1. We adjust our target price to SEK 2.7 (2.9) with our HOLD-rating intact.
Marimekko’s Q4 result met the expectations with revenue growth of 8% y/y. Adj. EBIT improved by ~90%. The outlook remains good despite the uncertainties related to the pandemic. We keep our rating “BUY” with TP of EUR 57 (50).
Q4 result met the expectations
Marimekko’s Q4 result was somewhat in line with the expectations. Revenue increased by 8% y/y to EUR 37m (38m/38m Evli/cons.). Revenue was driven by good wholesale sales development in Finland, EMEA and Scandinavia. Customer numbers in stores declined as the pandemic situation worsened towards the end of the year. This impacted negatively on retail sales. On the other hand, retail sales were supported by strong growth in online sales. Adj. EBIT amounted EUR 5.8 (+90% y/y) vs. 5.0m/4.7m Evli/consensus. Profitability was boosted by increased sales and decreased fixed costs but at the same time, gross margin declined, resulting from increased online sales. 2020 dividend proposal is EUR 1.0 (1.2/1.1 Evli/cons.).
The outlook remains bright
Fashion industry has faced enormous losses due to the pandemic but despite the situation, the management of Marimekko has shown good capabilities of being able to adjust to the current environment. This reinforces our view of the company’s ability to grow profitably in the future as well. Marimekko is also benefiting from the changed consumer behavior where sustainability plays a big role. Marimekko expects sales in Finland and APAC-region to grow in 2021. Domestic wholesale sales will be boosted by nonrecurring promotional deliveries and a vast majority of those will take place in H2’21. Marimekko expects to open ~5-10 new stores and shop-in-shops in 2021 of which most openings will be in Asia.
“BUY” with TP of EUR 57 (50)
The ongoing pandemic situation is still impacting on Marimekko’s sales and we expect the situation to normalize in H2E. Marimekko expects 21E sales to increase from 2020 and adj. EBIT margin to be on a par with the long-term target of 15%. We have slightly increased our estimates and expect 21E sales of EUR 135m (+10% y/y) and adj. EBIT of EUR 20.5m (15.2% margin). On our estimates, the company trades with 21E-22E EV/EBIT multiple of 20.1x and 16.9x which is 50-70% premium compared to the premium peers. We see the premium acceptable due to the strong revenue and profitability development. We keep our rating “BUY” with TP of EUR 57 (50).
Exel beat estimates; we see the share is still not expensive all considered. Our TP is now EUR 10.0 (7.25), rating BUY.
Broad positive development continued
Exel recorded EUR 27.5m in Q4 revenue, up 4% y/y. The figure was a bit above the EUR 27.2m/26.5m Evli/cons. estimates. Wind power’s order timings meant the segment’s EUR 6.6m top line, down 6% y/y, didn’t meet our EUR 8.9m estimate. Relative strength in other segments nevertheless helped to make up. Buildings and infrastructure developed especially strong and Exel continues to see potential in the segment due to e.g. cable core rods. The segment’s EUR 7.0m Q4 revenue (up 22% y/y) was way above our EUR 5.1m estimate. Favorable mix and further efficiency gains helped Exel to EUR 2.7m EBIT in Q4 vs the EUR 2.2m/1.8m Evli/cons. estimates. Operating margin was thus again in line with the above 10% long-term target. Order intake also grew by 6% y/y, which indicates brisk start for the year and is notable considering the high comparison figure.
We estimate EBIT at EUR 10.7m this year
Exel is positioned for 5-6% top line growth in the coming years. There are now other segments rising with Wind power. Wind however remains important and we see no reason why it wouldn’t contribute growth also this year. Global wind capacity grows by big numbers and we expect the Exel segment to post double-digit growth also in FY ’21 (up 19% in FY ’20). The Austrian plant is up and ready to serve European accounts across many segments, perhaps with a tilt towards Machinery and electrical, a segment we understand has relatively high gross margins. Exel already achieved high operating margin last year, and we estimate good potential for further gains. Since the EUR 8.5m Austrian investment has now been completed we see a solid organic growth outlook with relatively low EUR 5m annual capex levels. We make only small adjustments to our estimates.
Valuation is still not demanding all things considered
Exel is valued at ca. 8x EV/EBITDA and 12x EV/EBIT on our FY ’21 estimates. In our opinion Exel is making solid progress towards long-term targets; we see the company reaching an annual 10% EBIT margin already in FY ‘22. This achievement would help the respective earnings multiples to decrease to around 7x and 10x levels next year. Our TP is now EUR 10.0 (7.25), retain BUY rating.
Scanfil’s Q4 didn’t serve any major surprises, but the overall picture turned even more encouraging. Our new TP is EUR 8.0 (6.5). Our rating is now BUY (HOLD).
Q4 figures as well as FY ’21 guidance in line with estimates
Scanfil Q4 revenue, flat y/y at EUR 154m, met the estimates. The Communication segment’s top line remained a bit soft. This wasn’t big news as the Hangzhou divestment and low base station product sales were known. The pick-up in Consumer Applications’ demand was a positive surprise given that the segment had been underperforming already before the pandemic. Energy & Automation posted a respectable 18% organic growth. Industrial and Medtec & Life Science performed close to estimates. We view these two the most stable segments and positioned for ca. 5% growth in the coming years (it should be noted Medtec & Life Science hasn’t gained any meaningful demand due to the pandemic). Scanfil thus posted EUR 10.4m Q4 EBIT, compared to the EUR 10.0m/9.9m Evli/cons. estimates.
Both guidance and comments are encouraging
We revise our estimates up a bit as the guidance implies demand holds even in an environment best described as extraordinary. Our previous EUR 617m FY ’21 revenue estimate was close to the EUR 620m midpoint; we revise the figure up to EUR 625m. We continue to expect the same EBIT margin as before and so our EBIT estimate only increases from EUR 41.6m to EUR 42.2m. This is not a big quantitative difference, but the report adds confidence. Scanfil says outlook is perhaps a bit better now than a few months ago, in addition to which gross margin improved slightly in Q4. It thus seems unlikely the guidance will fail, particularly considering Scanfil’s history. The company’s balance sheet is ready for M&A, although any deal is not imminent. Relatively low capex needs also help the overall valuation picture, even if the share price has gained a lot in recent months.
Performance and outlook warrant higher valuation
In our opinion Scanfil’s extended track record and robust outlook justify higher multiples. Our updated EUR 8.0 (6.5) TP values Scanfil at about 8.5x EV/EBITDA and 12x EV/EBIT on our estimates for this year. Earnings growth would help to decrease the multiples to respective 8x and 10.5x levels next year. Our TP is now EUR 8.0 (6.5). Our new rating is BUY (HOLD).
Next Games' net sales in H2 amounted to EUR 12.8m, slightly below our estimate (EUR 13.6m Evli). The adj. EBIT was below our expectations at EUR -0.2m (EUR 0.5m Evli). Publishing operations profitability improved to EUR 3.0m (Evli EUR 3.4m) compared with EUR 1.5m in H2/19.
Pihlajalinna’s Q4 result outpaced the expectations. Q4 revenue amounted EUR 137.2m (+2.6%) vs. EUR 135.3m/135.5m Evli/cons, while adj. EBIT landed at EUR 7.3m vs. EUR 5.3m/4.8m Evli/cons estimates. Dividend proposal is EUR 0.20 vs. EUR 0.12/0.09 Evli/cons. 2021 revenue is expected to increase clearly and adj. EBIT is expected to improve clearly compared to 2020.
Finnair - Waiting for better times Equity Research Read full report here → Finnair’s Q4 figures were ugly, as expected. As the pandemic situation prolongs, we expect slow recovery to start during the summer but better improvement is expected to start in late 2021. We keep our rating “HOLD” with TP of EUR 0.60.
Revenue declined by 87% y/y
Once again, Finnair reported ugly quarterly figures, as the coronavirus situation is not showing any signs of abating. Strict travel restrictions remained, and there was an overall lack of demand during Oct-Dec. Finnair’s Q4 revenue decreased by 87% y/y to EUR 102m (94m/101m Evli/cons.). Adj EBIT was EUR -163m (-172m/-167m Evli/cons.). Q4 ASK decreased by 89% and PLF was 29.2% (-49.8pp). No dividend is distributed for 2020.
Recovery expected to start during the summer
According to the company, the comparable operating loss in Q1 will be of a similar magnitude as in Q2-Q4’20. The company continues to fly with limited network during Q1 and estimates that the travel begins to recover from summer 2021 onwards as the vaccination coverage increases and countries start lifting travel restrictions. However, the visibility remains weak and therefore the company is not giving revenue guidance for 2021. The company expects that traffic will recover to 2019 levels in 2023 (measured in ASKs). We expect Finnair is well positioned once the recovery starts and the profitability should improve notably due to the permanent cost savings target of EUR 140m from the beginning of 2022 (compared to 2019).
“HOLD” with TP of EUR 0.60
The State of Finland and Finnair are preparing an unsecured hybrid loan of up to EUR 400m which is expected to be finalized during the first quarter of 2021. As the company still has available funding, we are not concerned even if the pandemic situation continues throughout the summer. We expect H1’21E to remain extremely weak but slightly better recovery is expected to start in Q3E. We expect 2021E revenue of EUR 1545m and adj. EBIT of EUR -312m. We highlight that there are still significant uncertainties with our estimates. We keep our rating “HOLD” with TP of EUR 0.60.
Innofactor reported solid Q4 figures, adjusted for one-offs, and proposed the first dividend distribution in company history. We expect a pick-up in growth and continued margin improvement in 2021. We retain our BUY-rating with a target price of EUR 1.75 (1.45).
One-offs hampered otherwise solid figures
Innofactor reported in our view solid Q4 earnings. Although EBITDA was below our estimates at EUR 1.6m (Evli EUR 2.1m), a one-off of approx. EUR 1.0m relating to a final write-down and cost item of a customer project in Sweden was included, without which EBITDA would have clearly exceeded expectations. Net sales were also slightly above our estimates at EUR 18.3m (Evli EUR 17.6m), showing modest growth of 4.7% y/y. A dividend distribution of EUR 0.04 per share was proposed (Evli EUR 0.03), with authorization being sought for a further potential extra dividend of max 0.04 per share, which if granted and utilized in full would translate to a dividend yield of 5.6%.
Growth and improved profitability expected
Innofactor followed its usual line of guidance, expecting net sales and EBITDA to increase in 2021 compared with 2020. We expect sales growth of 6.4% and EBITDA-margins to improve to 13.1% (2020: 10.8%). With the good order backlog and a balance sheet supportive of acquisitions growth could pick up more clearly, but uncertainty, especially given the on-going pandemic, is still at higher levels and as such we are still wary of assuming higher growth figures. Innofactor is still quite some way from its 20% growth and EBITDA-% target but the targets do not appear to be quite as out of grasp as earlier.
BUY-rating with a target price of EUR 1.75 (1.45)
On our revised estimates we raise our target price to EUR 1.75 (1.45), valuing Innofactor at ~14x 2021 PPA adj. P/E, with our BUY-rating intact. Further upside potential compared to peer multiples still exists, but we consider further evidence of growth pick-up and earnings improvement mandated to justify a higher valuation.
Revenue in Q4 was as expected very limited, with Friday in care and maintenance. Profitability figures were burdened by US Grant payments and write-downs.
The pandemic continued to hamper Finnair operations during Q4. Finnair’s Q4’20 adj. EBIT was EUR -163m vs. our expectation of EUR -172m and consensus of EUR -167m. Revenue decreased by ~87% y/y and was EUR 102m vs. our expectation of EUR 94m and consensus of EUR 101m.
Innofactor’s Q4 results were on an adj. basis above our expectations. Net sales amounted to EUR 18.3m (Evli EUR 17.6m), while EBITDA amounted to EUR 1.6m (Evli EUR 2.1m). EBITDA included one-offs of EUR 1.0m and adj. figures were better than expected. Dividend proposal EUR 0.04 per share (Evli EUR 0.03). Net sales and EBITDA in 2021 are estimated to increase compared to 2020.
Exel Composites’ Q4 top line was slightly above estimates, but the strong profitability was a clear positive surprise. The overall impression is very solid.
Marimekko’s Q4 result was somewhat in line with expectations. Net sales were EUR 37m (8% y/y) vs. EUR 38m/38m Evli/cons. Adj. EBIT was EUR 5.8m vs. EUR 5.0m/4.7m Evli/cons. 2020 dividend proposal is EUR 1.0 vs. EUR 1.20/1.10 Evli/cons.
Scanfil capped 2020 strong and we didn’t find notable negatives from the Q4 report. Scanfil enters this year with confidence and the guidance is in line with the long-term organic growth targets.
Pihlajalinna reports its Q4 result on this week’s Friday, 19th of February. We have made only small adjustments to our estimates and keep our rating “HOLD” with TP of EUR 10.5 (9.5).
Expecting ~1% revenue growth in Q4
Despite the COVID-19 situation worsened towards the end of the year we expect a fairly good Q4 result. We expect Pihlajalinna’s Q4E revenue to grow by ~1% y/y to EUR 135m (cons. EUR 136m), supported by increased volumes of COVID-19 testing. On the other hand, as the virus situation has prolonged, we expect the demand of private services (e.g. fitness centers) is still lagging behind. We expect adj. EBIT of EUR 5.3m (cons. EUR 4.9m). We expect 20E dividend of EUR 0.12 (cons. EUR 0.09).
The virus is still hampering private services
The outlook of many private services e.g. fitness centers remains weak as the pandemic shows no signs of abating and the vaccinations haven’t started as quickly as first anticipated due to the delays in the vaccine supply. On the other hand, we expect the COVID-19 testing to continue strong, supporting revenue. The company started negotiations for the purchase of all shares in Työterveys Virta at the end of 2020 which gives Pihlajalinna almost 30 % share of the occupational healthcare market in the Oulu region. Revenue of Työterveys Virta in 2019 was approx. EUR 13.6m. The Due Diligence review has been completed, and the procurement has now advanced to the contract phase and approval of bills of sale. The total price of the shares with cash reserve is EUR 17.6m (meaning EV/Sales multiple of 1.3x). The acquisition is not yet included to our estimates.
“HOLD” with TP of EUR 10.50 (9.5)
We expect FY20E revenue of EUR 507m (-2.3% y/y) and adj. EBIT of EUR 18.8m. On our estimates, the company trades with 20E-21E EV/EBIT multiple of 23.3x and 15.9x. Which is 1-12% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 10.5 (9.5).
Verkkokauppa.com delivered a strong Q4 result which was in line with expectations. The company introduced its refined strategy for 2021-2025 and targets EUR 1bn of sales and EBIT margin of 5% by the end of 2025. We keep our rating “BUY” with TP of EUR 9.5 (8.3).
Solid Q4 result
Verkkokauppa.com’s Q4 result was strong, as expected. Revenue grew by 10% y/y to EUR 176m (171m/170m Evli/cons.). Revenue was boosted by good growth in mid-sized categories (especially MDA and sport equipment). Gross margin (15.1% y/y vs. our 14.6%) was driven by strong performance of mid-sized, higher margin categories. Adj. EBIT amounted EUR 6.2m (6.6m/6.3m Evli/cons.). 2020 dividend proposal of EUR 0.45 (0.23 plus additional dividend of 0.22) was clearly above expectations (0.23 Evli & cons.).
Targeting sales of EUR 1bn by the end of 2025
The company introduced its refined strategy for 2021-2025 and highlighted five pillars on what the growth will be built. These pillars are: excellent customer experience & strong brand, efficient fulfilment, superior technology backbone, extensive assortment and cost competitiveness. The company targets to reach sales of EUR 1bn and EBIT margin 5%. Growth is sought e.g. through core product categories and new categories with attractive margin potential, especially online. Further, the company aims to double its B2B and private label business by 2025. Also, new business and M&A opportunities are on the table. However, the growth will mainly be organic and stem from the transition from brick-and-mortar to e-commerce. The company is also investing to its warehouse in Jätkäsaari. The automation investment program (capex of EUR ~4m) is expected to be completed by the end of 2022. The investment supports further growth and creates cost efficiencies, boosting profitability development.
“BUY” with TP of EUR 9.5 (8.3)
The company expects 21E sales of EUR 570m-620m and adj. EBIT of EUR 20m-26m. Improved brand image, high customer satisfaction and investments into growth and more efficient operations reinforce our view of the company’s ability to grow profitably. We have increased our 21E-22E sales expectations by 4-7% and expect 21E sales of EUR 592m. Our adj. EBIT expectation is EUR 22m. On our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.0x and 14.2x, which translates into a discount compared to the peers. We keep our rating “BUY” with TP of EUR 9.5 (8.3).
Tokmanni’s Q4 result outpaced the expectations. The company was also able to reach its adj. EBIT margin target of 9% and sales target of EUR 1bn in 2020. New strategic targets are introduced in March. We keep our rating “BUY” with TP of EUR 20 (18.4).
Result outpaced the expectations
Tokmanni reported extremely strong Q4 figures. Revenue increased by 14.6% y/y to EUR 327m (vs. 315m Evli & cons.). LFL growth was 13.4% y/y. Sales development was at good level in all product categories. Online sales grew by 134% y/y and accounted for 1.4% of total revenue. Adj. gross profit amounted EUR 120m (36.8% margin) vs. EUR 110m Evli & consensus. Adj. EBIT totaled EUR 45m (38m/37m Evli/cons.). Dividend proposal was also clearly above expectations as it was EUR 0.85 per share vs. EUR 0.78 our view and EUR 0.74 consensus.
Financial targets met – new ones to come
Tokmanni’s target was to reach adj. EBIT margin of 9% which was exceeded last year. The company also exceeded sales of EUR 1bn. Tokmanni will introduce its revised strategic targets in connection with the CMD which takes place in March. We see that there is still gross margin improvement potential as the company aims constantly to increase the share of direct import and private labels. This boosts profitability development. We expect further growth in online sales, though the share is still expected to remain relatively low compared to the total sales (online sales grew by 124% in 2020). The company’s low price image combined with broad product assortment has paid off and the company has been able attract new customers. The share of new customers was 20% in 2020. Tokmanni has also launched a review on the possibilities of expanding the logistics center in Mäntsälä and we hope to get more color on that later during the year.
“BUY” with TP of EUR 20 (18.4)
Tokmanni expects slight growth in revenue in 2021. Adj. EBIT is expected to be at the same level as in the previous year. We have increased our 21E sales expectation by ~4% and expect sales of EUR 1089m (+1.5% y/y). We expect adj. EBIT of EUR 99m (9.1% margin). On our estimates the company trades with 21E-22E EV/EBIT multiple of 13.7x and 12.8x which is 7-8% discount compared to the Nordic non-grocery peers. We keep our rating “BUY” with TP of EUR 20 (18.4).
Raute’s Q4 was uneventful compared to preceding ones, not counting the large Russian order. Raute seems to be doing correct things from a strategic perspective, but we view the multiples simply too high given the current weak market environment. Our TP is EUR 21 (20), retain SELL.
Still no marked improvement in smaller project orders
Raute’s EUR 39m Q4 revenue was known before. The EUR 0.8m EBIT didn’t meet our EUR 2.0m estimate as the mix was tilted more towards projects than we expected. Inventory write-downs and pandemic restrictions were further headwinds. Order intake was EUR 70m (vs our EUR 74m estimate). Small project deliveries were booked only to the tune of EUR 3m (vs our EUR 7m estimate), excluding the EUR 55m Russian order. The figure can be compared to the EUR 2m seen in Q3’20 and EUR 4m in Q4’19. Technology services orders were EUR 12m as we expected, down by 8% y/y but improvement from the previous pandemic lows.
Results will improve in FY ‘21, we estimate EBIT at EUR 6m
Raute’s FY ’20 EBIT was negative due to low top line, unfavorable mix (low services share but also the fact that projects were tilted towards a large low-margin order), pandemic restrictions and high R&D investments. Revenue will be higher this year and services outlook is improving. The most acute phase of the pandemic has been passed and restrictions should fade away towards the end of the year, but FY ’21 EBIT potential remains limited due to the continued reliance on a large Russian order. The focus on R&D also remains. Raute’s strong Russian traction and the strategic focus on developing more competitive technology for emerging markets are long-term positives, but in the short-term perspective profitability outlook is still muted relative to the recent years’ avg. EUR 11m EBIT. European mill orders are also unlikely to reach the levels of recent high years.
Potential exists, but we view the multiples too steep
In our opinion Raute’s valuation still requires patience as there has not been, so far, any concrete sign of smaller orders picking up. Raute is now valued ca. 10x EV/EBITDA and 16x EV/EBIT on our FY ’21 estimates. The multiples could decrease to around 8x and 11x in the coming years. The outlook might well improve fast, but right now this doesn’t seem to be the case. Our new TP is EUR 21 (20). We retain our SELL rating.
Raute’s Q4 EBIT didn’t meet our estimate and order intake was also a bit soft, excluding the big new Russian project. In our view significant improvement in business conditions still waits.
Etteplan reported better than expected profitability figures in Q4. The guidance for 2021 is in line with our expectations and we make no larger changes to our estimates. Uncertainty in demand pick-up is still present and we expect a sluggish start to 2021. We retain our SELL-rating and target price of EUR 13.6.
Better than expected profitability in Q4
Etteplan reported solid profitability figures in Q4, with EBIT at EUR 7.1m (EUR 6.5m/6.6m Evli/cons.) and EBIT (excl. NRI’s) of EUR 7.4m. Revenue was slightly below expectations, at EUR 70.3m (EUR 71.8m Evli/cons.). Etteplan proposes a dividend distribution of EUR 0.34 per share (EUR 0.33 Evli/cons.). Positive news on the rollout of Coronavirus vaccines aided demand in Q4. In 2021 Etteplan expects revenue to amount to EUR 280-300m and EBIT to amount to EUR 23-26m.
Demand pick-up uncertainty but acquisitions boost growth
We have made only minor revisions post-Q4, with our estimates still near the mid-point of the guidance range (revenue EUR 288.9m and EBIT EUR 24.5m). Growth is aided by the Tegeman and TekPartner acquisitions and we expect double-digit growth. 2021 should start of somewhat sluggish but we expect demand to pick up going into mid-2021. Cost expansion after the strict cost discipline in 2020 and recruitments in 2021 should limit margin upside and we expect to see margins similar to 2020. The outlook for 2021 is looking brighter but we still see uncertainty in organic growth capabilities. Lockdowns and restrictions are continuing to impact the overall economy and the first half of the year in that regard appears challenging, but we are carefully optimistic going forward.
SELL with a target price of EUR 13.6
With no larger changes to our estimates we retain our target price of EUR 13.6 and SELL-rating. Our target price values Etteplan at 18x 2021 P/E, which we consider justified given the still present uncertainty.
Tokmanni’s Q4 revenue increased by 14.6 % y/y (LFL growth of 13.4%) and was EUR 327m vs. EUR 315m/315m Evli/cons. Tokmanni’s adj. EBIT was EUR 45m vs. EUR 38m/37m Evli/cons. Dividend proposal was EUR 0.85 vs. EUR 0.78/0.74 Evli/cons. The company expects slight growth in revenue in 2021. Adj. EBIT is expected to be on the same level as last year.
ESL helped Aspo Q4 EBIT top estimates. Both ESL and Telko now perform, but we see valuation already appreciates this fact. Our TP is now EUR 9.5 (8.75), rating HOLD (BUY).
ESL and Telko have now performed around target levels
Aspo’s EUR 133.5m Q4 revenue was in line with estimates (EUR 129.3m/132.9m Evli/cons.) while the EUR 7.6m EBIT was a positive surprise relative to the EUR 7.0m/7.1m Evli/cons. estimates. The EBIT beat was driven by ESL. The Q4 improvement in ESL’s operating environment didn’t come as a surprise, but in our opinion the EUR 4.8m Q4 EBIT was significantly better than expected (we estimated EUR 3.2m) considering the EUR -0.1m Q3 figure and the fact that top line and cargo volumes were still down from a year ago. ESL’s EBIT was indeed up from the EUR 4.4m comparative figure thanks to cost savings measures. Telko continued to perform close to expectations and posted a strong 6.2% operating margin. Meanwhile Leipurin EBIT declined to EUR 0.2m from the EUR 1.1m comparison figure.
Aspo didn’t issue numerical EBIT guidance range for FY ‘21
ESL’s strong Q4 profitability (already close to the 12% long-term margin target) is encouraging as there’s now sound evidence Aspo’s two main cylinders are firing and can perform close to their long-term target levels. In our view the recent performance levels indicate ESL and Telko should by themselves help Aspo reach EUR 30m EBIT this year. Aspo however didn’t give any numerical EBIT guidance range. According to the guidance EBIT will be higher this year, and as such the statement isn’t very informative. In our view ESL’s EBIT will improve a lot this year but is probably not going to reach EUR 20m yet. We revise our FY ’21 EBIT estimate for ESL only from EUR 16.3m to EUR 16.4m as environmental equipment installations mean there’ll be more lay-ups than usual. We expect Telko FY ’21 EBIT to grow by 9%.
We consider current valuation to land within a neutral area
We revise our Aspo FY ’21 EBIT estimate up only a bit to EUR 29.7m. This means ca. EUR 10m annual gain and in terms of EBITDA 25% y/y growth. In our opinion Aspo’s valuation, at least in terms of SOTP, already reflects significant earnings growth for this year. There’s likely to be more potential beyond ’21, however we don’t see these gains should be fully valued right now. Our new TP is EUR 9.5 (8.75) per share, rating HOLD (BUY).
Verkkokauppa.com’s Q4’20 revenue grew by 10% y/y and was EUR 176m vs. Evli EUR 171m and consensus of EUR 170m. Adj. EBIT was EUR 6.2m vs. EUR 6.6m/6.3m Evli/cons. Dividend proposal was EUR 0.45 (incl. additional dividend of EUR 0.22) vs. EUR 0.23/0.23 Evli/cons.
Finnair reports its Q4 result on next week’s Thursday, 18th of February. We expect Q4E revenue to decline by 88% y/y to EUR 94m and adj. EBIT of EUR -172m. We retain “HOLD” and TP of EUR 0.60 ahead the result.
Expecting Q4E revenue to decline by 88% y/y
In Oct-Dec, Finnair carried 278k passengers which is 92% decline compared to Q4’19. Average Seat Kilometers (ASK) decreased by 89% y/y and Revenue Passenger Kilometers (RPK) decreased by 96% y/y. Passenger Load Factor (PLF) declined by 49.8%-points y/y and was 29.2%. The pandemic situation worsened towards the end of the year and strict travel restrictions remained. We expect Q4E revenue of EUR 94m (-88% y/y) and adj. EBIT of EUR -172m.
New virus variants increasing fears
During Q4, Finnair finalized a sale and leaseback arrangement for one of its A350 aircrafts. The immediate positive cash effect is in excess of EUR 100m. The total positive net impact of the amendments to the terms of Finnair pension fund as well as pilots’ early retirement is EUR 133m on Q4 operating result (not affecting comparable operating result). According to the company, the comparable operating loss in Q4 will be similar to Q2-Q3’20. Despite the vaccine optimism the catastrophic situation threatens to continue at least throughout H1’2021 and deepen distress in the aviation sector as new virus variants are increasing fears and there are delays in the vaccine supply for Europe. Therefore, we have cut our H1’21E estimates and expect better improvement to start in the latter half of the year.
“HOLD” with TP of EUR 0.60
We expect FY20E revenue of EUR 821m (-74% y/y) and adj. EBIT of EUR -604m. We expect the situation to improve during 21E, but better improvement is seen later in 22E. However, there are still significant uncertainties with our estimates as visibility remains extremely weak. We keep our rating “HOLD” with TP of EUR 0.60 intact ahead the Q4 result.
Etteplan's net sales in Q4 amounted to EUR 70.3m, slightly below our and consensus estimates (EUR 71.8m/71.8m Evli/cons.). EBIT amounted to EUR 7.1m, above our and consensus estimates (EUR 6.5m/6.6m Evli/cons.). Etteplan proposes a dividend of EUR 0.34 per share (EUR 0.33/0.33 Evli/Cons.).
Aspo’s Q4 EBIT topped estimates thanks to ESL’s strong profitability. It is clear EBIT is set to improve this year, however Aspo did not disclose numerical EBIT guidance range.
Vaisala’s R&D leadership focused strategy and bolt-on acquisitions have paid off well during the last years. Dark clouds are currently hanging over W&E, but thanks to its strong financial position, and growing share of more profitable IM sales, we see Vaisala on track to targeted above 5% growth and above 12% EBIT margins. However, we continue seeing Vaisala’s valuation too expensive given the expected financial performance. We maintain our target price of 32€ and our SELL recommendation.
Maneuvering pass a challenging 2020
Vaisala has managed to maneuver pass the corona pandemic rather unscathed. Due to lowered operating expenses caused by the pandemic and good order book & deliveries, performance has been good in both BU’s. Currently, W&E is weighed down by the weakened outlook for aviation and lack of larger infra projects, especially in developed countries. IM on the other hand, is expected to be less affected by COVID going forward.
Profitable growth with R&D leadership strategy
Looking at the coming years, we see Vaisala’s targeted above 5% sales growth and >12% margins achievable despite current gloomy outlook for aviation. We expect the growing share of more profitable IM sales to continue supporting Vaisala’s growth and operating margin. In 2021E-22E, we estimate Vaisala’ net sales to grow by 4.5% and 5.3%, and EBIT margins of 12.2% and 12.6% respectively. We expect W&E market to begin to gradually recover in 2021E-22E with an annual growth rate of approximately 3% and W&E’s EBIT margins to gradually improve towards 7% in 2022E. For IM, we expect 2021E-22E continued profitable growth at 7% and 9.6% annual growth rates, respectively. We expect IM’s EBIT margins to stay above 20% in 2021-22E.
Maintain SELL as valuation is expensive
Vaisala’s share price has rallied in last few years and is currently around all time high levels. The share price rally is also visible in Vaisala’s valuation multiples, which have increased strongly since around mid-2019, resulting in a clear sustained valuation premium of 20-60% during this period. As peer group multiples have rerated as of late, Vaisala’s EV/EBIT and P/E valuation premium is now around 20-30% on our 2021-22E estimates. Despite recent surge in valuation multiples, we see valuation too expensive given Vaisala’s weaker growth rates and margins compared to our technology peer group. Thus, we maintain our target price of 32€ and our SELL recommendation. Our target price values Vaisala at 21-22e EV/EBIT multiples of 23x and 21x which is above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.
Talenom’s Q4 was rather well in line with our expectations and with our 2021 estimates corresponding well with the guidance our estimates remain largely intact. Preparations for continued growth remain on the agenda. Our target price remains unchanged at EUR 11.5, our rating is now HOLD (SELL).
Q4 report rather well in line with expectations
Talenom’s Q4 report all in all was rather well in line with our expectations. Net sales amounted to EUR 16.5m (Evli EUR 16.8m) and operating profit to EUR 2.4m (Evli EUR 2.6m). The BoD proposes a dividend distribution of EUR 0.15 per share (Evli EUR 0.15). In 2021 the company expects net sales to amount to EUR 75-80m and operating profit to amount to EUR 14-16m (Evli prev. est. EUR 77.3m and EUR 15.5m respectively). Further acquisitions during 2021 could still see net sales grow past the guidance range, while the typically lower profitability of acquisition objects should limit earnings growth potential.
Preparations and build up for future growth
We have made only minor revisions to our estimates. The year 2021 will to quite some extent be a year of preparing and building up the new growth avenues. Organic growth figures should still be somewhat weaker, but the company sees potential for sales efforts in 2021 to pave the way for better figures in 2022. The small customer concept rollout has progressed quite as planned and the launch in Sweden during 2021 also remains on schedule. We see a limited impact of the new concept on sales in 2021. No new relevant information on the plans to further expand internationally was given.
HOLD (SELL) with a target price of EUR 11.5
Our estimates at large remain intact post-Q4 and we make no adjustment to our target price of EUR 11.5. Our TP values Talenom at approx. 43x 2021 P/E. After the minor share price correction our rating is now HOLD (SELL).
We expect Etteplan to report solid Q4 figures and propose a dividend distribution of EUR 0.33 per share. With the acquisition of TekPartner we now expect double-digit growth in 2021. With valuation now at levels that we find hard to justify, we lower our rating to SELL (HOLD) with a target price of EUR 13.6 (12.4)
Solid fourth quarter expected
Etteplan reports Q4 results on February 11th. We expect Etteplan to report solid figures, with the guidance update given in December implying better figures than in the comparison period. Our Q4 net sales and EBIT estimates are at EUR 71.8m and 6.5m respectively. The fourth quarter development is seen to have been aided by a pick-up in customer investment activity following positive news on Coronavirus vaccine rollout. We expect Etteplan to propose a dividend distribution of EUR 0.33 per share.
Expecting return to double-digit growth
We have made adjustments to our estimates after the acquisition of TekPartner and expansion to Denmark. TekPartner’s revenue in 2019 amounted to approx. EUR 8m. We now expect growth of 11.2% in 2021. Growth is supported by the Tegeman and TekPartner acquisitions. The 2021 guidance will be of key interest. We would expect to see a guidance reflecting clear growth in revenue and possibly also EBIT, although with the uncertainties a more careful approach may be taken this early on in 2021. We have assumed relatively flat margin development in 2021, expecting the strict cost savings measures in 2020 to be phased out during the year and growth and internal project investments to pick up.
SELL (HOLD) with a target price of EUR 13.6 (12.4)
Etteplan’s share price has picked up clearly, now trading quite clearly above peers. Although we could find justification for valuation above that of peers, we have a hard time justifying current absolute valuation levels given the still present uncertainty. We adjust our target price to EUR 13.6 (12.4) on our revised estimates but downgrade our rating to SELL (HOLD).
Verkkokauppa.com reports its Q4 result on Friday, 12th of February. We have slightly increased our Q4E estimates ahead the result and keep our rating “BUY” with new TP of EUR 8.3 (6.5).
Expecting sales growth of 7% in Oct-Dec
Year 2020 has so far been an excellent year for Verkkokauppa.com and it has benefited from the changed environment and customer behavior (rapid shift into online). The final quarter is normally the most important one for Verkkokauppa.com in terms of both, sales and profitability and we expect the company to reach strong figures in Oct-Dec, driven by campaigns and Christmas. We have increased our Q4E sales expectation by ~1% and our adj. EBIT expectation by ~6%. We expect Q4E sales of EUR 171m (+7% y/y) and adj. EBIT of EUR 6.6m (+47% y/y). We expect 20E dividend of EUR 0.23.
Well positioned for the future
Last year was eventful not only due to the COVID-19 and its impacts on the consumer behavior but also due to Amazon which launched its operations in Sweden at the latter half of the year. In our view, the impacts of the launch on Finland were negligible but it is clear that the presence of the online giant will increase in Finland in the long run. Online sales have grown significantly which has benefited Verkkokauppa.com but the company has also taken right actions towards better profitability which reinforces our view that the company is able reach profitable growth even after the pandemic.
“BUY” with TP of EUR 8.3 (6.5)
We expect 20E sales of EUR 549m (+9% y/y) and adj. EBIT of EUR 20.8m (3.8% margin). Thus, our expectations are at the higher end of the given guidance (sales of EUR 525-550m and adj. EBIT of EUR 17-21m). On our estimates, the company trades with 20E-21E EV/EBIT multiple of 14.5x and 15.2x which translates into 40-50% discount compared to the peers. We keep our rating “BUY” with TP of EUR 8.3 (6.5).
Talenom's net sales in Q4 grew 10.4% to EUR 16.5m, in line with our and consensus estimates (EUR 16.8m Evli/cons.). EBIT amounted to EUR 2.4m, slightly below our and consensus estimates (EUR 2.6m Evli/cons.). Net sales for 2021 are expected to amount to EUR 75-80m and operating profit to EUR 14-16m.
Consti reported slightly better than expected Q4 results. We continue to expect minor sales growth in 2021 and improvement in operating margins. We adjust our target price to EUR 13.0 (12.0), BUY-rating intact.
Q4 slightly above expectations
Consti reported slightly better than expected Q4 results. Net sales amounted to EUR 78.1m (EUR 71.6m/71.1m Evli/cons.), with sales decline slowing down clearly compared to previous quarters and Q4 net sales down only 0.2% y/y. EBIT amounted to EUR 3.0m (EUR 2.7m Evli/cons.). A dividend distribution of EUR 0.40 per share is proposed (EUR 0.35 Evli/cons.). The order backlog was now down only 4.3% y/y, at EUR 177.9m, after a relatively decent Q4 order intake of EUR 54.3m.
Expecting margin improvement and minor growth
Consti expects an operating profit of EUR 7-11m in 2021, with our estimate unchanged at EUR 9.1m. Activity is seen to increase slightly y/y in 2021 and our net sales estimate is up some 3% to 281m, expecting minor growth of 2.3%. COVID-19 induced uncertainty is still at elevated levels, thus also the wider guidance range. Consti updated its strategy for 2021-2023, with clear focus on the customer focused organization. Perhaps most unexpected was the ambition to expand operations to new construction projects. This approach however appears to be more of a complementary offering to serve existing customers and the share of new construction projects could be seen to be some 10-15% of net sales at the end of the strategy period. In our view Consti now appears to be seeking to take more initiative after having focused on organizational changes and profitability improvement.
BUY with a target price of EUR 13.0 (12.0)
Consti’s valuation has continued to approach that of peers but is still not too stretched and with the good development and solid cash generation we see continued upside potential. We adjust our target price to EUR 13.0 (12.0), valuing Consti at 8.8x 2021 EV/EBITDA, our BUY-rating remains intact.
SRV’s Q4 results were quite in line with our expectations. 2021 guidance is slightly softer than anticipated but the wide range leaves room for solid figures in 2021. We have made minor downwards revisions to our estimates but good order intake during H1/2021 could swing our expectations more towards the upper half of the guidance range.
Results quite in line with expectations
SRV’s Q4 results were rather well in line with our estimates. Net sales in Q4 amounted to EUR 292.5m, quite in line with our and consensus estimates (EUR 294.1m/299.6m Evli/cons.). EBIT amounted to EUR -8.0m, slightly below our and consensus estimates (EUR -6.6m/-6.9m Evli/cons.). Although full-year EBIT was quite weak due to the booked negative changes in the value of investments in Q4, 2020 operating cash flow was at a commendable EUR 46.3m. SRV as expected proposed that no dividend be distributed for 2020.
Guidance slightly soft but room for solid figures in 2021
In SRV’s outlook for 2021 revenue is expected to amount to EUR 900-1,050m and operative operating profit to EUR 16-26m. Our earlier estimates (EUR 999m and EUR 23.8m) were slightly above the mid-point of the guidance range. The guidance is somewhat soft, but the upper points of the range still leaves room for a solid 2021. We have made minor downward revisions to our estimates, as we are not fully convinced on sales development given the order backlog and order intake. Solid order intake during H1/21 could still swing expectations more strongly towards the upper half of the guidance range. We now expect revenue of EUR 962.1m and operative operating profit of EUR 22.0m.
BUY-rating with a target price of EUR 0.64
SRV’s Q4 results and the outlook for 2021 all in all were quite as expected and although earnings remained quite weak more importantly cash flows were at good levels. We reiterate our target price of EUR 0.64 and BUY-rating.
Suominen’s Q4 figures were close to what we expected, but the report turned our overall view a bit more positive. Our TP is now EUR 6.5 (6.0) and we retain our BUY rating.
Q4 was a strong ending for an extraordinary record year
Suominen’s Q4 revenue grew by 18% y/y to EUR 111m (vs our EUR 106m estimate). Europe grew by 37%, albeit from a very low base. Americas still managed to grow a decent 7%. The 15.6% GM was a tad above our 15.0% estimate. SGA were slightly above our estimate and certain non-recurring expenses, such as bad debts, weighed the bottom line a bit. The EUR 8.5m EBIT thus didn’t top our EUR 8.7m estimate. Suominen sees nonwovens demand will remain on a high level. In our view the 12% y/y revenue growth for FY ’20 makes further gains hard to achieve in FY ’21. We expect Suominen to post flat top line this year.
In our opinion outlook and comments were encouraging
Suominen expects FY ’21 EBITDA to remain in line with FY ’20 (EUR 61m). We view this outlook to be close to what we estimated prior the report. We revise our FY ’21 EBITDA estimate up only a bit, from EUR 55m to EUR 57m. The revision is not big in quantitative terms, yet we see the outlook improves confidence with respect to this year’s results. In our opinion there was a small risk Suominen might have guided declining FY ’21 EBITDA. There remains considerable gross margin uncertainty as raw material and transportation costs appear bound to trend upward, but all in all we view Suominen’s comments to indicate the nonwovens pricing environment is still relatively strong. In other words, gross margin is unlikely to plunge.
We view current valuation attractive on stabilizing earnings
Suominen trades 6x EV/EBITDA and 10x EV/EBIT on our FY ’21 estimates. Recent developments mean a high level of uncertainty persists around profitability margins going forward, however we are now more confident on earnings stabilization. Performance has improved with regards to plant-level efficiency, although the pandemic boost makes it hard to quantify how much these own measures have impacted figures. Suominen has announced certain small investments to upgrade some of its existing production lines, and we see the company is now in a strong position for possible larger investments, be they organic or inorganic. Our new TP is EUR 6.5 (6.0). We retain our BUY rating.
Tokmanni reports its Q4 result on next week’s Friday, 12th of Feb. Despite the weakened COVID-19 situation, we expect a strong quarter. We have increased our Q4E estimates and keep our rating “BUY” with TP of EUR 18.4.
Expecting sales growth of ~10%
Despite the weakened COVID-19 situation and new regional restrictions, we expect Tokmanni to reach strong figures in Q4E, driven by campaigns and Christmas sales as well as new store openings. We have increased our Q4’20E sales expectation by ~5% and our adj. EBIT expectation by ~10%. We expect Oct-Dec sales to grow by 10.4% y/y to EUR 314.5m and adj. EBIT of EUR 38m (margin of 12.1%). We expect 20E dividend of EUR 0.78 per share.
The final quarter is driven by campaigns and Christmas
The household consumption has been focused on domestic purchases during the pandemic which has benefited Tokmanni throughout the year. Even though the virus situation weakened towards the end of the year and fears of the new virus variants rose we expect only limited impacts on customer flows. As consumers have continued to spend more time at home, we expect the demand of e.g. leisure, sport, and home products has been strong. The company’s increasing online presence should also boost sales during campaigns such as Black Friday. We don’t expect similar discount sales as seen in Q3 with apparel sales which should support gross margin.
“BUY” with TP of EUR 18.4 intact
We expect FY20E sales of EUR 1061m (12.4% y/y) and adj. EBIT of EUR 92.9m. We haven’t made significant changes to our 21E-22E estimates. On our estimates, the company trades with 20E-21E EV/EBIT multiple of 14.4x and 14.3x, which is similar compared to the Nordic non-grocery peers and ~20% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 18.4 intact ahead the Q4 result.
Consti's net sales in Q4 amounted to EUR 78.1m, above our estimates and consensus estimates (EUR 71.6m/71.1m Evli/cons.). EBIT amounted to EUR 3.0m, slightly above our and consensus estimates (EUR 2.7m/2.7m Evli/cons.). Dividend proposal EUR 0.40 per share (0.35 Evli/cons.). 2021 EBIT guidance EUR 7-11m.
CapMan posted strong and clearly better than expected Q4 results, ending the slightly challenging year on a clear positive note. In our view most importantly management fees increased clearly, providing good support for fee-based profitability in 2021. We have raised our 2021-2022E EBIT estimates by some 20%.
Strong fourth quarter beating our expectations
CapMan’s Q4 results were strong and clearly better than expected. Revenue amounted to EUR 13.4m (Evli/cons. EUR 10.6m/10.7m) and the operating profit to EUR 9.7m (Evli/cons. 4.4m/5.1m). The earnings beat was mainly attributable to higher than expected fair value changes (act./Evli EUR 7.0m/3.4m). More importantly and frankly also quite surprisingly management fees also grew clearly from previous quarters. Management fees grew to EUR 9.7m (Evli EUR 7.5m) and the Management Company business EBIT as such beat our expectations (act./Evli EUR 3.6m/2.0m). CapMan expectedly proposed a dividend distribution of EUR 0.14 per share, to be paid in two instalments.
2021-2022E EBIT estimates raised by some 20%
We have made larger revisions to our estimates and raised our 2021-2022E EBIT estimates by some 20%. We have clearly raised our estimates for management fees, with clear momentum being gained, and as such also fee-based profitability. Our investment business return estimates remain somewhat conservative given the solid Q4 returns (without larger exits), as we are not yet convinced of a clear level shift. We still assume that carried interest will be earned during 2021E, although COVID-19 has had a dent on the progress and timing is still highly uncertain. On Group level in 2021 we expect CapMan to post much stronger results than in 2020 with across the board improvements. Our 2021 EBIT estimate is at EUR 38.2m (2019: EUR 12.3m).
HOLD with a target price of EUR 2.70 (2.40)
Based on our estimates revisions we adjust our target price to EUR 2.70 (2.40). Current valuation still leaves some upside potential, but we still see some need for more evidence on higher earnings levels. We retain our HOLD-rating.
Suominen’s Q4 EBIT landed very near our estimate, but all considered the report was perhaps a bit better than we expected.
CapMan's net sales in Q4 amounted to EUR 13.4m, above our consensus estimates (EUR 10.6m/10.7m Evli/cons.). EBIT amounted to EUR 9.7m, above our and consensus estimates (EUR 4.4m/5.1m Evli/cons.). Dividend proposal: CapMan proposes a dividend of EUR 0.14 per share (EUR 0.14/0.14 Evli/Cons.).
SRV's net sales in Q4 amounted to EUR 292.5m, quite in line with our and consensus estimates (EUR 294.1m/299.6m Evli/cons.). EBIT amounted to EUR -8.0m, slightly below our and consensus estimates (EUR -6.6m/-6.9m Evli/cons.).
Talenom’s Q4 results should not contain any major surprises and our sights are set on information on 2021 expectations. Recent acquisitions support continued growth in 2021, with our growth estimate at 18%.
Good finish to year expected
Talenom will report Q4 results on February 8th. We expect revenue of EUR 16.8m (Q4/19: 14.9m) and EBIT of EUR 2.6m (Q4/19: 1.5m). Our respective FY2020 estimates are EUR 65.5m and EUR 13.1m, with co’s guidance at EUR 64-68m and 12-14m respectively. With the predictability in revenue streams and the CMD held in November we do not expect any major surprises and the guidance for 2021 will be of most interest. We expect Talenom to propose a dividend distribution of EUR 0.15 per share (2019 EUR 0.125 adj.).
Acquisitions providing growth boost for 2021
Talenom announced the acquisitions of two accounting firms in Sweden earlier on in Q4 and of acquisitions in Finland in February. The total combined net sales of these acquisitions amounted to roughly EUR 4.5m, providing a good start for growth in 2021. We had already assumed a pickup in inorganic growth and have made only minor adjustments to our estimates. We expect revenue growth of 18.0% in 2021, driven to a larger extent by acquisitions. Talenom has noted that organic growth domestically has been more challenging, and the current environment and digitalization needs offer opportunities for growing inorganically.
SELL (HOLD) with a target price of EUR 11.5 (10.2)
Talenom’s share price has increased some 16% since our previous update and on our estimates now trades at 2021 P/E of close to 50x. Talenom has a solid multiyear track of rapid profitable growth, but with some uncertainty in the somewhat different growth approach and organic growth slowdown we find the current valuation hard to justify. We adjust our target price to EUR 11.5 (10.2), valuing Talenom at 43x and 38x 2021E and 2022E P/E respectively and downgrade our rating to SELL (HOLD).
Consti will report Q4 results on February 5th. We expect the steady development seen during earlier quarters to continue and a first good year in a while after previous year challenges. On our estimates Consti is set to double its EBIT-margin in 2020 compared to 2019. We also expect dividend distribution to pick up to EUR 0.35 per share (2019: EUR 0.16).
Expect a good finish to a year of improvement
Consti will report Q4 results on February 5th. We do not expect any major deviations from the steady progress during earlier quarters in 2020 and expect Q4 EBIT of EUR 2.7m. Consti has for FY2020 estimated that its operating result will improve compared to 2019, which was achieved already by Q3. The second wave of the coronavirus pandemic has had an impact on the construction industry during Q4, with reports of temporary worksite shutdowns due to virus exposures. To our understanding Consti has not been significantly affected, with some very minor additional costs having been incurred already from earlier on in the year.
Cash generation supporting increased dividend distribution
We expect that Consti will propose a dividend of EUR 0.35 per share (2019: EUR 0.16), now being well back on track on profitability and cash generation after challenges faced in previous years. The cash flow during 1-9/2020 was an exceptionally solid EUR 14.7m (1-9/2019: EUR -1.1m). The outlook for 2021 remains somewhat weakened by demand uncertainty in particular among corporate customers and we expect only limited growth. Room for some margin improvement still exists, with supplier pricing power having impacted on the construction industry during recent boom years.
BUY with a target price of EUR 12.0 (10.0)
We have not made any revisions to our estimates ahead of Q4. Valuation compared to construction and building installations and services company peers is still not challenging. With peer multiples also up since our previous update we adjust our target price to EUR 12.0 (EUR 10.0) with our BUY-rating intact.
DT’s Q4 report was broadly in line with expectations. After a challenging year, especially for the security segment, a gradual improvement is expected. Although it’s difficult to estimate the slope of the recovery, improvement is still ahead, and we see DT back on the road towards +10% growth and above 15% margins. Based on the increased confidence in improving security demand coupled with DT’s potential for better growth and profitability metrics than our peer group, we raise our TP to 28.5 euros (prev. 26.5€) with BUY recommendation (prev. HOLD).
A decent Q4 and 2020 given challenging market situation
DT’s Q4 figures were broadly in line with expectations. Q4 net sales amounted to EUR 19.9m (-20,4% y/y) vs. EUR 22.2m/22.2m Evli/consensus estimates. Q4 EBIT was EUR 2.3m (11,8% margin) vs. EUR 2.7m/2.75m Evli/cons. R&D costs amounted to EUR 2.2m or 11,2% of net sales (Q4’19: 2.6m, 10,6%). SBU net sales were EUR 9.0m vs. EUR 11.3m Evli estimate. SBU sales declined -45,5% y/y, mainly due the COVID-19 pandemic affecting security investments and challenging comparison figures. MBU net sales were EUR 10.9m which was in line with our estimate of EUR 10.9m. Dividend proposal is 0.28 (0.28/0.25 Evli/cons), which is at upper end of distribution policy of 30-60%.
Cautiously optimistic outlook
After a challenging year, especially for SBU, DT is cautiously optimistic that the worst for SBU is soon behind. Demand in the security market is expected to head for growth in Q2 of 2021 at the earliest. SBU sales will decrease in Q1 y/y, but will start to grow in Q2, although demand is still subject to uncertainty. DT sees growth in industrial sales and double-digit growth in MBU sales in H1 of 2021. Total net sales are expected to decrease in Q1 and grow in H1 of 2021. DT sees predictability of the company's target markets still lower than usual due to the extraordinary uncertainty caused by the pandemic. As of Q1/21, DT will report three business segments; MBU, SBU and new Industrial Solutions Business Unit (IBU), which previously was part of SBU. Industrial sales accounted for over EUR 10m (25%) of SBU sales in 2020. Industrial market is categorized as higher margin, but smaller volumes, more fragmented customer base, and a variety of end applications.
BUY with target price 28.5 euros (prev. 26.5€)
We have made slight calibrations to our estimates based on the report. We continue to expect DT to return to sales and profit growth path this year. We estimate 2021e net sales growth of 12,4 % and an EBIT of EUR 12.4m (13,5% margin), as SBU will start contributing to growth from Q2/21 onwards. Although it’s difficult to estimate the slope of the recovery, improvement is still ahead, and we see DT back on the road towards +10% growth and above 15% margins. On our 2022e estimates, DT is trading at 20.6x EV/EBIT, in line with peer group. Despite valuation being in line with peer group, we’re willing to take a more proactive stance based on the increased confidence in improving security demand coupled with DT’s potential for better growth and profitability metrics than peer group. We raise our TP to 28.5 euros (prev. 26.5€ with BUY recommendation (prev. HOLD).
DT sees growth in IBU sales and double-digit growth in MBU sales in H1 of 2021. Demand in the security market is expected to head for growth in Q2 of 2021 at the earliest. SBU sales will decrease in Q1 year-on-year, but will start to grow in Q2, although demand is still subject to uncertainty. Total net sales are expected to decrease in Q1 and grow in H1 of 2021. DT sees predictability of the company's target markets still lower than usual due to the extraordinary uncertainty caused by the pandemic.
We expect CapMan to report rather good Q4 results, with our previous slight concerns of investment returns having been alleviated since Q3. We expect CapMan to propose a dividend distribution of EUR 0.14 per share, implying a dividend yield of 5.6% (1.2.2021 closing price).
Expecting a rather good last quarter
CapMan will report Q4 results on February 4th. Post-Q3 we saw slight concerns in fair value changes of investments mainly in real estate due to the revaluation time frames. These concerns now do not appear to be substantial and we have as such raised our Q4/2020 estimates for the Investment Business. The lack of significant success fees and carried interest will limit the earnings but with a lower share of bonuses in personnel expenses (vs. Q4/2019) CapMan should still post rather good earnings figures. We have adjusted our EBIT estimate to EUR 4.4m (prev. 2.9m) mainly due to the raised fair value change estimate.
Continued DPS growth expected
We expect CapMan to propose a dividend of EUR 0.14 per share, in line with the target of paying an annually increasing dividend (2019: EUR 0.13 per share). With the financing decisions made during Q4 the liquidity situation will remain healthy despite the weaker earnings this year. We expect earnings figures to improve clearly in 2021 driven by higher fee-based profitability from the growth in AUM, higher investment returns after the weak 2020 and growth in the services business. We expect 2021E EBIT of EUR 32.0m compared with EUR 7.0m 2020E.
HOLD (BUY) with a target price of EUR 2.40 (2.20)
Current valuation is after the share price increase since on our previous update (+~28%) on our estimates somewhat higher than that implied by our SOTP-model and peer multiples, but the anticipated dividend yield is still clearly supportive. Following our estimates and multiples adjustments we raise our target price to EUR 2.40 (EUR 2.20) but downgrade our rating to HOLD (BUY).
Given the previously specified outlook the Q4 profitability is largely known, with the Investments segment overshadowing good construction progress. The Q4 report should bring a lot to the table, especially in regards of previous communication of restoring profitability back to 2017 levels, clearly above the 2020 guidance.
Good construction development burdened by investments
SRV will report Q4 results on February 4th. SRV specified its guidance earlier on, expecting the operative operating profit for 2020 to be in the range of EUR 3-6m. The Q4 results will be affected by changes in the value of the Investment segment’s balance sheet items for a total negative impact of EUR 12m. Although the negative impact casts a shadow on the good operative operating profit development during earlier quarters these items should to our understanding be non-cash, and the guidance still implies continued healthy construction margin development. Our estimate for the Construction segment’s operative operating profit margin in 2020 is at 2.9% (2019: 0.7%) and Group operative operating profit estimate at EUR 6.0m.
Expectations of a better year in 2021
We do not expect a dividend distribution for FY2020. Although the company’s cash flows have improved clearly through divestments and financial measures taken, the company still has a rather strained balance sheet given current operating cash flows. The guidance for 2021 will be of key interest, as SRV has previously communicated intentions to restore the operative operating profit in 2021 to levels seen in 2017 (EUR 27.0m). SRV will also release its updated strategy and financial targets in conjunction with the Q4 results.
BUY with a target price of EUR 0.64
Apart from the changes to the Investments segment’s balance sheet item changes, our estimates remain intact. We retain our BUY-rating and target price of EUR 0.64.
Suominen reports Q4 results on Feb 4. Our Q4 estimates are intact but we make small revisions due to changes in EUR/USD. In our view Suominen can achieve flat top line in FY ‘21 while profitability faces headwinds after an extraordinary year. We retain our EUR 6 TP and BUY rating.
We expect gross margin to decline somewhat from now on
We estimate Americas and Europe to have continued to grow by 9% and 18% y/y respectively in Q4. These rates are very similar to the ones seen in Q3. We expect Q4 gross margin to have declined from the very high 17.1% Q3 figure to 15%, and thus estimate EBITDA down by EUR 4m q/q. USD has weakened by ca. 3% relative to EUR in the past three months and we update our estimates to incorporate the approximately EUR 10m headwind this represents to FY ’21 Americas revenue. We consequently estimate EBITDA down by about EUR 6m in FY ’21 due to pressure on gross margin. We would be surprised if Suominen guides profitability development to be better than flat.
Wipes demand is strong while input prices are recovering
Raw materials prices found their lows in Q4; there wasn’t yet any major spike. Prices have continued to climb so far this year, and this raises uncertainty regarding Suominen’s H1’21 gross margins. There was already negative nonwovens pricing pressure in Q4’20, following the weak H1’20 raw materials prices with a lag. In a more ordinary environment such developments would represent a clear hit on Suominen’s gross margin, however we see there’s still a chance these adverse forces will be somewhat muted by the current extraordinary wipes demand situation. Double-digit top line y/y growth is on the cards for Q4’20 and Q1’21, but beyond that the respective comparison periods turn challenging. We expect only flattish development beyond Q1’21.
Earnings multiples are still very reasonable
Last year has left the bar very high. We estimate Suominen to have recorded more than EUR 60m in FY ‘20 EBITDA and some EUR 40m in EBIT. We don’t see the company reaching such figures again any time soon, yet we expect EBITDA and EBIT to stabilize around ca. EUR 55m and EUR 35m during the next few years. On these estimates Suominen now trades around 6x EV/EBITDA and 10x EV/EBIT, a level which we continue to view attractive. We retain our EUR 6 TP and BUY rating.
Detection Technology will report its Q4 next Tuesday, February 2nd, at 9:00 EET. We look forward to hearing the latest developments and outlook regarding the security and medical imaging markets, especially now with the backdrop of global vaccine optimism and Chinese economic recovery. We expect DT to return to net sales and EBIT growth path this year, and based on the increased confidence in market improvement, we raise our target price to €26.5 (prev. €22) but maintain HOLD recommendation.
A challenging year coming to an end
We expect Q4 net sales of 22.2 MEUR (22.2 MEUR cons) and EBIT of 2.7 MEUR (2,75 MEUR cons), meaning a decline of -11% and -16% respectively compared to last year. 2020 has been challenging with the pandemic negatively affecting DT’s Security Business Unit, which represents roughly 60% of total net sales. With our estimates, DT’s FY20 net sales are down -18% to 84 MEUR and EBIT is down -46% to 9.1 MEUR (10,8% EBIT margin). As a result, we expect DT to distribute 0.28 dividend compared to 0.38 last year. Our dividend estimate is at upper end of DT’s dividend distribution policy of 30-60%. Dividend could prove to be smaller, but we see this as immaterial as DT in our view is more a growth case than a dividend case.
Global vaccine optimism and China brightening outlook
The key take from the upcoming Q4 result will be hearing management’s view on the security and medical imaging markets. DT stated in its Q3 report that it expects SBU sales to decrease in Q4, but to start improving in H1/21 driven by Chinese demand. China’s economy has recovered swiftly from the pandemic with Chinese’s GDP reaching pre-COVID levels at end of last year. China’s GDP accelerated 6,5% y/y in Q4 (Q3: 4,9% y/y), which is the fastest pace in last two years. The recovery in China coupled with the improved outlook for the battered aviation segment thanks to vaccine optimism, should provide DT with good grounds to improve on. MBU is expected to continue growing, albeit more slowly than in 2020.
HOLD with new target price of €26.50 (prev. €22)
We expect DT to return to both revenue and EBIT growth in 2021 but estimating the pace of recovery remains challenging due to low visibility. We have not made any changes to our estimates before the Q4 report, but based on the increased confidence in market improvement, we raise our target price to 26.5 euros (prev. 22 euros) reflecting both growth and earnings improvement potential, at or above our peer group. Our target price values DT at 21-22E EV/EBIT of 27x and 19x respectively, in line with our peer group as we look for more signs of security market recovery.
Raute has good potential to perform strong in the coming years, however in our opinion valuation is now stretched too high. Our TP is now EUR 20 (18), rating SELL (HOLD).
We make some upward revisions to our estimates
Raute said it expects FY ’20 revenue to amount to some EUR 115m. This implies Q4’20 top line at approximately EUR 39m. Raute previously expected the FY ’20 figure to decrease y/y, and now the update guides a clear decrease. We don’t view the update as substantial negative news and the preliminary ca. EUR 39m Q4’20 revenue figure is in fact somewhat above our previous EUR 33m estimate. We now estimate Q4 project deliveries revenue at EUR 26m (up 8% y/y) and that for technology services at EUR 13m (down 14% y/y). Raute didn’t update profitability guidance. We previously estimated EUR 1.7m in Q4 EBIT and we revise the estimate up a bit to EUR 2.0m.
FY ’21 EBIT yet unlikely to reach the highs seen in the past
We now expect Q4 order intake at EUR 19m when excluding the large EUR 55m Russian project. We estimate the smaller project deliveries orders at EUR 7m, a figure which is clearly above the very low benchmark figures. We expect technology services order intake at EUR 12m, in other words slightly down y/y but meaningful improvement q/q. The past few reports have painted an overall muted business picture, however there is a decent chance the outlook is already improving. We nevertheless think the recent share price gains have made near-term multiples too dear as the overall uncertainty level remains very much elevated.
In our view recent gains make downside relatively likely
We expect Raute’s top line to grow meaningfully, by ca. 15% y/y, in FY ’21. We make small revisions to our FY ’21 EBIT estimate, and now see the figure at EUR 6.4m (previously EUR 6.0m). This would still be far from the ca. EUR 11m EBIT that Raute averaged annually in 2016-19. Significant earnings potential remains for the coming years, but in our opinion the share has appreciated too steep considering all the uncertainty. We don’t see upside on the current 8x EV/EBITDA and 13x EV/EBIT multiples on our FY ’21 estimates. The valuation doesn’t look that expensive relative to long-term potential and in terms of the respective FY ’22 7.5x and 10x multiples, but we think this potential remains too far in the future. Our new TP is EUR 20 (18), rating SELL (HOLD).
Gofore held its Capital Markets Day on January 14th, which for us acted mainly as a confidence boost, as updated financial targets and strategy had been communicated earlier. The company remains well on its track of profitable and rapid growth, with little obstacles to be seen. We retain our HOLD-rating and target price of EUR 16.0.
CMD mostly a confidence booster for us
Gofore held its Capital Markets Day on January 14th. With the company having updated its strategy and long-term financial targets earlier, new information in that regard was limited. From a financial perspective, focus in our view was rather clearly on the commitment to continued rapid and profitable organic and inorganic growth, with an increased focus on international operations and the usage of subcontracting. The CMD increased our confidence in Gofore’s international growth capabilities, which arguably has been one of the company’s more challenging areas, as well as Gofore’s overall delivery capabilities.
Growth target well in sight
Gofore also published its December net sales figures, with full-year net sales at EUR 78.0m, slightly beating our EUR 77.3m estimate. We have made slight adjustments to our estimates but no major changes overall. Based on the inorganic growth from the Qentinel Finland acquisition along with an organic uplift we expect growth of 18.5% in 2021, with any potential acquisitions quite easily being able to push growth over the 20% target. We expect relatively flat margin development going forward given the already excellent levels and limited scalability.
HOLD with a target price of EUR 16.0
Current valuation remains clearly above peers, which to a larger extent is warranted given the solid growth and profitability, which in the long-term could provide upside potential, while near-term potential remains rather limited. Our target price of EUR 16.0 implies a 2021 P/E of 27.0x. We retain our HOLD-rating.
Endomines currently holds sizeable assets in the United States, looking to increase gold production to 40k oz p.a. within four years. Existing infrastructure and the high gold price provide support for pick-up in production volumes but given the track record in recent years the company still has quite a lot to prove.
Previous years have not gone quite as planned
Endomines established operations in the United States in 2018, after having been active only in Finland throughout the majority of the 2010’s. The past years have seen focus being on bringing the first asset, Friday, to production. The company has been met with challenges along the way, relating both to technical and financial challenges, but production commenced at the site in 2020. Continued technical challenges and a tight liquidity situation, however, forced the company to put the site under care and maintenance towards during the latter half of 2020.
Seeking 40k oz p.a. production within four years
Endomines is seeking to bolster its financial position to be able to restart production. With the high gold prices, plans have also been made for restarting production at Pampalo in Finland, as production was halted due to the then unfavourable gold price levels. Financial challenges have unfortunately been an inherent feature in the past years, as the company has not been able to create reliable cash flows. Now with assets that can be rapidly brought to production due to existing infrastructure and the favourable gold price levels Endomines is looking to improve production figures, targeting a production of 40k oz p.a. within four years. With the recent year track-record, however, the company in our view still has quite a lot to prove.
HOLD with a target price of SEK 2.9 (3.5)
We lower our target price to SEK 2.9 (3.5) following adjustments to our assumptions with the information provided regarding the rights issue and production plans. We retain our HOLD-rating.
We remain confident towards Scanfil’s long-term value chain positioning, however in our opinion recent share price gains have largely neutralized valuation. Our new TP is EUR 6.5 (6.25) and our rating is now HOLD (BUY).
The performance amid the pandemic testifies to strengths
Scanfil’s business has remained robust to macroeconomic shocks throughout its 40+ year history. ‘20 is another testament to this resilience as the pandemic hasn’t considerably affected Scanfil’s performance. The company has had to make only very small revisions to FY ’20 guidance; the latest revenue and EBIT outlook figures are down by respective 2% and 5% compared to the initial figures issued before the pandemic broke out. We now expect Scanfil to achieve some 3% top line growth for FY ’20; the increase is due to the 2019 HASEC acquisition. Profitability has remained strong. The Energy & Automation, Industrial and Medtec & Life Science segments have extended their good figures, while Communication and Consumer Applications have been softer. Consumer Applications’ revenue is down by ca. EUR 40m since FY ’18, however we view the segment still has good long-term outlook. We aren’t estimating rapid rebound for the segment yet see Scanfil should be able to post a 4% organic CAGR in the coming years thanks to its three largest ones.
We expect stellar performance to continue
We see Scanfil remains in top shape overall and is probably one of the best performing decent-sized contract electronics manufacturers globally. In our opinion Scanfil is unlikely to encounter profitability issues going forward and long-term organic growth outlook still appears good despite the pandemic. The company is also in a strong position to do more M&A and we are confident any potential deal, small or large, is likely to further improve Scanfil’s competitiveness.
Multiple expansion was overdue, yet visibility is limited
Scanfil’s share has appreciated significantly, and in our view some multiple expansion was long overdue given the company’s strong track record. Scanfil now trades in the range of 7-8x EV/EBITDA on our estimates for ’20-21, a level we don’t consider that challenging, but also view to be enough to curb meaningful additional gains for now since revenue visibility is limited even in the best of times. Our TP is EUR 6.5 (6.25), rating HOLD (BUY).
Etteplan raised its revenue and EBIT guidance for 2020, as investment demand has been picking up on the positive news on Coronavirus vaccines, with the fourth quarter set to show solid figures. We have raised our 2020-2022 EBIT estimates by some 6-9%. We retain our HOLD-rating with a target price of EUR 12.4 (9.3)
2020 revenue and EBIT guidance raised
Etteplan issued a positive profit warning, raising its revenue and EBIT guidance. Revenue in 2020 is now expected to be at same levels as in the previous year (prev. decrease slightly or same levels as previous year) and operating profit to decrease slightly or be at previous year levels (prev. decrease clearly). According to Etteplan the positive news on Coronavirus vaccines has had a favourable impact on investments and as such aided revenue during the last quarter of the year. The impact has been seen across the board but in particular within software and digitalization related solutions.
Moving in a better direction
The revised guidance implies solid results in the fourth quarter and is a clear confidence boost after the demand weakness in previous quarters. We have raised our 2020-2022 EBIT estimates by some 6-9%. We still remain somewhat cautious to revenue growth, as demand pick-up visibility is still rather limited, expecting a growth of 6.9% in 2021. We could certainly see potential for growth returning to double-digit figures if demand activity continues to improve. The Tegeman acquisition will also provide an inorganic boost to growth in 2021 and continued M&A activity is likely, although hard to predict.
HOLD with a target price of EUR 12.4 (9.3)
On our estimates Etteplan trades quite in line with historic valuation and on peer median multiples. The positive news has certainly raised our confidence levels but with the still present uncertainty higher valuation for now appears unwarranted. We adjust our TP to EUR 12.4 (9.3), valuing Etteplan at 18x 2021e P/E, and retain our HOLD-rating.
Gofore announced its updated strategy and new long-term financial targets, seeking over 20% annual growth and a 15% adj. EBITA-margin. With continued good signs of rapid profitable growth and recent solid order intake we adjust our TP to EUR 16.0 (12.1) and retain our HOLD-rating.
Seeking above 20% long-term growth
Gofore announced its updated strategy and gave and gave new long-term financial targets. Gofore will continue to seek to grow profitably both domestically and internationally while creating a positive impact on the society, customers and employees. Approximately half of the growth in the coming years is targeted through acquisitions and the aim for the international business is to achieve a similar growth pace as the Group. The long-term aim is to achieve above 20% annual net sales growth. The target for profitability is an adjusted EBITA-margin of 15%. Gofore also announced that it aims to transfer to the Nasdaq Helsinki Main Market during the first quarter of 2021.
Very promising signs from recent order intake
The new growth target is clearly above our previous expectations, with the organic growth having become more challenging in previous years for the market as a whole. Gofore has also grown to a size at which maintaining the relative growth pace should become more challenging. The order intake during the last quarter of 2020 has however been extremely promising, with the potential value of new orders corresponding to around 2019 net sales. Gofore is also in a solid position to continue inorganic growth, with a clear net cash position also after the Qentinel Finland acquisition. We have raised our growth estimates, expecting ~17% annual growth during 2021-2022 (prev. ~12%), and made adjustments with the transition to IFRS.
HOLD with a target price of EUR 16.0 (12.1)
On current multiples valuation is certainly not cheap, but with notable signs of continued rapid and profitable growth there is certainly merit in staying on for the ride. We adjust our TP to EUR 16.0 (12.1) and retain our HOLD-rating.
Marimekko issued a positive profit warning yesterday. The company expects 2020E net sales to be approx. at the same level or slightly lower compared to 2019. Adj. EBIT is expected to be higher compared to last year. We have increased our estimates and keep our rating “BUY” with TP of EUR 50 (44).
New guidance due to better than expected sales trend
Marimekko raised its 2020E guidance in particular due to better than expected trend and improved outlook in the retail sales in Finland. The company now expects 20E net sales to be approx. at the same level or slightly lower compared to last year (2019: EUR 125m). Adj. EBIT is expected to be higher compared to the previous year (2019: EUR 17.1m). Previously, Marimekko expected 20E net sales to be lower compared to the previous year and adj. EBIT to be approx. at the same level or lower compared to last year. We expected 20E sales to decline by 3.5% y/y to EUR 121m and adj. EBIT of EUR 17.3m.
Appealing to consumers despite the uncertain times
The profit warning didn’t come as a total surprise as the company has constantly been able to appeal to consumers, even despite the uncertain times. The company indicated that most of the earnings for H2’20E were generated during Q3. The net sales accrual in H2E is expected to be more balanced between the third and the final quarter. We expect the campaign season has boosted especially Marimekko’s domestic sales. In addition, the Christmas season is ongoing, and the household consumption is more focused on domestic purchases this year. We expect this to have a positive impact on Marimekko’s domestic sales and expect good demand especially in home décor products. However, there are still uncertainties related to the pandemic situation and the customer flows in retail stores. It is also essential to maintain the operational reliability of the distribution centers and logistics.
“BUY” with TP of 50 (44)
We have increased our 20E sales expectation by ~3% and our adj. EBIT expectation by ~12%. We now expect 20E sales of EUR 124.4m (-0.8% y/y) and adj. EBIT of EUR 19.4m. On our estimates, the company trades with 20E-21E EV/EBIT multiples of 18.7x and 18.0x which is a clear discount compared to the luxury peers. We keep our rating “BUY” with TP of EUR 50 (44).
Aspo revised FY ’20 guidance, which prompts us to update estimates particularly for ESL and Telko. Our TP is now EUR 8.75 (8) per share, BUY rating remains intact.
We raise our total Q4’20 EBIT estimate by EUR 2.9m
Aspo states especially steel and energy industry cargo volumes have developed strong and so ESL has performed better than expected before. The upgrade is thus not due to e.g. additional cost savings but driven by improving business conditions. Aspo previously guided EUR 14-16m in FY ’20 EBIT and the revised range is EUR 18-20m. The positive outlook revision was not such a big surprise since the previous guidance seemed to us quite cautious with respect to Telko’s development. We now estimate ESL to post EUR 3.2m in Q4 EBIT (prev. EUR 1.7m) and Telko to improve slightly further to EUR 4.3m (prev. EUR 2.8m). The new range suggests Aspo will achieve about EUR 7m in Q4 EBIT, which implies the company is well on track towards more than EUR 30m annually in the coming years.
The upgrade is incrementally positive for our overall view
Only last year Aspo’s profitability development appeared to rely mostly on ESL. There was potential in Telko that always waited for its materialization. Earlier this year the roles reversed in a way when Telko delivered very strong Q2 and Q3 results while ESL was clearly suffering the pandemic’s adverse effects. It has now become more apparent that ESL has not been left nursing any permanent wounds. Given ESL’s intact prospects and Telko’s gains Aspo’s overall development towards long-term financial targets can even be considered positive in 2020 (despite that FY ’20 EBIT will likely decline a bit y/y). EBIT thus seems bound towards the EUR 30m ballpark in the coming years, compared to the EUR 20m level before the pandemic.
Current valuation still leaves good upside potential
The recently reaffirmed long-term financial targets now look maybe more relevant than ever. There’s strong potential in all three segments, however 2020 also raises macroeconomic uncertainty and thus the operational upside prospects should still be valued somewhat cautiously. In our opinion Aspo’s equity value per share could easily top EUR 10 in the future if ESL and Telko continue to perform well next year. Our new TP is EUR 8.75 (8) and we retain our BUY rating.
Fellow Finance held a strategy event, with sights set on launching new payment and e-commerce products in 2021, for both SMEs and consumers. International operations are being focused on current markets, with new openings unlikely. We retain our HOLD-rating and TP of EUR 2.8.
New product launches expected in 2021
Fellow Finance held a strategy event on December 8th. Focus is being set on new payment and e-commerce products for SMEs and consumers, which include credit cards and invoice payment services. With the challenging consumer lending environment and potential extension of the temporary cap on consumer credit interest rates (credit cards excluded) the services could offer more recurring and higher margin fees. The rollouts of the new products are planned for 2021. The company has also restricted its international expansion plans, now focusing on selected existing international markets and new openings in the coming years are unlikely.
Rapid growth still expected
Fellow Finance set its 2023 financial targets, seeking EUR 23m in revenue, of which a significant share from business finance and international markets, and an EBIT-margin of 15%. In 2020 the company expects revenue of approx. EUR 11m and earnings to be negative (H2/2020 close to zero). Our revenue estimates remain largely intact while our 2020 EBIT estimate is up by EUR 0.5m and our 2021-2023 EBIT-margin estimates down by 2-6pp.
HOLD with a target price of EUR 2.8
Although we have lowered our mid-term profitability estimates, the new initiatives appear rather appealing and raise our confidence in Fellow Finance’s ability to navigate the challenging consumer lending environment. Performance in business lending has also been better than anticipated, and loan volumes are picking up nicely. We retain our HOLD-rating and TP of EUR 2.8.
Marimekko is a Finnish design and lifestyle company founded in 1951. The company’s largest market area is Finland followed by the APAC region. As we expect further earnings improvement potential via profitable, global growth, we keep our rating “BUY” with TP of EUR 44 (43).
A Finnish design and lifestyle company
Marimekko, founded in 1951 is a Finnish design and lifestyle company. The company is known for its unique colors and prints. The company’s product portfolio includes high-quality clothing, bags and accessories as well as home décor items ranging from textiles to tableware. The company aims to gain profitable growth via broader target audience. The company has approx. 150 stores across the world. Marimekko’s revenue CAGR in 2013-2019 was ~4.9 percent.
20E hampered by the pandemic but outlook remains good
Year 2020 started well but the Covid-19 quickly spread across the world and Marimekko was forced to close its retail stores temporarily in Finland as well as in other market areas. Despite of the challenging times, Marimekko performed relatively well during the lockdown. The company has benefited of having different product segments (i.e. consumers have spent more time at home which has increased the demand of home décor products while fashion sales have dropped). We expect Marimekko’s sales to decline by ~4 percent y/y in 20E. Given the circumstances, we consider this fairly good performance. We expect adj. EBIT to be on a par with last year, totaling EUR 17.3m. We expect revenue to grow by ~8 percent in 21E and ~6 percent in 22E. We expect Marimekko is set to reach its EBIT margin target of 15 percent by 22E.
“BUY” with TP of EUR 44 (43)
We value Marimekko by using valuation multiples. On our estimates, the company trades with 20E P/E multiple of 24.8x and EV/EBIT multiple of 17.9x. Hence the company trades with a discount compared to the premium and luxury peers. Correspondingly, the company trades with 21E P/E multiple of 20.7x and EV/EBIT multiple of 15.6x, which translates into a clear discount compared to the luxury peers. We keep our rating “BUY” with TP of EUR 44 (43).
Endomines Q3 figures were weaker than expected, as a tight funding situation forced the company to put operations at Friday into care and maintenance. The company is now seeking to bolster up its financial position through a series of measures, seeking SEK 281m through a rights issue for ramp-up at Friday and for other projects. We adjust our TP to SEK 3.5 (5.5), rating now HOLD (SELL)
Friday operations put under care and maintenance
Endomines reported weaker than expected Q3 results, as the operations at Friday were put under care and maintenance due to a very tight financial situation. Ramp-up at Friday was previously delayed by problems with the tailings dewatering system and although solving the problems would not have been a large investment, the limited cash flows and very tight cash position (Q3/20: SEK 12.0m) forced the company to take more drastic measures. Q3 revenue and EBITDA of SEK 1.9m and SEK -23.1m were as such clearly below our estimates (Evli SEK 11.1m and -15.6m respectively).
Taking measures to improve financial position
Endomines announced intentions to initiate a SEK 281m rights issue, at a subscription price of SEK 2.5 per share, along with possible directed share issues of near SEK 75m to cover guarantee undertakings and bridge financing claim set-offs. With some 60 percent of the rights issue covered by subscription undertakings and guarantee commitments Endomines should in our view be able to secure enough funding to restart operations at Friday and potentially also Pampalo if the gold price remains at >1,800 USD/oz levels. We estimate a six to eight month delay in ramp-up of Friday due to the funding challenges.
HOLD (SELL) with a TP of EUR 3.5 (5.5)
With the estimated impact of the rights issue on share amounts and net debt we adjust our TP to SEK 3.5 (5.5), assuming that the rights issue is subscribed in full. The gold price remains at beneficial levels and is continuing to see upwards pressure despite minor short-term declines. We raise our rating to HOLD (SELL).
Aspo reaffirmed its long-term financial targets for FY ’23. The CMD didn’t disclose any drastic news but we are slightly more positive than before regarding the earnings rebound. Our TP is now EUR 8.00 (7.25), retain BUY rating.
ESL’s long-term 12% EBIT margin potential is still there
While the dry bulk cargo market has been hit by the pandemic ESL has not lost market share. Large vessel operations have been especially challenging due to a lack of cargo demand, however smaller vessel types, such as those of AtoB@C, have performed better. ESL in fact reports the business has won market share in e.g. wood-based products shipments. The fleet can also serve e.g. the Baltic wind power industry in the effort to scale up renewable energy production in the area. In the long-term the Arctic area (incl. Russia) holds strong cargo volume potential for larger vessels. Such vessels’ cargo volumes began to increase in late Q3. ESL’s capacity is now fully in use. In our opinion dry bulk cargo markets are already on track to normalize in tandem with many industrial sectors even if the pandemic is yet to fade away from more everyday life. ESL also says it has achieved admin costs reductions that are not just one-offs in nature.
Telko already achieved long-term margin targets
Telko’s recent working capital management and pricing control measures have already produced significant results in cash conversion cycle, and there remains some more room for improvement relative to certain benchmarks. Telko now has established the lubricants business besides the plastics and chemicals ones. We believe lubricants is an area that can deliver more good results in the long-term as the business is still quite small relative to plastics and chemicals. We see Telko’s reinforced core is now better positioned to capture profitable volumes. Telko has indeed already managed to top the 6% EBIT margin target during the last two quarters. Leipurin however is yet to deliver gains towards its 5% EBIT margin target.
Significant EBIT improvement appears possible next year
Although the long-term financial target confirmation is good news as such focus nevertheless remains on more short-term profitability development. Our TP is now EUR 8.00 (7.25); we retain our BUY rating since profitability continues to improve and SOTP valuation supports further upside potential.
Endomines announced that the operations at Friday have been put under care and maintenance due to funding challenges and has resolved on a rights issue of SEK 281m.
Next Games held its CMD on November 25th, releasing what in our view are very ambitious financial targets. The CMD confirmed continued commitment to publishing IP based games and a more sound and calculated approach to scaling games. The revised guidance for 2020 brought some good news for profitability expectations.
Ambitious mid-term financial targets
Next Games held its Capital Markets Day on November 25th. The most surprising content was the mid-term (our interpretation 3-5 years) financial targets of achieving annual revenue of EUR 250m and EBITDA and EBIT-margins of over 23% and 18% respectively. Given current financial performance we consider these targets very ambitious. The Stranger Things -game is set to launch in selected markets during the end of the year and Blade Runner Rogue during Q1/2021. Growth expectations are clearly set on the former, while the latter is quite as expected looking to be more of a niche game.
Guidance revised, positive news on profitability
Next Games also revised its guidance for 2020, now expecting revenue of EUR 26-28m and to be EBITDA positive. The revenue guidance is below our previous estimate (EUR 30.7m) but the profitability expectation was a positive surprise. We had assumed a slightly larger contribution of new games and also expect that Our World is continuing to face challenges. We adjust our 2020 revenue and EBITDA estimates to EUR 28m and EUR 1.1m respectively. We expect growth of 80% in 2021 driven primarily by the Stranger Things -game but note that visibility is extremely limited.
SELL with a target price of EUR 1.6 (1.2)
On our estimates Next Games trades at a clear discount to peers on 2021-2022 EV/sales multiples. Risks are however substantial, as 62% of our estimated 2021 revenue stems from not yet published games. On the positive profitability news and increased confidence in a more careful and sustainable scaling approach we raise our TP to EUR 1.6 (1.2), SELL-rating intact.
Aviation industry has faced the worse ever crisis in 2020 due to the COVID-19. Finnair has been forced to scale down its traffic and the ramp-up is expected to start next summer. We expect heavy losses in 20E but also in H1/21E. We keep our rating “HOLD” with TP of EUR 0.60 (0.38).
Strategy focuses on the traffic between Asia and Europe
Finnair’s strategy focuses on the growing traffic between Asia and Europe. The strategy is based on the geographic location of the Helsinki hub: the shortest route from (North-East) Asia to Europe goes over Helsinki. Additionally, the distance between Helsinki and most Asian destinations is such that Finnair is able serve most routes in 24h rotations, which enables high utilization rate of planes and reduces the need for additional crew. The most direct route to Asia is enabled by having Russian overflight rights. Flights through the Siberian corridor from Asia to Europe via Helsinki save ca. 2h on flight time compared to one-stop flights via European hubs and ca. 4h compared to routes via the Middle East.
COVID-19 caused the worst ever crisis
The aviation industry faced the worst ever crisis in 2020 as the COVID-19 pandemic spread from China across the world in early 2020. Global lockdowns and travel restrictions forced also Finnair to scale down its traffic. Finnair estimates that the passenger numbers will recover in 2-3 years. The company continues to operate with a significantly limited network also in Q1/21E and the ramp-up is expected to start in the summer 2021. However, the visibility is extremely weak not only due to the pandemic situation itself but due to different travel restrictions. The company expects 20E revenue and capacity (ASK) to decrease more than 70%.
“HOLD” with TP of EUR 0.60 (0.38)
We expect Finnair’s 20E ASK to decline by 72% y/y and revenue to decrease by 73% y/y while comparable operating loss is expected to be EUR 602m. We expect significant losses also during H1/21E. We expect air travel to recover relatively well in 2022E but passenger numbers are still expected to remain below 2019 levels. Due to Finnair’s targeted annual cost savings of EUR 140m from 2022 onwards, we expect good profitability development after the crisis. Finnair’s share price recently took off due to the optimistic vaccine news. The news are promising but we note that there are no effective vaccines in the global distribution yet. We retain “HOLD” with TP of EUR 0.60 (0.38).
Gofore has a proven track-record of profitable growth, having grown and seeking to grow faster than its target market. Supported by M&A activity and high public sector exposure, growth is in our view set to continue in the double-digits, with margins not looking to be under any major threat. We adjust our target price to EUR 12.1 (8.6) and retain our HOLD-rating.
Seeking above target market growth
Gofore is one of the fastest-growing yet profitable public IT-services companies in Finland, seeking to profile itself more towards a digitalization consultancy company. Gofore aims to grow faster than the target market, new digitalization services, while at the same time seeking to generate an EBITA-margin of 15%. Gofore has a solid track-record, having achieved a net sales CAGR of 47.5% between 2014-2019, while adj. EBITA-margins have remained well in double-digit figures. Relative organic growth has slowed down from recent peak years, but M&A activity supports continued double-digit growth.
Continued good growth and profitability outlook
Aided by the acquisition of Qentinel Finland we expect Gofore to grow 14.5% in 2021. The uncertainty brought by the coronavirus pandemic poses some risks to customer activity, but the high share of revenue from public sector clients has so far mitigated a lot of the potential impact, as private sector demand has during the year been more affected. Apart from a potential impact of the recent increased share of subcontracting, we do not see significant risks to margins going forward and expect a 13.8% average adj. EBITA-margin during 2020E-2022E, slightly below the target 15%.
HOLD with a target price of EUR 12.1 (8.6)
We value Gofore at 17.5x 2021 adj. P/E (excludes goodwill amortization), implying a 26% premium to our peer group and a 34% premium to the finnish peers. We adjust our target price to EUR 12.1 (8.6) and retain our HOLD-rating.
Cibus’ Q3 was uneventful. We make small revisions to our estimates, our TP is now SEK 165 (160), rating HOLD (BUY).
No major property acquisitions were completed in Q3
Cibus reported EUR 17.0m in Q3 rental income (vs our EUR 17.5m estimate) and EUR 16.6m in net rental income (vs our EUR 16.2m estimate). Operating income was EUR 14.9m and slightly lower than our EUR 15.3m estimate as Swedish management costs were reclassified from property expenses to administration costs. The management agreement with Sirius has been terminated and Q4 will be clean in terms of cost structure. Q3 net financial costs were EUR 5.4m i.e. somewhat higher than our EUR 5.0m estimate due to an EUR 0.6m cost attributable to bond and bank loan fees. Cibus’ annual net rental income capacity was updated only a bit and we revise our estimates accordingly.
The long-term strategy is proceeding as planned
Cibus’ organization is developing as planned and the company sees some potential to generate more income from the existing asset base through additional services like car washes and parking lots. Cibus continues to focus on the Finnish and Swedish markets for now, however entry to other Nordic markets remains likely in the long-term. Cibus also upped the annual acquisition target from EUR 50m to EUR 50-100m. Q3 was quiet in terms of new acquisitions, yet Cibus remains well on track on the deal front this year after acquiring some EUR 70m in Finnish properties besides the more extraordinary EUR 180m Swedish market entry. Cibus reports very little changes in the daily-goods property markets’ transaction dynamics, with deal flow and valuations basically unchanged throughout the pandemic.
We see current valuation landing within a fair spot
While Cibus still trades at an attractive yield relative to other Nordic public properties we however see the shares’ upside potential limited by the daily-goods property market’s flat valuations. In other words, further meaningful Cibus yield compression would need to be backed by a pricing pick-up in the private markets. Cibus is valued 1.12x EV/GAV and 1.35x P/NAV, hence additional gains would stretch the valuation premium rather large. Considering the relatively high 4.75% yield and the premium to book and private markets valuations we view Cibus’ valuation now fair. Our TP is SEK 165 (160), rating HOLD (BUY).
Cibus Nordic’s property portfolio continued to perform well in Q3 as net rental income exceeded our estimate, however administration and financial costs were higher than we expected.
Talenom’s CMD provided an all-around update with limited new information given the announcements in Q3. The core business continues to perform well, and further automation of the accounting production line is sought, while domestic growth is increasingly driven by acquisitions.
Largely business as usual
Talenom held its Capital Markets Day on November 11th. Having already announced the new small customer concept and potential plans to expand in Europe in conjunction with the Q3 report the CMD in our view offered rather limited new information, mainly adding some more details to the aforementioned matters. Focus is being set on further increasing the degree of automation in the accounting production line, with a target of over 90% in 2023, currently slightly over 70%. The performance of the core business remains solid and customer acquisition is holding up quite well given the circumstances. Talenom is domestically clearly adding emphasis on inorganic growth, with the digitalization challenges faced by small accounting firms providing opportunities for acquisitions.
New growth avenues with the long-term in mind
Talenom gave some insight into its approach for a potential expansion in Europe and has clearly given it some serious thought. The plans are clearly intended for continued growth in the long-term and any notable revenue during 2021-2022 would most likely be due to acquisitions in a similar manner to the Swedish market entry. The TiliJaska small customer concept is expected to leave beta and add on bank services in Finland during February-March 2021 and enter beta in Sweden in mid-2021. The interest for the system has to our understanding so far clearly exceeded expectations.
HOLD with a target price of EUR 10.2
We have not made revisions to our estimates based on the CMD. We expect 2020 revenue and EBIT of EUR 65.5m and 13.1m respectively (co’s guidance EUR 64-68m and EUR 12-14m respectively). We retain our HOLD-rating and target price of EUR 10.2.
Pihlajalinna’s Q3 result was in line with our expectations. Revenue increased by 1% y/y to EUR 124m. Adj. EBIT was EUR 8.7m. Guidance for 20E was not given due to the uncertainties caused by the pandemic. We keep our rating “HOLD” with TP of EUR 9.5 intact.
Result in line with our expectations
Pihlajalinna’s Q3 result was in line with our expectations. Revenue increased by 1% y/y to EUR 123.9m vs. EUR 125.0m/122.2m Evli/cons. Revenue was boosted by the COVID-19 testing which increased revenue by EUR 3.4m. The recovery of the private demand has been weaker than what we anticipated. Among private customers, the demand for private clinic services declined by 6% and for dental care services by 8%. The fitness centers have lost ~6000 member customers due to the coronavirus restrictions. Adj. EBITDA was EUR 17.2m vs EUR 17.3m/16.0m Evli/cons and adj. EBIT totaled EUR 8.7m vs. EUR 8.4m/7.2m Evli/cons.
Private demand hampered by the prolonging virus situation
Even though the pent-up demand has started to release, the private demand is still lagging behind. We expect the demand to continue to normalize during the final quarter, but the prolonging pandemic situation is still likely to have a negative impact on demand. Especially the outlook of fitness centers remains weaker due to the restrictions. At the same time, the COVID-19 testing has grown significantly which should benefit Pihlajalinna in the future as well. The company is targeting to strengthen its occupational healthcare services and has started negotiations for the purchase of all shares in Työterveys Virta. The transaction would give Pihlajalinna almost 30% share of the occupational healthcare market in the Oulu region and it would be strategically very important for the company.
“HOLD” with TP of EUR 9.5 intact
The FCCA has proposed the market court to prohibit the merger between Mehiläinen and Pihlajalinna. The tender offer will run until 20th of Nov. We have therefore returned to see Pihlajalinna as an independent service provider also in the future. We have slightly decreased our estimates and expect 20E revenue of EUR 507m (-2.3% y/y) and adj. EBIT of EUR 18.9m. On our estimates, the company trades at 20E-21E EV/EBITDA multiple of 7.9x and 6.4x, which translates into 17-23% discount compared the peers. We keep our rating “HOLD” and TP of EUR 9.5.
Marimekko’s Q3 result outpaced the expectations as net sales increased by 10% y/y despite of the challenging times. Adj. EBIT increased by ~35% y/y and totaled EUR 10.5m. We have slightly increased our 20E-22E estimates and keep our rating “BUY” with TP of EUR 43 (42).
Strong growth in Q3
Marimekko delivered extremely strong Q3 result despite of the challenging times. Net sales were EUR 38.0m (+10% y/y) vs. EUR 36.0m/35.3m Evli/cons. Sales growth was driven by good development in wholesale sales in Finland and EMEA. In Finland, wholesale sales included nonrecurring promotional deliveries. Also, retail sales included unrecognized sales from Q2 (EUR ~1m). Further, online sales continued to perform well. Marimekko’s Q3 adj. EBIT totaled EUR 10.5m vs. EUR 9.1m/8.4m Evli/cons. Profitability was boosted by good sales growth and decreased fixed costs. Fixed costs were also reduced by subsidies granted in various countries to mitigate the negative business impacts of the COVID-19.
Fighting against the pandemic
Fashion industry has been suffering from the COVID-19 but so far Marimekko has survived relatively well in the turbulence. The company benefits of having different product lines as the growth in home decor products has been strong in Q3 (+44% y/y) which has compensated the drop in sales in fashion and bags & accessories. The final quarter is important for Marimekko as several sales campaigns take place during the quarter. We expect fairly good development in Finland as currently the household consumption is more focused on domestic purchases. However, sales are dependent on the pandemic situation and the trend in customer numbers in retail stores. International sales are also heavily impacted by the development of the pandemic.
“BUY” with TP of EUR 43 (42)
Marimekko expects 20E net sales to be lower than in the previous year. Adj. EBIT is expected to be approx. at the same level or lower than in 2019. We have made small adjustments to our estimates after the result and expect 20E sales of EUR 121m (-3.5% y/y). We expect adj. EBIT to be in line with last year (EUR 17.3m). In 21E, we expect revenue growth of ~8% y/y and profitability to further improve. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 18.4x and 15.9x which is a clear discount compared to the luxury peers. We keep our rating “BUY” with TP of EUR 43 (42).
Pihlajalinna’s Q3 result was broadly in line with our expectations. Q3 revenue amounted to EUR 123.9m vs. EUR 125m/122.2m Evli/cons, while adj. EBIT landed at EUR 8.7m vs. EUR 8.4m/7.2m Evli/cons estimates. EPS was EUR 0.20 vs. our EUR 0.20.
Marimekko’s Q3 result outpaced the expectations. Net sales were EUR 38.0m (10% y/y) vs. EUR 36.0m/35.3m Evli/cons. Adj. EBIT was EUR 10.5m vs. EUR 9.1m/8.4m Evli/cons. Marimekko expects 20E net sales to be lower than in the previous year and comparable operating profit is estimated to be approx. at the same level or lower than in the previous year.
Exel Composites’ Q3 results were overall quite neutral relative to expectations, however we are now more confident top line will continue to grow going forward. Our new TP is EUR 7.25 (6.25) while we retain our BUY rating.
Overall outlook appears strong despite the pandemic
Exel’s EUR 26m Q3 revenue grew by 10% y/y and so topped the flat estimates. The Wind power customer industry supports high volumes and grew by 37% y/y after growing 52% in Q2. We now expect a 27% y/y increase for Q4. Defense is also developing well, and there’s plenty of long-term potential (now only some 5% of LTM revenue). Cable core rods remain one high potential application in the long-term, although the Buildings and infrastructure customer industry continued to develop soft for now due to the pandemic (which also undermined Transportation demand). Exel progressed in areas outside Europe as Asia-Pacific grew by 58% y/y, driven by Wind power.
We are now more confident towards next year
Although top line was strong, Exel had pandemic-related issues in Q3 which affected bottom line and so the company was unable to reach similarly high profitability as in Q2 (which was close to long-term targets). The 7.8% EBIT margin was thus soft relative to our 9.5% estimate. We expect the Q3 US operational efficiency hiccup to pass. Demand has developed positive since Q2 and based on Exel’s comments we are now more confident revenue continues to grow in Q4 and next year alike. The Austrian investment is proceeding as planned and Exel is also ready to readdress its capacity for different end-markets with small capex. We see Exel has good handle on long-term customer account management, arguably the single most important consideration given the business model and strategy.
We see some more upside even with cautious multiples
The share has appreciated a lot lately, now close to the pre-pandemic highs. The strong Q2 profitability development, driven especially by the US unit, and good volumes justify higher multiples for their part. On the other hand, the growing pandemic uncertainty limits multiple potential even if outlook is still positive. Our new EUR 7.25 (6.25) TP values Exel roughly within the 7-8x EV/EBITDA and 11-13x EV/EBIT ranges on our estimates for FY ’20 and ’21. We retain our BUY rating.
Pihlajalinna reports its Q3 result on next Wednesday, 4th of November. As the coronavirus situation is prolonging, we have slightly cut our estimates. We keep our rating “HOLD” with TP of EUR 9.5 (11.0) ahead of the result.
Expecting revenue growth of 1.8% y/y in Q3E
The coronavirus situation eased in the beginning of the summer but in the late summer the infection waves started to increase again, and the situation has gotten worse during the autumn. Therefore, we have slightly cut our estimates. We expect that the pent-up demand has continued to release during Q3 but on the other hand people have spent more time at home and in summer houses which might have an impact on demand. We expect Q3E revenue to grow by 1.8% y/y to EUR 125.0m (prev. estimate of EUR 127.5m) and adj. EBIT of EUR 8.4m (prev. estimate of EUR 9.9m).
Returned to see Pihlajalinna as an independent company
The Finnish Competition and Consumer Authority (FCCA) has proposed the market court to prohibit the merger between Mehiläinen and Pihlajalinna. According to the FCCA, the merger would significantly impede effective competition in the Finnish health services market as there would be only two nationwide healthcare companies (Mehiläinen and Terveystalo) in the market post-merger. Thus, we see that the likelihood of the acquisition being completed has decreased significantly and therefore we have returned to see Pihlajalinna as an independent service provider also in the future. We also note that the political uncertainties in Finland have increased.
“HOLD” with TP of EUR 9.5 (11.0)
We have cut our 20E-21E revenue expectation by ~1% and our adj. EBIT expectation by ~10-11%. We expect 20E revenue to decline by 1.2% y/y (EUR 512m) and adj. EBIT of EUR 19.8m. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 20.3x and 13.2x, which translates into 1-20% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 9.5 (11.0) ahead of the Q3 result.
Exel Composites’ Q3 top line exceeded expectations while operating margin remained at a good level and absolute profitability increased y/y.
Etteplan posted better than expected profitability figures in the challenging circumstances. The uncertainty due to the second wave of the pandemic is causing an increasing lack of visibility. The outlook at least for the first half of 2021 does not appear favourable but we continue to expect growth aided by the recent acquisition.
Earnings beat in challenging quarter
Etteplan posted good profitability figures in the seasonally slower quarter and challenging environment. EBIT amounted to EUR 4.3m, beating expectations (EUR 2.9m/3.1m Evli/cons.). Revenue declined 10.3% y/y (organic decrease 13.3%) to EUR 55.2m (EUR 55.6m/55.3m Evli/cons.). Etteplan also updated its guidance, expecting revenue for the year 2020 to decrease slightly or be at the same level as in the previous year and operating profit (EBIT) to decrease clearly compared to 2019. Demand uncertainty continued and the second wave brought further uncertainty especially after the summer holidays.
Uncertainty on the rise with the second wave
The increased uncertainty brought by the second wave reduces the already low visibility going into 2021. Etteplan has so far fared well given the circumstances, having adopted substantial cost savings measures. Compared with Q2, lockdowns and restrictions are not affecting customer industries to the same extent, but customers are still cautious in making investment decisions. We assume the demand uncertainty to continue to impact on activity at least during the first half of the year. We still expect recovery compared with 2020 and supported by the Tegeman acquisition expect a 6.5% growth in 2021. We expect margins to remain at 2020e levels.
HOLD with a target price of EUR 9.3
Peers’ multiples have been under pressure with the second wave uncertainty and governments seeking to increase restrictions and the fwd. 12m median EV/EBITDA for the selected peer group has dropped by some 9% in the past few days to 8.3x, while Etteplan trades at 7.6x. With the uncertainty possibly still on the rise we retain our HOLD-rating and target price of EUR 9.3.
Tokmanni delivered relatively good Q3 result. Revenue growth of 13% y/y outpaced our and the consensus estimates but adj. EBIT (EUR 24.0m) fell short of expectations due to decline in gross margin. We have made only small adjustments into our estimates and keep our rating ”BUY” with TP of EUR 18.4.
Strong growth in revenue but decrease in adj. gross margin
Tokmanni’s Q3 revenue outpaced the expectations but adj. EBIT was below our and consensus estimates. Revenue grew by ~13% y/y, amounting to EUR 262m (vs. EUR 253m/255m Evli/cons). Growth was good especially in sales of yard and garden furniture, sports and leisure, detergents and home cleaning, paper products and groceries. Apparel sales have faced headwind due to the coronavirus and the company decided to boost apparel sales with discount sales in Q3. This impacted negatively on adj. gross margin which was 34.0% (35.4% in Q3’19). Tokmanni’s Q3 adj. EBIT totaled EUR 24.0m vs. EUR 25.8m/27.3m Evli/cons. Adj. EBIT was weighed down by weakened gross margin but on the other hand, strong revenue growth and strict cost control had a positive impact on profitability.
Towards the most important quarter
Tokmanni has benefited from the uncertain times as low prices and broad product assortment attract consumers. Despite of the current situation, customer numbers have increased in stores (LFL, Jan-Sep’20: +2.8%) and at the same time the size of average basket has increased (LFL, Jan-Sep’20: +8.7%). During Q3, Tokmanni’s online sales increased by ~155%, though the share of online sales is still marginal (~1% of revenue). We expect the growth in online sales to continue during Q4E, driven by the campaign season. The final quarter is the most important for Tokmanni in terms of both, revenue and profitability. In retail, the Christmas season has started earlier than normally this year and Tokmanni is also well prepared for the upcoming season as the Christmas products have arrived and some of those are already in stores.
“BUY” with TP of EUR 18.4 intact
Tokmanni expects strong growth in revenue and LFL revenue in 20E. Adj. EBIT margin is expected to improve from ‘19. We have made only small adjustments into our estimates. We expect 20E revenue to grow by 11% y/y (EUR 1046m) and adj. EBIT of EUR 89m. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 13.0x and 12.4x which translates into ~30% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 18.4.
Aspo’s earnings beat estimates, and even if the guidance doesn’t hint at a particularly rapid q/q Q4 EBIT recovery in our view profitability has already bottomed out. We retain our EUR 7.25 TP and BUY rating.
Telko delivered another earnings surprise in a row
Aspo’s EUR 3.6m Q3 EBIT clearly beat the EUR 1.7m/1.1m Evli/cons estimates. The surprise was largely due to Telko, which extended its Q2 performance by posting a similar EUR 4.2m in EBIT. Yet Telko’s market outlook remains cautious and Aspo’s new guidance in our view manages expectations slightly downwards. The results nevertheless do showcase sound long-term potential. ESL fell to red as expected and Leipurin’s profitability remained subdued. In terms of Q4 results it should be noted that demand for ESL’s larger vessels began to improve in late Q3. We see the implication of the earnings beat and Aspo’s specified guidance to be that Q3 marks out the low point in Aspo’s profitability, however the q/q dip was relatively small and thus Q4 results are unlikely to recover as sharply q/q as we estimated before.
We now see H2 EBIT EUR 1.2m higher than before
With respect to Q4 EBIT we revise our estimates down for ESL (from EUR 2.8m to EUR 1.7m) and Leipurin (from EUR 0.9m to EUR 0.5m) while we now expect Telko to reach EUR 2.8m (prev. EUR 2.3m). In our view Aspo’s guidance seems a bit conservative considering Telko’s recent development (that is unless we are overestimating the q/q profitability recovery rates for ESL and Leipurin). Although the pandemic continues to worsen some more, this spring’s initial shock is now history and supply chains are better prepared. In this sense we see it highly plausible that Aspo’s segments, essentially industrial logistics services providers, can show some meaningful improvement next year as well.
A lot of uncertainty remains but we view upside more likely
We still see Aspo’s valuation attractive in terms of SOTP, however we note especially ESL’s valuation is hard in such extraordinary times when dry bulk carriers are off their normal earnings levels. Aspo’s segments still have plenty to go before reaching their long-term financial targets, but we have grown more confident that this year marks the bottoming out for Aspo’s overall profitability. We thus view upside scenarios more likely than downside ones. We retain our EUR 7.25 TP and BUY rating.
CapMan’s Q3 was slightly below expectations but still overall neutral. Newly raised capital pushed AUM to ATH levels and the outlook for fee-based growth is favourable. Although market uncertainty is on the rise, with the dividend story intact we retain our BUY-rating and TP of EUR 2.2.
Slightly below expectations, AUM at all-time high
CapMan’s Q3 results came in slightly below expectations, with turnover of EUR 8.9m (EUR 9.6m/9.9m Evli/cons.) and EBIT of EUR 4.5m (EUR 5.0m Evli/cons.). The report in our view was all in all rather neutral. Low transaction-based fee volumes still caused weakness in the Services business while the Management Company business saw a boost from recent fundraising projects, albeit not quite as much as we had anticipated. AUM grew to an all-time high mainly through the first closing of the NRE III fund, having raised EUR 313m, with the target of EUR 500m still seen to be reached in the not too distant future. No major carried interest was received, and fair value changes were as expected.
Outlook for fee-based growth still favourable
CapMan’s recurring turnover continued to grow but at a slower pace. With the newly raised funds and on-going fundraising as well as the overall relatively new AUM the outlook for accelerating growth again is promising. The new CapMan Wealth Services model was also launched recently, aiming to further boost fee-based growth. The clear weakness currently continues to be the transaction-based fees, where volumes have declined due to the pandemic and with the recent increased uncertainty the near-term continues to look challenging. Realization of carried interest is still looking more distant and we no longer expect significant carry in 2020.
BUY with a target price of EUR 2.2
The market uncertainty is causing some stir to the near-term development and justifying upside potential in relation to current valuation seems more challenging, but the dividend yield and healthy financial position continue to speak for CapMan. We retain our BUY-rating and target price of EUR 2.2.
Raute’s Q3 results didn’t meet our estimates as the pandemic continued to interfere with business more than we expected. Our new TP is EUR 18 (20), rating still HOLD.
The pandemic continued to hurt top line and order intake
Raute reported EUR 27.9m in Q3 revenue, down by 17% y/y and up 14% q/q, missing our EUR 34.0m estimate. The 4.8% operating margin also fell short of our 6.2% estimate. Although revenue grew q/q order intake nevertheless continued to slide, and the EUR 11m Q3 figure missed our EUR 21m estimate largely because project orders touched a low of EUR 2m, whereas we expected some recovery to EUR 10m. Services orders, at EUR 9m, were also lower than our EUR 11m estimate.
We revise our estimates slightly down
We still wait for signs of acceleration in smaller equipment as well as relatively large-sized modernization orders (the latter are recognized under services). Europe was digesting investments in new production capacity already before the pandemic, and right now it’s quite unclear when actual orders might begin to pick up again. Russia remains an important market and Raute describes local demand still active, however uncertainty continues to plague decision making there as well. It’s still early to talk much about China, although the market seems to be maturing and thus developing favorably from Raute’s point of view. The market is a big opportunity for Raute, however in our opinion the prospect should be valued cautiously. We revise our top line estimate for FY ’21 down to EUR 132m from EUR 139m and EBIT estimate down to EUR 6.0m from EUR 6.6m.
It seems profitability is unlikely to be high next year either
Raute’s competitive positioning remains intact and earnings are bound to gain significantly in the coming years from this year’s low point. However, next year’s profitability outlook still appears quite modest and hence earnings multiples seem to be on the high side of the acceptable range. In our view Raute’s valuation is now full unless there’s imminent recovery in smaller equipment orders and services. Such a pick-up in orders could happen quickly but we are cautious towards this prospect as uncertainty currently shows no signs of fading. Raute is trading at 6.8x EV/EBITDA and 11.4x EV/EBIT on our updated estimates for next year. Our TP is now EUR 18 (20), rating still HOLD.
Solteq reported clearly better profitability figures than we had expected, with comp. EBIT of EUR 1.4m (Evli 0.7m). We expect the good traction to show also in 2021 but remain slightly cautious on growth figures given the uncertainty. We adjust our TP to EUR 1.90 (1.65), BUY-rating intact.
Our profitability estimates clearly beat
Solteq reported Q3 results that were clearly better than we had expected. Revenue grew 8.5% in comparable terms to EUR 13.3m (Evli 13.0m) and the comparable operating profit to EUR 1.4m (Evli 0.7m). Profitability was better than expected in both segments. The pandemic has had some effect on sales but has not impacted the group’s performance as a whole so far. Solteq Software is clearly gaining traction with the order backlog that has been building up, with particular success in gaining new projects in the utilities-sector and positive development is seen during the rest of the year. Solteq Digital has seen continued good demand in core areas the outlook remains rather stable.
Solteq Software gaining traction
The good development in profitability, brought by previously taken measures and sales growth, is showing a positive effect on the company’s cash generation despite the interest expense burden and product development investments. We do not expect Solteq to go completely unscathed through the pandemic and have clearly lower growth expectations for Solteq Digital in 2021 while the good order intake and the build-up of recurring revenue from long-term contracts will support growth in Solteq Software. We also maintain margin estimates for 2021 at similar levels as in 2020 for now given the uncertainty but see potential for improvement in Solteq Software as the share of own products increases. On group level we estimate growth of 3.7% and an EBIT-margin of 8.8% in 2021.
BUY with a target price of EUR 1.90 (1.65)
Current valuation implies a 2020e EV/EBITDA of 6.4x. Even when comparing solely with the Nordic IT-service peers, valuation still appears attractive. We retain our BUY-rating and raise our target price to EUR 1.90 (1.65) following our revised estimates.
SRV’s Q3 results were fairly neutral and most importantly construction profitability was rather good. Supported by construction cost declines, the target of improving the 2021 operative operating profit to 2017 levels appears feasible. We retain our BUY-rating, TP EUR 0.64 (0.66).
Decent results, construction margins held up
SRV reported somewhat two-fold Q3 results. Revenue was below our expectations (EUR 223.6m/234.0m Evli/cons.) despite more developer-contracted housing units being recognized as income than we had expected. Operating profit was below expectations at EUR 1.7m (EUR 2.9m/3.0m Evli/cons.) while the operative operating profit amounted to EUR 7.1m (Evli EUR 2.9m), with the cancellation of a EUR 3.1m provision for expenses that were recognized due to a ruling by a Russian court impacting positively. Relative profitability in the Construction segment held up well and corresponded to our expectations.
Margin improvement supported by cost decline
Visibility is somewhat weakened going into 2021. The housing prices recovered well from the dip in H1/20 and activity has been at healthy levels. The order backlog has been relatively stable in the past four quarters and with the current project portfolio we see potential for minor growth in 2021, expecting a slight sales decline in business construction and growth in housing construction. The sales development is currently however clearly of secondary importance as improvement in profitability to offset the interest expense burden is essential. We expect margins to improve in 2021, as margins in 2020 have been pressed by high construction costs and the situation should ease going forward.
BUY with a target price of EUR 0.64 (0.66)
The uncertainty has particularly affected the shopping centres in Russia and exits continue to appear more distant. The construction outlook remains relatively decent, although demand within certain business construction areas is being affected by the pandemic. We adjust our target price to EUR 0.64 (0.66) with our BUY-rating intact.
Etteplan's net sales in Q3 amounted to EUR 55.2m, in line with our estimates and consensus (EUR 55.6m/55.3m Evli/cons.). EBIT amounted to EUR 4.3m, above our and consensus estimates (EUR 2.9m/3.1m Evli/cons.). Guidance updated: revenue in 2020 is expected to decrease slightly or be at the same level as in 2019 and EBIT to decrease clearly compared to 2019.
Aspo’s Q3 EBIT meaningfully topped expectations as Telko continued to perform strong.
The third quarter wasn’t any better for Finnair and was heavily impacted by strict travel restrictions. Revenue declined by 89% y/y and was EUR 97m while adj. EBIT was EUR -167m. We have further cut our estimates and keep our rating “HOLD” and TP of EUR 0.38 intact.
Strict travel restrictions hampered Finnair’s operations
As expected, Finnair’s Q3 result was heavily weighed down by the coronavirus pandemic and the strict travel restrictions especially in Finland. Therefore, the company had to deviate from the previous plans and to continue to operate with a limited network. Capacity (ASK) was down by 87% compared to last year and PLF was 38.7% (-47.5pp). Revenue decreased by ~89% y/y, amounting to EUR 97m vs. EUR 157m/145m Evli/cons. Adj. EBIT was EUR -167m vs. EUR -191m/-179m Evli/cons. By the end of the quarter, Finnair had paid out over EUR 400m of COVID-19 related refunds (some EUR 40m left).
Winter season is expected to remain dark
Due to the prolonged pandemic situation and strict travel restrictions it is likely that the better recovery of air travel isn’t starting anytime soon. Finnair continues to fly with a limited network during the winter season. The company informed earlier that it is aiming to fly approx. 75 daily flights to ~50 destinations during the winter season (~350 flights per day in ‘19). The ramp-up is estimated to start from summer’21. According to the company, comparable operating loss in Q4 will be of a similar magnitude than in Q2 and Q3. The company also expects both, revenue and capacity (ASK) to decrease more than 70% in 2020 compared to 2019. Further, the company raised its savings target to EUR 140m (prev. EUR 100m) starting from the beginning of 2022 (compared to 2019).
“HOLD” with TP of EUR 0.38
Finnair has a fully undrawn EUR 175m revolving credit facility and a EUR 200m short-term commercial paper program, which was unused at the end of September. In addition, the remaining part of the statutory pension premium loan (EUR 200m) can be drawn if needed. We have cut our 20E-21E estimates and expect revenue in 20E to decline by 73% y/y to EUR 850m and adj. EBIT of EUR -606m. We keep our rating “HOLD” with TP of EUR 0.38.
Raute’s Q3 proved slower than we estimated as both recognized revenue and order intake fell short of our expectations.
SRV's net sales in Q3 amounted to EUR 209.9m, below our and consensus estimates (EUR 223.6m/234.0m Evli/cons.). EBIT amounted to EUR 1.7m, below our and consensus estimates (EUR 2.9m/3.0m Evli/cons.).
Tokmanni’s Q3 revenue increased by ~13% y/y (LFL growth of 11.6%) and was EUR 262m vs. EUR 253m/255m Evli/cons. Tokmanni’s adj. EBIT was EUR 24.0m vs. EUR 25.8m/27.3m Evli/cons. Adj. gross margin was 34.0%. The company expects strong growth in revenue and LFL revenue in 20E. Comparable EBIT margin is expected to improve on the previous year.
CapMan's turnover in Q3 amounted to EUR 8.9m, below our and consensus estimates (EUR 9.6m/9.9m Evli/cons.). Profitability was slightly below expectations and EBIT amounted to EUR 4.5m, (EUR 5.0m Evli/cons.).
Solteq’s revenue in Q3 grew 8.5% in comparable terms to EUR 13.3m (Evli EUR 13.0m). The comparable operating profit clearly beat our expectations at EUR 1.4m (Evli EUR 0.7m). Guidance reiterated: Solteq Group’s comparable operating profit in 2020 is expected to grow significantly.
Consti reported Q3 results well in line with our estimates, with highlights being the continued good profitability and free cash flow. Despite a slightly weaker sentiment the outlook in our view still looks favourable but healthy near-term order intake will be of essence for the next year.
Reported rather good figures, in line with our estimates
Consti reported Q3 results well in line with our estimates. Revenue amounted to EUR 68.2m (Evli EUR 69.6m) and EBIT to EUR 2.5m (Evli 2.5m), at a pretty healthy margin of 3.6%. Order intake amounted to EUR 31.0m and the order backlog as such declined y/y and q/q to EUR 189.4m but still slightly above 2019 year-end levels. The highlight of the report along with the good profitability was the free cash flow, which amounted to EUR 4.6m (Q3/19: EUR -0.4m). With a rolling 12m cash conversion of 174% the net debt (excl. IFRS 16) continued to decline, now at EUR 4.8m (Q3/19: EUR 19.6m).
Coming quarters order intake will steer next year
Management comments for Q4/20 were of a more careful tone given the escalated Coronavirus situation post Q3 but solid performance is nonetheless still expected. The near-term development really depends on demand recovery and order intake development during the coming quarters. Based on the current order backlog activity is seen to be higher next year compared to the same situation in 2019. We have slightly lowered our Q4 estimates for a more conservative approach given order intake uncertainty, now expecting 2020 revenue and EBIT of EUR 268.1m and 8.0m respectively. In 2021 we for now expect only a meager growth of 1.4% and EBIT of EUR 9.1m, with housing company demand recovery a potential key near-term uncertainty up until the housing company General Meeting season next spring.
BUY with a target price of EUR 10.0
Although sentiment appears slightly less positive the order backlog, Consti’s ability to adapt to lower volumes, and the long-term sector outlook along with an attractive valuation remain as beneficial factors. We retain our BUY-rating and TP of EUR 10.0.
The coronavirus pandemic and strict travel restrictions especially in Finland continued to hamper Finnair’s result in Q3. Finnair’s Q3’20 adj. EBIT was EUR -167m vs. our expectation of EUR -191m and consensus of EUR -179m. Revenue decreased by 88.7% y/y and was EUR 97m vs. our expectation of EUR 157m and consensus of EUR 145m.
Vaisala delivered a two-fold Q3 result. Despite W&E’s strong profitability improvement, sales and orders declined and COVID-19 continues to pose significant near-term risks. IM business remains resilient. We keep our estimates broadly unchanged and maintain TP of 32€ with SELL.
Sales mix boosted profitability, orders and sales decreased
Q3 net sales decreased by 11% to 94 MEUR mainly due to the decline in W&E’s project business. Gross margin improved to 57.7% (55.3%) and EBIT to 19.5 MEUR (16.3 MEUR), 20.7% (15.5%) of net sales. W&E’s EBIT improved to 11.1 MEUR (9.7 Evli) and IM’s was 8.6 MEUR (10.3 Evli) According to Vaisala, lower share of less-profitable project business, improved profitability of digital services in W&E and higher share of IM sales boosted margins. Operating expenses also decreased compared to previous year due to less travelling and some non-recurring positive impacts. Orders received decreased overall by 19% as W&E’s order intake was impacted by COVID-19 especially in airports segment and emerging markets. IM’s orders received increased 2% supported by strong order intake in APAC (+19%).
Our estimates broadly unchanged
Vaisala reiterated its 2020 outlook issued last week, as expected, estimating FY20 net sales to be 370-390 MEUR and EBIT to be 40-48 MEUR. Based on the report, we keep our estimates broadly unchanged. We expect 20e sales to decline 5.3% to 382.1 MEUR and EBIT to increase to 46.7 MEUR. W&E outlook is weighed by the weakened outlook for aviation and restrictions will cause delays in project deliveries. Thus, we expect W&E 20e sales to decrease by 7.3% to 242.1 MEUR and EBIT to decrease to 16.7 MEUR. We expect IM to remain relatively resilient with 20e sales down 1.7% to 140 MEUR and EBIT increasing to 30.1 MEUR. In 21e, we expect IM sales to continue growing (+7%), while W&E is expected to recover only slightly (+3%) due to uncertainties and decreased order intake.
Valuation still challenging
On our estimates, Vaisala is still trading at clear premiums compared to our peer group and we see valuation stretched given the weaker financial performance compared to peer group. Based on the report, we retain our TP of 32€ and SELL rating. Our TP values Vaisala at 21-22e EV/EBIT multiples of 22.9x and 20.7x which are above the peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.
Consti's net sales in Q3 declined 16.7% to EUR 68.2m, in line with our estimates and slightly below consensus (EUR 69.6m/72.1m Evli/cons.). EBIT amounted to EUR 2.5m, in line with our estimates and slightly below consensus (EUR 2.5m/2.7m Evli/cons.). Free cash flow at EUR 4.6m (Q3/19: EUR -0.4m).
Scanfil’s top line didn’t meet our estimate but profitability remained strong. We retain our EUR 6.25 TP, rating BUY.
Some top line softness but in our view nothing dramatic
Scanfil posted EUR 141.6m in Q3 revenue, down 7% y/y. The figure didn’t meet our EUR 156.2m estimate largely due to the Communication and Industrial segments. Communication revenue fell by 28% q/q mostly as a result of low demand for network elements. The segment also supplies other types of products and we expect revenues to stabilize in Q4. Consumer Applications’ top line remained low as expected, slightly up by q/q but down by 23% y/y. There are signs the segment’s demand is bottoming out and we expect more improvement for Q4. Energy & Automation and Medtec & Life Science performed close to expectations, but Industrial managed only EUR 44.7m (vs our EUR 50.5m estimate) and was down by 9% y/y. Industrial softness wasn’t attributable to any single customer and was pronounced in July and August. Demand nevertheless improved in September. In absolute profitability terms Scanfil’s EUR 9.9m Q3 adj. EBIT didn’t quite reach our EUR 10.5m estimate, however the quarter still delivered a strong 7% operating margin.
Guidance implies meaningful q/q improvement for Q4
The low-end of the updated FY ’20 guidance implies 5% q/q Q4 revenue increase, while the high-end implies 19% growth. We make only small updates to our Q4 estimates, and now expect EUR 154m in Q4 revenue (prev. EUR 158m), down by 1% y/y and up by 8% q/q. We now expect Q4 EBIT at EUR 10.0m (prev. EUR 11.1m). Scanfil’s overall positioning within the value chain and relative to competition remains unchanged. The company has a balance sheet ready to facilitate acquisitions should a fitting opportunity arise. There’s a lot of uncertainty but we note Scanfil’s customers tend to be well-positioned OEMs who compete against each other directly only to a very limited extent.
Valuation is still very reasonable
Scanfil is valued at about 6.3x EV/EBITDA on our FY ’20 estimates. Scanfil’s organic strategic growth target for ’23 implies some 5% CAGR for the coming years. Although the target was decided on before the pandemic, we still view it quite relevant considering the customer portfolio and performance so far this year despite the uncertainty. Our TP remains EUR 6.25 and our rating BUY.
Innofactor reported good results in the quarter expected to be most hit by negative impact of the pandemic. The outlook for 2021 remains positive but we have yet to see signs of the next clear steps of growth pick-up and margin improvement. Valuation still remains attractive and we adjust our TP to EUR 1.45 (1.35) and retain our BUY-rating.
Good results in the by COVID-19 impact weakened quarter
Innofactor reported slightly better Q3 results than we had expected in the due to the coronavirus pandemic more challenging quarter. Net sales grew 0.3% y/y to EUR 14.0m (Evli 13.8m), with the negative impacts of the pandemic lowering sales per employee by 1.6%. EBITDA amounted to EUR 1.6m (Evli EUR 1.3m), with slightly negative figures in the other Nordic countries due to lower sales. The negative impacts of the pandemic were in line with company expectations. Weaker demand has mainly been seen among commercial customers. The order backlog amounted to EUR 58.2m, up 9.4% y/y.
Awaiting signs of faster growth and earnings improvement
Innofactor expects net sales and EBITDA in 2020 to increase from 2019, with our estimates now at EUR 65.5m (2019: EUR 64.2m) and EUR 7.7m (2019: EUR 5.1m) respectively, with the latter estimate up slightly post Q3 following better than expected relative profitability. The outlook for 2021 remains positive but we still expect only a modest growth of 4.0% and minor EBITDA-% improvement (11.7% ->12.0%). Challenges continue to relate mainly to performance in the other Nordic countries and any notable signs of improvement are yet to be seen. M&A activity continues to appear likely in the coming years, with the company committed to its 20% annual growth and 20% EBITDA-% target, but it is too early to account for such.
BUY with a target price of EUR 1.45 (1.35)
On peer multiples Innofactor continues to trade at a clear discount. We also expect Innofactor to initiate dividend payments in 2020. Non-cash items (mainly PPA) affecting earnings will still keep dividend yields rather low (2020e: 2.3%). We raise our TP to EUR 1.45 (1.35) and retain our BUY-rating.
Suominen again topped expectations. We update our estimates, our TP is now EUR 6.0 (5.5) and rating still BUY.
Another extension to a steep upward profitability trend
Suominen recorded EUR 115.4m in Q3 revenue, up by 12% y/y and down by 6% q/q, meeting our EUR 114.0m estimate. FX had a negative EUR 5.6m impact. Europe remained very strong (up by 17% y/y), and at EUR 43.5m topped our EUR 41.0m estimate. Americas grew by 9% y/y and at EUR 71.9m was close to our EUR 73.0m estimate. Suominen delivered high volumes and margins despite maintenance breaks, which will also take place in Q4. While the results were near our estimates in terms of top line, margins were again a positive surprise. Suominen achieved a 17.1% gross margin, gaining more on the 16.0% in Q2 and clearly higher than our 15% estimate. Low raw materials prices in general continue to exert pressure on nonwovens pricing, however the pricing clauses work with a lag and Suominen was also able to defend its pricing to some extent. Suominen has been very successfully achieving production cost efficiencies and says the variable cost optimization program continued to yield results on all sites. The company managed strong with SGA, R&D and other expenses as well since the total item was only EUR 6.8m, compared to our EUR 7.3m estimate. Suominen’s EUR 12.9m Q3 EBIT thus clearly beat our EUR 9.8m estimate.
We expect Q4 earnings to decline by some EUR 4m q/q
Although the company continues to perform strong not only due to a favorable environment but also thanks to in-house measures, we expect results to decline q/q in Q4. We now expect Q4 gross margin at 15% and continue to see some further pressure down next year. Raw materials prices have remained low for quite some time and hence are unlikely to support additional boost in profitability. On the positive side wipes demand should remain high for an extended time period.
Multiples attractive despite margin pressure going forward
Suominen is now valued ca. 5.5x EV/EBITDA on our estimates for this year. Going forward, we see additional earnings gain hard next year. In our opinion somewhat low earnings multiples are warranted given the extraordinary environment, but we nevertheless continue to view the overall valuation picture attractive. Our TP is now EUR 6.0 (5.5) and rating remains BUY.
Detection Technology’s Q3 report was below expectations as SBU continues to struggle under the pandemic. Despite low visibility and the uncertainty related to aviation, we see security market weakness as temporary and do not see DT’s competitive position, strategy or longer-term drivers compromised. Therefore, we see DT well positioned to perform again once security market normalizes. Despite our estimates cut, we maintain our target price of 22 euros and HOLD rating.
Clear miss due to worse than expected SBU performance
DT’s Q3 result missed our and consensus expectations as SBU continued to struggle due to the ongoing pandemic, which is postponing investments in security market, especially airports. DT’s Q3 net sales were EUR 20.6m (-23.4% y/y) vs. EUR 24m/23.5m Evli/consensus estimates. SBU sales declined -43% to EUR 10.6m (EUR 13.5m our expectation) due to COVID-19 affecting the demand for security X-ray devices. MBU sales increased +20% to EUR 10.1m (EUR 10.5m our expectation) due to continued strong demand in medical CT imaging. DT’s Q3 EBIT came in at EUR 2.6m (12,6% margin) vs. our estimates of EUR 4m (EUR 3.4m cons).
DT cautiously optimistic that worse is behind it
The COVID-19 pandemic is negatively affecting the demand for X-ray devices in all DT’s target markets, apart from medical CT imaging. Apart from domestic air transport in China, global air transport has failed to recover, which has led to exceptionally low demand in aviation. In addition, extensive restrictions on mass gatherings has negatively affected demand in security applications. DT expects SBU sales to decrease in Q4, but to start improving in H1/21 driven by Chinese demand. DT expects MBU sales to grow in Q4 and to continue to grow in Q1 of 2021, albeit more slowly than in 2020.
Maintain HOLD with target price 22 euros
Based on the report, we have cut our sales and EBIT estimates for the coming years. On our renewed lowered estimates, DT is now trading at premiums to our peer group, but we note that there is high uncertainty in our estimates and multiples can quickly change when security market recovery starts. It’s difficult to estimate how long the challenging situation regarding aviation will continue and at what point SBU will start recovering. We do not however see DT’s competitive position, strategy or longer-term drivers compromised, and therefore DT should be well positioned to perform again once security market normalizes. Until we see some signs of security market stabilizing, we remain cautious. We maintain our target price of 22 euros and HOLD rating.
Vaisala’s Q3 did not provide bigger surprises as the company updated its business look for 2020 and published preliminary Q3 net sales and EBIT figures last week. Vaisala’s Q3 net sales decreased by 11% to 94.0 MEUR. Q3 reported EBIT was 19.5 MEUR.
Suominen’s Q3 figures continued to defy our expectations as marginal profitability increased further q/q despite being already exceptionally high in Q2.
Innofactor’s Q3 results were slightly above our expectations and figures were fairly good given the expected COVID-19 related weakness in the quarter. The net sales amounted to EUR 14.0m (Evli EUR 13.8m), while EBITDA amounted to EUR 1.6m (Evli EUR 1.3m). Guidance remains intact. The impact of the pandemic on Q3 was in line with company expectations.
DT’s Q3 result clearly missed our and consensus expectations due to worse than expected performance in SBU. DT’s Q3 net sales were EUR 20.6m (-23.4% y/y) vs. EUR 24m/23.5m Evli/consensus estimates. SBU sales declined -43% to EUR 10.6m (EUR 13.5m our expectation) and MBU sales increased +20% to EUR 10.1m (EUR 10.5m our expectation). DT’s Q3 EBIT came in at EUR 2.6m vs. our estimates of EUR 4m (EUR 3.4m cons). On the positive, DT says it is cautiously optimistic that the worst may already be behind it.
Scanfil reported Q3 revenue slightly on the soft side, however the overall picture seems to remain pretty much unchanged with demand and profitability as previously expected.
Etteplan reports Q3 results on October 29th. We expect weakish figures in the seasonally slower quarter, as the impact on demand of the COVID-19 induced uncertainty should also show clearly. We estimate a sales decline of 9.6% in the quarter and an EBIT-margin of 5.3%. We adjust our target price to EUR 9.3 (8.7) and retain our HOLD-rating.
Seasonal slowness and COVID-19 impact
Etteplan’s Q2 results were a clear positive in the challenging environment and timely measures taken helped in keeping up profitability. The organic decline in revenue was 11.3%. During Q3 the market environment overall saw improvement compared with the restrictions during Q2 but with the third quarter being seasonally slower and a trickle-down effect of the demand weakness in Q2 we expect weakish figures. With the capacity reduction due to temporary layoffs to our understanding somewhat similar to that of Q2 we expect a similar organic revenue decline, expecting revenue of EUR 55.6m (Q3/19: EUR 61.5m). Despite good cost control, we still expect the lower revenue to have an impact on profitability and estimate an adj. EBIT of EUR 2.9m (Q3/19: EUR 4.9m), at a margin of 5.3%.
2020E: sales decline 1.7% and EBIT of EUR 18.4m
Etteplan reissued a guidance in Q2, expecting 2020 revenue to decrease slightly or be at 2019 levels and EBIT to decrease compared with 2019. We currently estimate a sales decline of 1.7% in 2020 and EBIT of EUR 18.4m (2019: EUR 22.8m). The situation with the coronavirus pandemic has turned to the worse again with the second wave and we will be keeping our eyes on comments on the potential effect on demand development.
HOLD with a target price of EUR 9.3 (8.7)
We have made only minor tweaks to our estimates ahead of the Q3 results. With the slightly improved sentiment after Q2 and peer multiple appreciation we adjust our target price to EUR 9.3 (EUR 8.7), valuing Etteplan at 7.5x 2020 EV/EBITDA, and retain our HOLD-rating.
Talenom reported solid Q3 figures despite slight sales weakness. Attention was drawn to the new small customer concept, with the for us surprising addition of banking services. Although still in its infancy, the concept in our view appears promising.
Solid profitability, slight COVID-19 sales weakness
Talenom reported solid Q3 results. Revenue was slightly weaker than expected, at EUR 14.8m (Evli/cons. EUR 15.3m/15.2m), as the pandemic has a slight impact on transaction volumes. Cost control however aided profitability and the EBIT of EUR 3.1m beat expectations (Evli/cons. EUR 2.6m/2.8m). The financial figures were clearly of lesser interest in the earnings report as focus lied on the new small customer concept.
Seeking to cater previously underserved customer segment
Talenom launched a new small customer concept, the TiliJaska service, a free accounting system, as well as Talenom Light Entrepreneur, designed for the smallest, previously by Talenom underserved customers. Costs for the system arise with usage after a certain threshold. The product is intended to broaden the service offering and attracting growing enterprises to Talenom’s bookkeeping services but also to be a profitable product in itself. The product will be in beta until the end of the year and is also planned to be launched next year in Sweden. A potentially very interesting and unexpected new angle was the addition of banking services. In our view the service, or essentially the idea of in the long-run potentially creating a much broader service platform, view has clear potential. Talenom also mentioned that it is looking into other markets in Europe, but we see it as too early to make any assumptions regarding such expansion.
HOLD with a TP of EUR 10.2 (8.5)
Talenom’s valuation continues to be stretched but with the interesting new sales growth potential and more light to be shed on the new services in the upcoming Capital Markets Day (November 11th), we can justify to stay along for the ride. We adjust our TP to EUR 10.2 (8.5), valuing Talenom at a 2020 P/E of 45x, and retain our HOLD-rating.
Talenom's net sales grew 10.0% in Q3 to EUR 14.8m, slightly below our and consensus estimates (EUR 15.3/15.2m Evli/cons.). EBIT amounted to EUR 3.1m, above our and consensus estimates (EUR 2.6m/2.8m Evli/cons.). Guidance remains intact, net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
Once again, Verkkokauppa.com delivered a strong result as revenue increased by ~7% y/y (EUR 129m) while adj. EBIT totaled EUR 5.6m. We have slightly increased our estimates and keep our rating “BUY” with TP of EUR 6.5 (6.3).
Revenue increased by 7% y/y
Verkkokauppa.com’s good momentum continued throughout Q3, driven by strong consumer web sales. Growth was particularly good in mid-sized and evolving categories (MDA, BBQ, sports as well as office & supplies). Revenue increased by ~7% y/y amounting to EUR 129m (vs. our EUR 126m). Gross margin developed favorably as well due to the sales mix, strong consumer sales as well as lower level of wholesale sales but also due to operational improvements. The company’s adj. EBIT was EUR 5.6m (vs. our 5.3m) in Q3.
The current environment supports further growth
Online migration has continued strong throughout the year partly due to the COVID-19 and as the virus situation seems to be prolonging, we expect the same trend to continue. Even though the company is known for its strong presence in the consumer electronics market in Finland, the growth has been strong in other product categories as well boosting the company’s sales and profitability development. This also benefits the company’s growth in the future since the consumer electronics market is extremely competed and price driven. The final quarter is normally the most important for Verkkokauppa.com and it is driven by campaigns (e.g. Cyber Monday and Black Friday) and the Christmas season. We expect the good momentum to continue also in Q4E. Due to the travel restrictions, wholesale sales should remain in a lower level also in Q4E, having a positive impact on margins.
“BUY” with TP of EUR 6.5 (6.3)
We have slightly increased our estimates and expect 20E revenue of EUR 546m and adj. EBIT of EUR 20.4m. Hence, our estimates are at the higher end of the given guidance (revenue between EUR 525-550m and adj. EBIT between EUR 17-21m). On our estimates the company trades at 20E-21E EV/EBIT multiple of 10.7x and 11.0x, which translates into ~50% discount compared to the peers. We keep our rating “BUY” with TP of EUR 6.5 (6.3).
Fellow Finance is a highly scalable international marketplace lending platform. Recent challenges due to increased competition, adverse regulatory decisions and the Coronavirus pandemic caused a setback to the company’s solid growth and profitability track and is now on a slightly challenging turnaround undertaking.
Good track record, challenging year behind...
Fellow Finance is an international marketplace lending platform connecting investors and lenders and facilitates both consumer and business lending. Operations have in the past years been expanded abroad, with operations now in six countries. The company has been able to achieve a good track record on growth and profitability but has since the latter half of 2019 been met with challenges due to regulation, increased competition and volume declines due to the Coronavirus pandemic. As a result of a decline in facilitated loan volumes sales have decreased and profitability has suffered.
... but long-term potential remains
The business environment still remains challenging in the near-term, especially with the temporary cap on interest rates on certain consumer credit. Potential for disruptive growth in the addressable market and the scalability of the platform still continues to offer ample opportunities in the long-term but with the challenges being faced there is still work to be done. With the improving investor demand after a dip in volumes due to the pandemic we expect the negative sales trend to be reversed and profitability to improve as a result in 2021.
HOLD with a target price of EUR 2.8 (2.5)
We base our valuation on peer multiples and derive a fair value of EUR 2.78 using a 2021 P/sales multiple of 1.3x, at a discount to the consumer finance companies given differences and faced challenges and above the somewhat chronically underperforming lending platform peers. We adjust our target price to EUR 2.8 (2.5) and retain our HOLD-rating.
Detection Technology will report Q3 earnings next Tuesday, October 27th, at 9:00 EET. As usual, we look forward to hearing the latest developments and outlook regarding the security and medical imaging markets. We maintain our target price of 22 euros ahead of the report, our recommendation is HOLD (prev. BUY).
Expecting declining sales, but a better quarter than last
We expect Q3 net sales of 24 MEUR (23,5 MEUR cons) and EBIT of 4 MEUR (3,4 MEUR cons), meaning a decline of around -11% and -20% respectively compared to last year. Despite decline, we expect Q3 to be clearly better than Q2. The reason behind net sales decline is the lower demand in SBU due to the COVID-19 pandemic affecting the demand for security X-ray devices, especially in aviation segment. We expect SBU net sales to decline -27% to 13,5 MEUR. MBU is compensating for the decline in SBU, as demand for medical CT imaging is currently strong due to the pandemic. We expect MBU net sales to grow 26% on slightly weak comparison figures to 10,5 MEUR. We expect DT’s Q3 EBIT to be 4 MEUR (17% EBIT margin), which is -20% lower y/y (high comparison figure), but clearly better than in Q2 (2,6 MEUR).
Looking for signs of recovery in SBU amidst low visibility
DT has stated that it expects lower demand in the security segment to continue in Q3 and SBU sales to decrease in 2020. DT however sees SBU sales starting to improve towards end of the year. DT estimated in its Q2 report that airport CT standard equipment upgrades in Europe and U.S. will be postponed at least 12 months. Regarding China, it remains unclear when similar Chinese airport standardization will start and if any security infrastructure related government recovery measures will take place. MBU sales growth is expected to continue in H2 driven by the demand in CT applications.
Situation regarding aviation main uncertainty
The situation regarding aviation remains the biggest near-term uncertainty for DT as SBU represents roughly 2/3 of net sales and we’ve estimated aviation to contribute roughly half of SBU net sales. We have not made any changes to our estimates, thus we maintain our target price of 22 euros ahead of the report, our recommendation is HOLD (prev. BUY).
Verkkokauppa.com’s Q3’20 revenue grew by 7.3% y/y and was EUR 129m vs. Evli EUR 126m and consensus of EUR 127m. Adj. EBIT was EUR 5.6m vs. EUR 5.3m/5.3m Evli/cons. 2020 guidance: the company expects revenue to be 525-550 million euros and comparable operating profit to be 17-21 million euros.
Vaisala updated yesterday its business outlook for 2020 and published preliminary net sales and operating result for Q3. With the better than expected profitability development, we raise our TP to 32€ (29), but due to continued share price rally our rating is now SELL (HOLD).
Sales expected to be 370-390 MEUR and EBIT 40-48 MEUR
Vaisala narrowed net sales estimate and increased EBIT estimate, and now expects 2020 sales to be between 370–390 MEUR and EBIT to be between 40–48 MEUR (prev. sales 370-405 MEUR and EBIT 34-46 MEUR). Vaisala also provided preliminary figures for January–September 2020. Preliminary net sales were 273 MEUR (277.2 MEUR Evli) and EBIT was 33 MEUR (25.6 MEUR Evli).
EBIT clearly better than expected despite the decline in sales
Pandemic has affected negatively especially airports customer segment and emerging markets, and W&E has been missing larger project orders. Some project deliveries have also been delayed due to restrictions related to COVID-19. IM’s industrial instruments and liquid measurements products has not met growth targets due to volatile market situation during Q2 and Q3. On the other hand, Vaisala’s profitability has developed clearly better than expected in Q3 (EBIT 19.9 MEUR vs. 12.6 MEUR Evli). According to Vaisala, W&E’s digital services and IM’s product and service businesses improved their gross margins. In addition, the decline in operating expenses caused by the prolonged pandemic, has improved EBIT more than expected.
Valuation remains stretched
Based on the update, we have cut our sales estimates and increased EBIT estimates for 2020e. We expect 2020e net sales to decline 5.2% to 382.5 MEUR and EBIT to increase to 46.6 MEUR. We have also revised EBIT estimates slightly upwards for 2021e. Despite the margin improvement, COVID-19 continues to pose significant near-term uncertainties. Vaisala’s share price rally has continued and, on our estimates, Vaisala is trading at clear premiums compared to our peer group and we see valuation stretched given the weaker financial performance compared to peer group. We look forward to hearing more about the drivers of margin development in connection with Q3 report next Tuesday. With the better than expected profitability development we raise our TP to 32€ (29), but downgrade to SELL (HOLD).
Suominen reports Q3 results on Tue, Oct 27. Our estimates, EUR 5.5 target price and BUY rating all remain intact.
No clear reason to expect softening wipes demand for now
In our opinion outlook is solid even after an exceptionally strong Q2, when revenues in Americas and Europe grew y/y by 19% and 16%. Fatigue and possibly growing indifference towards hygienic considerations could limit wipes growth at a certain near future point, however many reports suggest this unlikely to happen at least during the next few quarters. According to a New York Times article some consumers in the US prize canisters of Clorox disinfecting wipes as kinds of trophies since the item remains such a rare sight on store shelves. Many companies have formed partnerships with Clorox to reassure employees and customers that surfaces can be kept disinfected. Clorox saw wipes demand grow by 500% in a few months and inventory usually enough for 1-2 months gone in 1-2 weeks. Clorox was able to up production and plans to add more early next year. This is just one brand-specific example from the downstream part of the supply chain, but we believe it’s still relevant for upstream nonwovens suppliers. The US is also a key market for Suominen since the Americas BA contributes ca. 65% of revenue. Although European consumers may not be as keen wipers as their American counterparts, we believe the recent pandemic acceleration continues to lift volumes on both sides of the Atlantic.
There are no changes to inform estimate revisions
We view Suominen well-positioned to post double digit y/y growth rates during the next couple of quarters. With regards to H2’20 top line figures we see the uncertainty associated mostly with the scheduled maintenance breaks at several Suominen plants and to what extent exactly these will negatively affect production and delivery volumes. Raw materials prices have continued to develop flat and hence we still expect gross margin to decline from 16% in Q2 to 15% in Q3. There has also been basically no change to FX rates lately and so our EUR 114m revenue and EUR 9.8m EBIT estimates for Q3 remain intact.
We consider the conservative multiples attractive
Suominen continues to trade well below 6x EV/EBITDA on our estimates, compared to a historical average of 6.5x. We find this an attractive level and so retain our EUR 5.5 TP and BUY rating.
Raute reports Q3 results on Thu, Oct 29. Many issues point how order levels and profitability might have bottomed out, yet we continue to view valuation neutral. We retain our EUR 20 per share target price and HOLD rating.
A very large Russian order raises confidence on next year
While Q3 order intake likely remained at a subdued level Raute disclosed on Oct 16 the signing of a complete plywood mill project delivery. The EUR 55m Russian greenfield is worth close to the record EUR 58m Segezha order now on delivery. Raute begins delivering the new order next year and the mill is set to start production in ‘22. Even though the order is very large such a project delivery announcement is not that surprising given Raute’s Russian plywood mill track record. As usual with such big projects, Raute’s margin potential is likely quite limited. The order raises our confidence on next year’s workload. We now expect FY ’21 revenue at EUR 139m (prev. EUR 127m). With regards to FY ’21 EBIT we now estimate EUR 6.6m (prev. EUR 7.4m).
Long-term potential remains strong, short-term still hazy
While the pandemic has negatively affected Raute’s business it’s worth bearing in mind the investment cycle was cooling already well before this year. Although the pandemic and related uncertainty now only seem to prolong themselves by the day, we nevertheless view the prospect of wider plywood and LVL sector investment upturn entirely plausible. We see a reasonable chance Raute’s order intake will bottom out during H2’20. Another positive is the high likelihood of Raute emerging from the pandemic even stronger relative to competition. On the negative side is the extended short-term pressure on profitability. While it is clear this year’s valuation multiples should be overlooked, next year could still fall meaningfully short of long-term potential. In our opinion Raute does not face long-term profitability challenges, but on the other hand the sector’s cyclical nature means long-term outlook should be valued cautiously.
We expect improvement, but multiples aren’t yet attractive
Now that a big project has been secured, we focus on smaller scale equipment orders and services in the Q3 report. Raute is currently trading some 7x EV/EBITDA and 11x EV/EBIT on our estimates for next year. We view these multiples quite neutral in the current context. We retain our EUR 20 TP and HOLD rating.
Finnair will report its Q3 result on next week’s Wednesday, 28th of October. We have cut our 20E-21E estimates. We keep our rating “HOLD” with TP of EUR 0.38 (EUR 0.50) ahead of Q3 result.
Q3’20 ASK decreased by 87% y/y
In Jul-Sep, Finnair carried 454k passengers which is 89% decline compared to Q3’19. Finnair’s Q3 Available Seat Kilometers (ASK) decreased by 87% y/y but compared to Q2’20, ASK increased by ~380%. Revenue Passenger Kilometers (RPK) decreased by 94% y/y. Passenger load factor in Q3, was 38.7% (-47.5pp compared to Q3’19). Due to the strict travel restrictions and new infection waves, the company was not able to operate as many flights as it first anticipated. We expect Q3E revenue of EUR 157m and adj. EBIT of EUR -191m.
Aiming to fly ~75 daily flights during the winter season
The coronavirus has not shown signs of abating during the autumn and the travel restrictions have remained relatively tight, impacting negatively on demand. The company has been forced to adjust its traffic plans for several times and due to the current situation, the company now expects to operate approx. 75 flights per day from Nov’20 to Mar’21 (in 2019, ~350 daily flights) and will increase its destinations for summer 2021. During Q3, the company finalized a sale and leaseback arrangement for its A350 aircraft delivered in February this year. This had an immediate EUR ~100m positive cash effect. The company also issued a new EUR 200m hybrid bond (fixed interest rate of 10.250% p.a.).
“HOLD” with TP of EUR 0.38 (0.50)
We have further cut our 20E-21E estimates. We expect 20E revenue of EUR 1062m and comparable operating loss of EUR 609m. We expect the better recovery to start during ’21 spring but we highlight that the outlook is still very blurry. We keep our rating “HOLD” with TP of EUR 0.38 (0.50).
The FCCA has proposed the market court to prohibit the merger between Mehiläinen and Pihlajalinna. We now see the likelihood of the transaction being completed significantly lower. The political landscape is also changing. We keep our rating “HOLD” with new TP of EUR 11.0 (16.0).
FCCA proposes to prohibit the merger
The Finnish Competition and Consumer Authority (FCCA) has proposed the market court to prohibit the merger between Mehiläinen and Pihlajalinna. According to the FCCA, the merger would significantly impede effective competition in the Finnish health services market as there would be only two nationwide healthcare companies (Mehiläinen and Terveystalo) in the market post-merger. Hence, the Finnish healthcare market would become even more concentrated post-merger and the merger would create competition concerns and the proposed remedies are not sufficient to address the identified competition concerns (Mehiläinen submitted two remedies proposals). According to the FCCA, the merger is also likely to lead to price increases. The combined market share of the companies would have been ~7% of the total healthcare and social services market. The market court has to issue its decision within three months (latest on 29th of December).
The probability of the acquisition being completed has dropped
The result of the investigation came as a surprise to the parties involved and to us as well. It is possible that the FCCA’s methodology to assess the market size has varied from the methodology used by the companies (e.g. public vs. private sector). Anyhow, we see that the likelihood of the acquisition being completed has decreased significantly thus we return to see Pihlajalinna as an independent service provider also in the future. During the process, Pihlajalinna has continued to develop its business as usual. The company has for instance developed its digital services and other medical services. Additionally, the company has a strong background of cooperating with municipalities. Due to the economic difficulties, the public sector has seeked more efficient ways to produce effective services (e.g. by outsourcings) which has benefited the private sector. The political interests have however shifted more towards the public side meaning that the landscape has become more negative towards private social and healthcare service providers.
“HOLD” with TP of EUR 11.0
We have not made changes to our estimates but we see that the probability of transaction being completed is significantly lower. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 19.5x and 12.9x which translates into 15-30% discount compared to the peers. We keep our rating “HOLD” with a new TP of EUR 11.0 (16.0).
Verkkokauppa.com issued a positive profit warning and expects 20E revenue of EUR 525-550m and adj. EBIT of EUR 17-21m. We have slightly increased our estimates and keep our rating “BUY” and TP of EUR 6.3 intact.
Guidance upgrade due to better than expected development
Verkkokauppa.com issued a positive profit warning and upgraded its 2020 guidance. The upgrade is due to a better than expected development during Q3 and improved outlook for the remainder of the year. The company now estimates that the revenue in 2020 is in a scale of EUR 525-550m while adj. EBIT is EUR 17-21m (prev. revenue of EUR 520-545m and adj. EBIT of EUR 13-18m). This is the company’s second positive profit warning within a short period of time as the previous one was given in July.
Consumers still on the move
According to the company, sales and the consumer demand have continued stronger than expected throughout Q3. Against the expectations, the strong demand in many of the key product categories (e.g. consumer electronics) in Q2 has not resulted in a weakened demand in these categories in Q3. It is however likely that the growth in the consumer electronics market hasn’t continued as strong but rather that Verkkokauppa.com has been able win market shares. The management indicated that the demand has continued strong also in other smaller product categories. We expect the lower margin wholesale sales to remain relatively low throughout the year, boosting gross margin development. If the same momentum continues, Verkkokauppa.com’s campaign season in Q4 is likely to be very strong. However, there are still significant uncertainties due to the COVID-19 situation.
“BUY” with TP of EUR 6.3
We have only slightly increased our 20E revenue expectation (EUR 543m) while increasing our adj. EBIT expectation by ~11% (EUR 19.8m). On our estimates, the company trades at 20E-21E EV/EBIT multiple of 10.1x and 10.4x, which translates into a 60-70% discount compared to the peers. We keep our rating “BUY” with TP of EUR 6.3 intact.
Our estimates and EUR 5.5 TP are intact; retain BUY rating.
Fundamentals now materially firmer in short and long term
Suominen’s turnaround materialized in a very swift fashion this past spring. Figures were considerably soft as late as Q4’19 when top line slipped in both business areas, especially so in Europe. Americas grew again in Q1’20 but Europe still declined some 11% y/y. While overall Q1 was already a positive surprise in terms of profitability, revenue nevertheless continued to develop flat y/y. Then Suominen proceeded to issue two positive profit warnings during a span of two months in spring and early summer. However strong indication of improving performance this was, our estimates could not exactly keep up with the pace and hence Q2 figures trounced our expectations. Although the groundwork for solid improvement had been laying back there for some time (thanks to e.g. sustainable product introductions), it seems basically all the factors happened to align favorably during the spring. Both Americas and Europe posted revenue increases in the high teens, which also helped production efficiency. Investments in US production assets were ready to pay off. Product mix improved some more while nonwovens prices did not decline quite as much as those of raw materials.
Success in sustainable products helps to reach targets
The notable pre-pandemic challenges have vanished. Strong wipes demand means nonwovens supply-demand balance now tilts much more favorably from a manufacturer’s point of view, at least in the short-term. Despite this we expect some softening in Suominen’s H2 figures as nonwovens prices tend to follow raw materials prices closely, in addition to which several Suominen plants will go through scheduled maintenance breaks. The Q2 records place the bar high for next year, but in our view Suominen’s long-term financial targets look credible. Success in sustainable products (in Suominen’s case increasing share of wood-based fibers) could well defend margins also in the long-term, although the innovations’ profitability remains to be tested in a scenario where significant new capacity enters the market.
We see upside relative to historical earnings multiples
We continue to view Suominen’s below 6x EV/EBITDA multiples attractive. Our TP is EUR 5.5 and we retain our BUY rating.
Marimekko announced a guidance for 2020E and expects net sales to be lower compared to last year and adj. EBIT to be approx. at the same level or lower than last year. Due to the improved outlook we have increased our estimates. We upgrade to “BUY” (“HOLD”) with new TP of EUR 42.0 (32.0).
Guidance for 20E announced
Marimekko withdrew its earlier 20E guidance in March, solely due to the estimated impacts of the COVID-19. The company stated during its Q2 result that the coronavirus will have a significant negative impact on sales and profitability in 20E. Now the company has announced a guidance for 20E and expects net sales to be lower than in the previous year (EUR 125.4m) and adj. EBIT to be approx. at the same level or lower than in the previous year (EUR 17.1m).
Better than expected trend in sales
According to Marimekko, the improved outlook is mainly due to better than expected trend of Finnish retail sales during the summer and improved outlook of wholesale sales but also due to better fixed cost savings during the rest of 20E. The company however highlights that there are still significant uncertainties caused by the COVID-19. The travel restrictions remained tight throughout the summer thus it is likely that the money normally spent on traveling has now been put into other things. Additionally, during the pandemic, the trend of domesticity has increased among Finnish consumers which should also have a positive impact on domestic sales. According to the company, major portion of its net sales and earnings for H2E will be generated during Q3E.
Upgraded to “BUY” (“HOLD”) with TP of EUR 42.0 (32.0)
We have increased our 20E sales expectation by ~2% and our 20E adj. EBIT estimate by ~21%. In our view, Marimekko’s mid-term outlook is good despite of the challenging times. On our estimates, the company trades at 20E-21E EV/EBIT multiple of 18.6x and 16.4x which translates into a clear discount (~50%) compared to the luxury peers and at 20E-21E P/E multiple of 25.0x and 21.6x – also a clear discount compared to the luxury peers. We upgrade to “BUY” (“HOLD”) with TP of EUR 42.0 (32.0).
Aspo reissued guidance for this year. In our view the main takeaway is that improvement will be visible in Q4 figures, albeit there’s still long way to reach the targets set for ’23. Our TP is EUR 7.25 (6.00), rating BUY (HOLD).
Q4 will mark the beginning of profitability rebound
Aspo now guides FY ’20 EBIT to be in the EUR 12-16m range, compared to EUR 21.1m last year. Aspo says Telko’s (including Kauko) development has proved a positive surprise while Leipurin has been able to defend its profitability despite exceptional circumstances. Aspo expects the combined EBIT for Telko and Leipurin segments will be higher this year than in ‘19 (the combined figure amounted to EUR 11.0m last year). Meanwhile Aspo estimates ESL will post a negative result for Q3 but expects Q4 to be clearly profitable as e.g. steel industry production shutdowns end and cargo volumes will begin to grow.
Q4 results will still be significantly below target levels
The new range’s EUR 14.0m midpoint is lower than our previous EUR 15.3m estimate, the difference being mostly due to ESL’s expected negative Q3 result (which we previously estimated at EUR 0.4m). We now expect ESL to post EUR -0.2m in Q3 EBIT. We leave our FY ’20 estimates intact for other segments, and so we now expect Aspo to post EUR 14.6m EBIT this year. In our view the guidance reissue is positive news for Aspo shareholders in terms of informational content as it hints at relatively brisk profitability rebound in Q4. On the other hand, Q4 EBIT, which we now estimate at EUR 4.8m, will still be far from Aspo’s full potential. According to the long-term targets published at last fall’s CMD, Aspo aims for 6% EBIT margin in ‘23 (vs our 3.9% estimate for Q4). ESL’s targets imply EUR 24m in annual EBIT, or some EUR 6m on a quarterly level (vs our EUR 2.8m estimate for Q4). Telko and Leipurin will likewise still be generating EBIT margins clearly below their respective 6% and 5% targets.
Uncertainty remains, but we see surprises tilting to upside
The guidance pushes away some uncertainty, yet it was previously known this year will fall significantly below long-term potential. Next year’s profit gradient is the key question; the main upside driver is found in positive surprises for ‘21. Although it’s early to wait such news, we see valuation attractive already in terms of SOTP. Our TP is EUR 7.25 (6.00), rating BUY (HOLD).
Verkkokauppa.com’s growth story has continued over the years and the company’s revenue CAGR in 2010-2019 was 12.6 percent. Now the company has started to put more emphasize on profitability. We keep our rating “BUY” with TP of EUR 6.3.
Focusing on profitable growth
Verkkokauppa.com’s revenue CAGR in 2010-2019 was 12.6 percent. The growth has been mainly supported by competitive pricing, strong online positioning and new product categories. The competition in the consumer electronics market has continued fierce and price driven. The company’s efficient and scalable cost base driven by small physical footprint enables competitive pricing and strong reliance against competition. The company has a strong net cash position which enables investments in growth. The company has started to put more emphasis on profitability of which the first evidences have already been seen.
Better profitability improvement via gross margin increase
Verkkokauppa.com’s future growth is depended on the online migration. According to the company, online sales represent some 12-13 percent of the total Finnish retail market. The company’s extremely good performance in H1’20 has been partly driven by the COVID-19, as sales grew by 11 percent and adj. EBIT grew by over 240 percent. It is challenging to estimate how permanent the market changes will be. However, increased online demand benefits e-commerce players such as Verkkokauppa.com. At the same time, risks related to the overall economic outlook and declining purchasing power have increased. Due to the low and scalable cost base we expect the company’s profitability to improve together with revenue growth. However, we see that better profitability improvement stems from higher gross margin levels.
“BUY” with TP of EUR 6.3 intact
We have slightly increased our estimates and expect sales in 20E-21E to grow by ~7 percent and ~4 percent, respectively. We also expect profitability to improve and adj. EBIT margin of 3.2-3.3 percent in 20E-21E. We value Verkkokauppa.com by using our scenario analysis which indicates a fair value of EUR 6.3. On our estimates, Verkkokauppa.com trades at 20E-21E EV/EBIT multiple of 10.9x and 10.7x, which translates into ~60 percent discount compared to the peers. 20E-21E EV/Sales multiple is ~30 percent below peers. We keep our rating “BUY” with TP of EUR 6.3.
Suominen hosted a virtual CMD yesterday. Although there were no major updates the event nevertheless added some color on recent trends. Our TP remains EUR 5.5, rating BUY.
Volumes are up globally due to cleaning and disinfection
The pandemic has lifted volumes in all markets and Suominen expects elevated demand to persist at least for the next few months. Permanently higher demand is likely within cleaning and disinfection products. Suominen estimates it has an above 15% wiping market share in Europe and is thus the leading player. All segments have enjoyed strong demand, household wiping especially so. Americas’ development has been similar and stores in the US still often have trouble shelving enough household cleaning products. Nielsen Homescan estimates 79% of US households now consider disinfecting wipes a staple item (vs 50% prior to the outbreak). Certain interesting consumer behavior anecdotes were discussed e.g. how Uber riders can now check before boarding whether the ride will feature Clorox disinfecting wipes. Luckily the new assets in Bethune and Green Bay were ready to meet surging demand. Indeed, the plant in Bethune was able to finally reach performance targets. In general, Suominen aims to grow with its current major customers and we see the company well-positioned to capture above market growth (thanks to competitive product portfolio), according to the long-term financial targets updated previously this year. Margins should stay relatively high in the short-term and Suominen might even be able to defend its nonwovens pricing, despite lower raw materials prices, as high wiping demand continues to persist together with the pandemic.
Our estimates remain unchanged for now
The CMD did not lead us to revise our estimates at this point. We expect some softening in gross margin and thus in EBITDA following the exceptionally strong Q2 (Suominen posted a 14.7% EBITDA margin, compared to the above 12% long-term target).
Further improvement not very easy but multiples are low
2020 will be a new record year for Suominen in terms of financial performance and in our view further gain in EBITDA next year can prove tricky. However, we continue to view current valuation attractive (EV/EBITDA is ca. 5.5x on our estimates for this year and next). We retain our EUR 5.5 TP and BUY rating.
Next Games reported better results than we had expected and clearly better profitability, which effectively halted cash burn. The Stranger Things and Blade Runner Rogue games are set for scaled launch in the year-end or later and growth prospects in 2021 remain largely unchanged.
Profitability clearly above expectations
Next Games reported better H1 results than we had expected. Revenue amounted to EUR 14.4m (Evli 13.8m) and the adj. operating profit to EUR 0.1m (Evli -2.4m). NML performed above our expectations due to ARPDAU improvements while Our World gross bookings continued to decline as DAU figures fell clearly, although the ARPDAU continued to improve. Our World was affected by COVID-19 restrictions on movement. With the improved profitability operating cash flow turned positive and the cash position excluding debt repayment remained effectively unchanged from the end of 2019.
Scaled new game launches set for the year-end
Next Games has clearly reevaluated its publishing strategy since the launch of Our World and new games will be brought to market and scaled over a longer time period. With Stranger Things expected to be launched in Q4/20 and Blade Runner Rogue still seeing major updates the impact of new games on 2020 revenue will likely be very limited and Next Games quite expectedly dropped its revenue guidance. Publishing operations EBITDA is expected to grow clearly in 2020 following lower marketing costs. 2021 figures are highly dependent on the new games to be launched and visibility as such is extremely low. With a larger share of employees working on live games profitability should improve but marketing costs should still limit near-term profitability potential.
SELL with a target price of EUR 1.2 (0.9)
The improved profitability and resulting halt to cash burn provide needed support for the company’s financial position. With the uncertainty from the dependency on new games, valuation in our view is still not justifiable. We adjust our target price to EUR 1.2 (0.9) and retain our SELL-rating.
Fellow Finance’s H1 figures were somewhat below our expectations and EBIT barely fell in the red. Volume recovery prospects in 2020 appear rather meager and growth ambitions should pick up during H2 to put things back on track in 2021. We retain our HOLD-rating and TP of EUR 2.5.
EBIT barely in the red
Fellow Finance reported H1 figures somewhat below our expectations. Revenue amounted to EUR 5.8m (Evli 6.3m), declining 20% y/y, and EBIT to EUR -0.1m (Evli 0.3m). Facilitated loan volumes and commissions income declined around 37% y/y respectively, while increases in interest yield income mitigated some of the revenue impact. The uncertainty caused by the coronavirus was clearly visible in loan volumes after March, dropping average volume levels to approx. EUR 9m per month during 4-6/2020 compared with approx. EUR 14.5m during 1-3/2020.
2020 to be a challenging year
Investor’s demand has according to Fellow Finance seen recovery in recent months. The temporary regulation on maximum interest rates on consumer loans in Finland, valid during 1.7-31.12.2020, should have a negligible impact on volumes as Fellow Finance is compensating investors with the difference to the actual interest rate but will result in some additional costs during H2. We currently expect loan volumes to rebound to an EUR 11m per month average level in Q4. Although possible, with the current more challenging environment we do not see Fellow Finance achieving the pre-corona volume levels during 2020. We still expect notable improvements in 2021, assuming an ease in temporary regulations and renewed focus on growth drivers.
HOLD with a target price of EUR 2.5
Our estimates have been slightly lowered post-H1 given the below expectations figures and continued dim outlook for volume recovery. Near-term multiples on our estimates remain unattractive but longer-term growth potential still remains. We retain our HOLD-rating and target price of EUR 2.5.
Endomines commenced gold concentrate sales at its Friday mine but COVID-19 related challenges have pushed back ramp up to design capacity further. The attractive gold price level unfortunately remains overshadowed by cash burn and lack of more permanent financing solutions. We retain our SELL-rating with a target price of SEK 5.5.
Sales commenced but head grades still low
Endomines Q2 results were slightly below our estimates, with revenue of SEK 7.5m (Evli 9.0m), EBITDA of SEK -17.5m (Evli -20.6m) and EBIT of SEK -27.7m (Evli -24.5m). The first concentrate sales at the Friday mine were made, but with pre-production development material being milled head grades were low and with the still low capacity revenue was not yet significant. COVID-19 related challenges to supply chains and recruitment have further pushed back the ramp up timetable of the processing facility and design capacity will unlikely be reached in 2020.
Friday ramp-up delayed due to COVID-19
We have clearly lowered our 2020 estimates post-Q2 following the ramp-up delays and update on the stockpiled pre-production development material. We expect 80% of design capacity to have been reached in Q4 and atypical head grades throughout the year due to stockpiled development material. We now expect revenue of SEK 41.0m (prev. 77.1m) and EBITDA of SEK -68.9m (prev. -38.3m). Endomines reported that plans are being made for a possible re-opening of Pampalo given the current gold price, which in our view could provide a production boost somewhere towards H1/21 if initiated.
SELL with a target price of SEK 5.5
Despite production and sales having recommenced, the unfortunate side of the Q2 report was the cash burn rate, with liquid assets again largely depleted and some exploration activities having been put on hold. Gold price levels are clearly attractive but with the expected cash burn rate during H2/20 and so far lack of more permanent financing solutions risks are still substantial. We retain our TP of SEK 5.5 and SELL-rating.
Next Games' net sales in H1 amounted to EUR 14.4m, slightly above our estimate (EUR 13.8m Evli). Gross bookings amounted to EUR 14.2m (Evli EUR 13.8m). The adj. EBIT was clearly better than expected at EUR 0.1m (EUR -2.4m Evli).
Fellow Finance’s H1/2020 results were somewhat weaker than expected, with revenue of EUR 5.8m (Evli EUR 6.3m) and an adj. EBIT of EUR -0.1m (Evli EUR 0.3m). The adj. EPS was below our estimates at EUR -0.10 (Evli EUR -0.05). Coronavirus uncertainty and temporary regulations affected facilitated loan volumes, down 36.8% in H1/20 compared with H1/19.
Endomines’ gold production amounted to 326.1oz. Head grades were at a low level of 2.9g/t due to the milling of pre-production development material. Near design capacity at Friday is now sought to be reached in Q4, with the COVID-19 pandemic having caused delays. Q2 revenue amounted to SEK 7.5m (Evli 9.0m) and EBITDA to SEK -17.5m (Evli -20.6m).
Next Games reports H1 results on August 28th. We expect the COVID-19 restrictions to have supported gaming in general but had an adverse impact on the location based Our World game. The limited news on games in development raises some concerns for the 2020 outlook.
Expect to see two-fold impact of the pandemic
Next Games will report H1 results on August 28th. We expect the outbreak of the coronavirus pandemic to have had a two-fold effect on current live games. The imposed restrictions on movement and self-isolation should have had an adverse effect on the location based Our World game and Next Games did launch the Free Roam feature to mitigate some of the impact. No Man’s Land should have continued to perform seemingly well, with the restrictions to certain activities having freed up more time for other activities such as gaming. We expect revenue of EUR 13.8m, a decline of 28% from the stronger comparison period, and an adj. EBIT of EUR -2.4m, with positive publishing operations profitability.
Limited news flow on games in development
News flow on games in development has been essentially non-existent post H2/2019. Blade Runner Rogue is running on app stores, but retention issues previously saw the game being moved back to production phase. The Stranger Things -game was in early access earlier on but no further news has been given. The pandemic should not have significantly affected development progress, with employees having rapidly shifted to remote working. Next Games expects modest revenue growth in 2020 assuming one or two games are published in 2020. We see some risks in achieving the outlook given the news flow and expect the H1 report to shed some much-needed light on the progress.
SELL (HOLD) with a target price of EUR 0.9 (0.84)
Valuation continues to be clearly below peers as is profitability. The restrictions due to the pandemic will have aided the gaming sector and peer multiples have in the past months been on the rise. We adjust our TP to EUR 0.9 (0.84) but lower our rating to SELL (HOLD).
Cibus’ portfolio remains unaffected by the pandemic and additional acquisitions are imminent despite already busy H1’20. Our TP is now SEK 160 (150) per share, rating BUY.
Certain exceptional transactions burdened Q2 bottom line
Cibus was largely immune to the pandemic (shared certain small Finnish tenants’ troubles to the tune of EUR 0.2m). Property figures were as expected with rental income at EUR 16.4m vs our EUR 16.2m estimate. Property expenses remained in check and so net rental income amounted to EUR 15.1m i.e. same as our estimate. Administration costs were elevated by some EUR 0.5m due to bond transactions as well as the restructuring of Finnish books. The EUR 13.6m in operating income thus fell short of our EUR 14.2m estimate. Net financial costs were driven high, to EUR 5.8m, by a one-off EUR 2.9m item attributable to bond redemption premiums and arrangement fees. Net operating income was thus EUR 7.8m vs our EUR 9.9m estimate.
Both existing portfolio and prospects basically unchanged
The daily-goods property market remains stable and the pandemic hasn’t discernibly altered deal flow. This means Cibus is in a strong position to add to its property mass through smaller portfolio acquisitions and thus scale the current organization. Yields are still attractive as Cibus can buy assets at some 100-150bps pick-up relative to its own book valuation. In addition to the EUR 180m Swedish entry, Cibus is well ahead of its annual EUR 50m acquisition target since Finnish purchases total over EUR 70m YTD. With EUR 85m in cash and long-term financing in place further additions might well happen in H2’20. Cibus is also instituting additional shareholder-friendly effects in the near term, namely the transitioning to monthly dividend payments as well as switching to the Nasdaq Stockholm main list.
We see scope for further valuation rerating
In our opinion some tightening in valuation relative to the wider Nordic property sector is warranted since the pandemic has very limited direct bearing on Cibus. The situation is different for the bulk of commercial real estate e.g. offices. Cibus’ yield spread relative to other listed Nordic entities has indeed tightened a bit recently, however in our view there’s still room to go with Cibus yielding ca. 5% vs some 4% for a typical Nordic portfolio. Our TP is now SEK 160 (150) per share. We retain our BUY rating.
Cibus’ portfolio continued to perform according to expectations while transactions and financing activities drove central administration expenses and especially net financial costs exceptionally high.
Pihlajalinna’s Q2 result was close to expectations. Revenue decreased by 11.6% y/y and was EUR 114.7m while adj. EBIT totaled EUR 0.6m. The tender offer by Mehiläinen is being under review of the FCCA and if approved, the process is expected to be completed during Q3. We keep our rating “HOLD” with TP of EUR 16.0.
The pandemic hampered especially non-urgent healthcare
Pihlajalinna’s April-June revenue of EUR 114.7m (-11.6% y/y) was slightly above our expectation of EUR 112.1m. Adj. EBITDA was EUR 9.0m vs. our EUR 9.1m and adj. EBIT was EUR 0.6m vs. our EUR 0.2m. Complete outsourcings and other fixed priced invoicing supported the company throughout Q2 (profitability of these remains relatively stable despite of the demand situation). The situation didn’t also have significant impacts on the demand of housing services for elderly, recruitment services, public surgical operations or fertility treatments. Customer flows and demand decreased especially in private clinics and dental clinics. Revenue of Forever-fitness centers declined by over 80 percent y/y, resulting from the temporarily closure of the centers.
Releasing pent-up demand
According to the company, the biggest drop in demand is now behind and as the pent-up demand has started to release, the customer flows in private clinics, occupational healthcare services and dental care services have recovered relatively well and the demand is closer to a normal situation. As the restrictions impacted the most on the demand of non-urgent healthcare services, there are bottlenecks in the treatment queues especially on the public side. This could potentially further increase the customer flows of the private sector. However, the increasing number of new coronavirus infections is indicating a new wave, which increases uncertainties and makes the visibility of H2 blurry.
“HOLD” with TP of EUR 16.0
The tender offer by Mehiläinen is currently being under review of the FCCA (phase two investigation). The deadline for the investigation is 27th of August (plus possible extension period). Based on the current information, if the tender offer is approved, the process is expected to be completed during Q3. We have only made minor adjustment to our estimates after the Q2 result. We expect 20E revenue of EUR 517m (-0.3% y/y) and adj. EBIT of EUR 22.3m. We keep our TP at the tender offer price of EUR 16.0 and retain our rating “HOLD”.
Gofore’s H1 report did not provide any larger surprises. With net sales pre-announced at EUR 37.4m adj. EBITA of EUR 5.8m was quite in line with our estimates (Evli EUR 5.5m). The large share of public sector clients (73.5% of H1 net sales) is proving beneficial under these circumstances and the direct impact of COVID-19 has been rather limited. We retain our HOLD-rating with a TP of EUR 8.6 (8.4).
No surprises in the H1 results
Gofore’s H1 results brought no larger surprises, as net sales had been pre-announced at 37.4m the adj. EBITA was quite in line with our estimates at EUR 5.8m (Evli 5.5m). Relative profitability was as expected weaker in the second quarter compared to the first quarter but saw no major direct negative impact of the coronavirus pandemic. Demand in the public sector clientele, representing 73.5% of net sales in H1, saw demand remaining steady while the private sector clientele saw some delays in development work and cancellations of projects.
Acquisition seals growth prospects
Our estimates remain largely intact as our marginally lowered expectations for H2 are offset by the slight profitability beat in H1. We expect 2020 net sales of EUR 75.1m (co’s guidance EUR 70-76m) and an adj. EBITA of EUR 10.0m. Our profitability estimates are more on the cautionary side given H1 profitability but in our view reflects the company guidance and P&L changes from the Qentinel Finland acquisition. In our estimates for net sales in the second half of the year we currently expect similar organic growth as in H1 along with the expected EUR 4m M&A impact. In 2021 we see Gofore set for solid earnings growth with help of the large inorganic growth.
HOLD with a target price of EUR 8.6 (8.4)
With only minor estimates revisions post-H1 we fine-tune our target price to EUR 8.6 (8.4), valuing Gofore at ~17.0x 2020e adj. P/E. Demand uncertainty is at elevated levels due to the pandemic but resilience has so far been provided by the large share of public sector clients. Our HOLD-rating remains intact.
Considering the circumstances, Marimekko delivered relatively good Q2 result. Net sales decreased by 20% y/y and amounted EUR 23.3m vs. EUR 18.3m/19.8m Evli/cons. Adj. EBIT clearly beat expectations and was EUR 2.7m vs. EUR 0.6m/0.5m Evli/cons. We keep our rating “HOLD” with TP of EUR 32 (24)
Relatively good result, considering the circumstances
Marimekko’s Q2 net sales were down by 20% y/y and totaled EUR 23.3m (EUR 18.3m/19.8m Evli/cons). Especially retail sales in Finland, Scandinavia and North America faced headwind amid the pandemic but also wholesale sales in the APAC region declined. At the same time, licensing income in the APAC region boosted sales. Adj. EBIT clearly beat estimates and was EUR 2.7m vs. EUR 0.6m/0.5m Evli/cons. Profitability was weighed down by lower net sales and declined relative sales margin (sales margin was negatively impacted by increased logistics costs and bigger discounts). In the early stage of the pandemic situation, the company implemented cost saving measures resulting in decreased fixed costs in Q2. Guidance for 20E was not given.
Sales and earnings depending on the pandemic situation
Even though the Q2 result beat the expectations, the uncertainties hover over the H2’20. Despite of the strong online sales growth (more precise information not disclosed), it is vital especially for the retail stores to remain open. In the case of new infection waves, we expect the customers to become even more price sensitive and cautious with their purchases, impacting negatively on sales. This could also have an impact on the partners’ behavior. However, we expect the mentality of “support your local” among the Finnish consumers to continue, supporting domestic sales together with nonrecurring promotional deliveries of which majority will take place in H2’20E. Marimekko is also planning to reorganize its operations and initiates cooperation negotiations. The aim is to seek annual cost savings of approx. EUR 1.5m.
“HOLD” with TP of EUR 32.0 (24.0)
After the Q2 result we have increased our 20E revenue estimate by ~6% (EUR 116m) and our adj. EBIT estimate by ~27% (EUR 13.7m). We have also slightly increased our 21E-22E estimates. However, we note that there are significant uncertainties not only with our 20E estimates but also with our 21E estimates. On our estimates, Marimekko trades at 20E-21E EV/EBIT multiple of 18.1x and 13.5x, which translates into a clear discount compared to the luxury peers. We keep our rating “HOLD” with TP of EUR 32.0 (24.0).
Gofore’s adj. EBITA in H1 was slightly better than we had expected, at EUR 5.8m (Evli 5.5m). Revenue amounted to EUR 37.4m (pre-announced). Little direct impact of the coronavirus pandemic on the public sector client segment so far, private sector more affected.
Solteq reported clearly better than expected profitability figures following cost reductions, with comp. EBIT at EUR 1.5m (Evli 0.5m). Possible demand thinness remains a concern but with the lower cost base we raise our 2021-22 comp. EBIT estimates by some 30% on average. We adjust our TP to EUR 1.65 (1.15) and our rating to BUY (HOLD).
Profitability clearly beat our estimates
Solteq reported solid Q2 results and profitability was clearly better than we had expected. Revenue grew 7.8% in comparable terms to EUR 15.1m (Evli EUR 14.6m) with both segments contributing nearly equally. The comp. EBIT amounted to EUR 1.5m, clearly above our estimates (Evli EUR 0.5m). The earnings improvement was attributable to previously taken streamlining actions and to some extent reduced travel expenses due to COVID-19. Solteq also reinstated a guidance for 2020, expecting comp. EBIT to grow significantly. The operating cash flow was also strong, at EUR 5.3m in H1 (2019: EUR 4.1m).
Coming year profitability estimates up by quite a bit
We have made larger estimates revisions post Q2, now expecting 2020 revenue of EUR 60.2m (prev 58.9m) and comp. EBIT of EUR 4.8m (prev. 2.4m). We have also raised our 2021-2022 comp. EBIT estimates by some 30% on average. The impact of the coronavirus has so far been limited and sales growth has been good during H1 following good earlier order intake. Our main concerns going forward relate to possible thinness in demand and as such expect lower relative growth figures. Solteq has seen good demand in for instance the energy sector, while areas more affected by the pandemic, such as the travel, restaurant and maritime sectors, saw lower sales in Q2.
BUY (HOLD) with a TP of EUR 1.65 (1.15)
Solteq has been burdened by high leverage and as such low earnings, which to a large extent will be reversed by the improved profitability and improved cash flows will reduce financial risk. With our revised estimates we adjust our TP to EUR 1.65 (1.15), implying a 2020e P/E of 16.5x. We adjust our rating to BUY (HOLD).
Pihlajalinna’s Q2 result was somewhat in line with our expectations. Q2 revenue amounted to EUR 114.7m vs. EUR 112.1m/119.1m Evli/cons, while adj. EBIT landed at EUR 0.6m vs. EUR 0.2m/1.8m Evli/cons estimates. EPS was EUR -0.03 vs. our EUR -0.03.
Aspo Q2 was stronger than expected thanks to Telko, but the report and comments painted a cautious short-term picture. Our TP remains EUR 6.0, retain HOLD rating.
Some beacons of light but still surrounded by thick fog
ESL’s top line declined by 23% y/y and at EUR 32.9m was clearly below our EUR 40.1m estimate. Q2 EBIT, at EUR 0.6m, thus didn’t meet our EUR 1.6m estimate. Steel industry cargo volumes fell steep and energy industry activity wasn’t much better. Smaller vessels continued to perform quite well but many larger ones operated in weak spot markets. ESL managed to shave fixed costs by EUR 0.9m and Aspo says cost measures will be fully realized in Q3, however Q3 outlook is not bright as steel industry volumes will be low with rebound now expected for Q4. Meanwhile Telko posted EUR 4.2m EBIT (vs our EUR 1.1m estimate), a strong show given that revenue declined by 26% y/y to EUR 59.5m (vs our EUR 63.1m estimate). Telko’s performance is clearly on an improving trend thanks to efforts addressing e.g. working capital efficiency. It however seems Q2 EBIT margin was exceptionally high and current outlook is challenging especially in Ukraine and Russia. Leipurin Q2 revenue fell by 17% y/y and the EUR 0.3m EBIT didn’t meet our EUR 0.6m estimate as certain machinery deliveries bound for Russia were postponed to H2.
We cut estimates due to cautious market comments
Aspo’s H1 figures already reflected the pandemic shock yet Q3 remains challenging especially for ESL. We now expect ESL EBIT at EUR 0.4m and EUR 2.9m respectively for Q3 and Q4. In our view Aspo’s unofficial soft guidance for Telko FY ’20 (flat y/y absolute profitability i.e. some EUR 8m) seems a bit conservative given the EUR 6.6m accumulated already in H1. We expect Telko Q3 EBIT at EUR 2.3m. We cut our H2 EBIT estimate all in all by EUR 4.0m to EUR 7.2m, reflecting Aspo’s cautious comments.
Strong rebound remains a possibility yet not imminent
It’s clear this year will be quite soft figurewise with ESL only beginning to rebound in Q4. There’s thus clear upside relative to long-term estimates, yet in our view given the prolonged pandemic uncertainty it takes a lot of conviction to rely on that outlook. In terms of SOTP there’s potential with respect to the ’19 and ’20 average, however that approach relies on Telko’s FY ’20 improvement. Our TP remains EUR 6, rating HOLD.
Marimekko’s Q2 result beat the consensus expectations. Net sales were EUR 23.3m (-20% y/y) vs. EUR 18.3m/19.8m Evli/cons. Adj. EBIT was clearly above estimates at EUR 2.7m vs. EUR 0.6m/0.5m Evli/cons. Marimekko expects the coronavirus to have a significant negative impact on net sales and profitability in 2020. Guidance for ’20E was not given at this point.
Suominen’s Q2 was way above our estimates. The major question now is where gross margin settles as the dance between nonwovens and raw materials prices plays out. We have upgraded our estimates, our new TP is EUR 5.50 (4.75) and we retain our BUY rating as multiples remain low.
Q2 performance was in our view exceptionally strong
Suominen posted EUR 122.2m in Q2 revenue (up 18% y/y and compared to our EUR 115.0m estimate), a record high despite lower nonwovens prices (reflecting soft raw materials) as volumes grew considerably due to high wiping demand. Both Americas and Europe did brisk volumes and posted revenues respectively at EUR 77.2m (up 19% y/y) and EUR 45.0m (up 16% y/y). Gross margin also increased almost another 400bps q/q to 16.0%. We note this is a record figure (vs e.g. 14.7% GM back in Q3’14) and likely not sustainable long-term. Record revenue and gross margin led to EUR 19.5m gross profit vs our EUR 14.4m estimate. SG&A and R&D remained flat at EUR 7.8m and thus the EUR 12.4m EBIT trounced our EUR 6.8m estimate.
We expect some softening in gross margin going forward
Suominen’s H1 was unexpectedly strong as improving product mix, production efficiency and low raw materials prices led to big margin gains. The pandemic also helped business as demand for wipes increased and Suominen was able to meet the challenge. However, production volumes will be lower in H2 due to scheduled maintenance stoppages at several plants. We nevertheless continue to see the demand and volume outlook strong since the pandemic is unlikely to fade away soon. With respect to profitability we expect the gross margin to have topped out. We don’t expect significant downward correction in the short-term as nonwovens and raw materials prices are in practice highly correlated. Given the current price data we expect Q3 gross margin at 15% and Q3 EBIT thus at EUR 9.8m.
Multiples still quite reasonable on our updated estimates
Suominen also announced an EUR 8m investment in Cressa, Italy. The production line upgrade will enhance capacity and seems a straightforward measure to address growing demand. All in all, we see further upside potential despite sharp rerating this year. On our updated estimates Suominen now trades slightly below 6x EV/EBITDA FY ’20. Our new TP is EUR 5.50 (4.75), rating BUY.
Solteq’s revenue in Q2 grew 7.8% in comparable terms to EUR 15.1m (Evli EUR 14.6m). The comparable operating profit clearly beat our expectations at EUR 1.5m (Evli EUR 0.5m) aided by cost savings from actions taken to improve operational efficiency. Guidance reinstated: Solteq Group’s comparable operating profit in 2020 is expected to grow significantly.
Aspo clearly beat estimates in terms of profitability, managing to post flat EBIT despite a significant drop in revenue as Telko’s profitability proved a huge positive surprise.
Suominen’s Q2 results wiped the table clean with our estimates.
Ettplan’s timely actions to reduce costs saw EBIT remaining strong, at EUR 5.4m (Evli/cons. EUR 3.2m/3.8m) despite the organic revenue decrease of 11.3%. Challenges will continue in coming quarters but the hit from the pandemic so far appears smaller than we had feared.
Timely cost reduction actions kept profitability strong
Etteplan reported Q2 results that were above expectations given the challenging circumstances. Revenue was in line with expectations at EUR 62.9m (EUR 63.3m/63.3m Evli/cons.), decreasing 2.2% y/y and organically 11.3% y/y. EBIT was clearly better than expected, at EUR 5.4m (Evli/cons. EUR 3.2m/3.8m). Profitability was aided by timely actions made to reduce operating costs. With operating costs declining faster than cash flow from sales, Etteplan posted an exceptionally strong operating cash flow of EUR 18.0m (Q2/19: 8.8m). The uncertainty in customer demand remains but we interpret comments by the company pointing to expectations of some recovery in the second half of the year. Etteplan reinstituted a guidance for 2020, expecting sales to light decrease slightly or remain at 2019 levels and EBIT to decrease compared to 2019.
The hit to 2020 figures not as bad as feared based on H1
With the higher than anticipated reduction in operating expenses we adjust our 2020 EBIT estimate to EUR 18.1m (prev. 14.3m), while keeping our revenue estimates largely intact. We expect 2020 revenue of EUR 258.3m for an estimated organic decline of some 7%. Our estimates assume similar capacity decreases due to temporary layoffs in Q3 as Q2 and roughly half the decrease in Q4. Visibility into the coming years is weak but we expect to see Etteplan returning to growth in 2021, as although a second wave of the pandemic may cause challenges, lessons learned during the first wave should result in a lesser strain on both Etteplan and customers.
HOLD with a target price of EUR 8.7 (8.3)
Based on our revised estimates we adjust our target price to EUR 8.7 (8.3), for a 2020e P/E of ~16x, which we currently consider fair given the elevated uncertainty. We retain our HOLD-rating.
Etteplan's net sales in Q2 amounted to EUR 62.9m, in line with our estimates and consensus (EUR 63.3m/63.3m Evli/cons.). EBIT amounted to EUR 5.4m, above our consensus estimates (EUR 3.2m/3.8m Evli/cons.). Etteplan expects 2020 revenue to decrease slightly or be at the same level as in 2019 and EBIT to decrease compared to 2019.
Gofore acquired software testing automation specialist Qentinel Finland Oy, with some 100 employees, and specified its 2020 guidance. We now expect 2020 sales growth of 17.2% and the adj. EBITA to improve to EUR 9.8m (2019: 8.0m). We adjust our TP to EUR 8.4 (7.8), HOLD-rating intact.
Acquisition and guidance revision
Gofore announced the acquisition of Qentinel Finland Oy, a specialist in software testing automation with roughly 100 employees and 2019 sales and EBIT of EUR 12.0m and EUR 1.7m respectively. The debt-free purchase price is EUR 8.9m and an additional purchase price has been agreed upon, expected to be EUR 1-2m, with the deal estimated to be closed September 1st. EV/EBIT multiples of ~7.0x on 2019 figures and upper range of the purchase price appear rather attractive given the high profitability, with our peer group on 2020 estimates at a median on 14.6x. Gofore specified its 2020 guidance in conjunction with the acquisition announcement, with sales expected to be in the range of EUR 70-76m (prev. grow from 2019) and adj. EBITA to grow compared with 2019. The sales impact of the acquisition on 2020 figures is estimated at EUR 4m.
Expecting good H1 figures, acquisition boosting growth
Gofore reports H1 results on August 14th. H1 sales have been pre-announced at EUR 37.4m, with the monthly figures in our view having shown little impact of the pandemic. We see slightly weaker adj. EBITA-margins in H1 compared with the solid 17.3% Q1 margins but still expect a commendable 14.7% adj. EBITA-%. We expect full-year sales and adj. EBITA of EUR 75.1m and 9.8m respectively. The acquisition should keep growth in the double-digits in 2021 assuming a continued limited COVID-19 impact.
HOLD with a target price of EUR 8.4 (7.8)
Following revisions to our estimates based on the acquisition and guidance revision we adjust our target price to EUR 8.4 (7.8), valuing Gofore at 16.5x 2020E adj. P/E, with our HOLD-rating intact.
Pihlajalinna reports its Q2’20E result on this week’s Friday, 14th of August. We expect the COVID-19 and the movement restrictions have continued to hamper Pihlajalinna’s business especially in April but the situation should have started to normalize. The tender offer by Mehiläinen is still being under review of the FCCA. We keep our rating “HOLD” and TP of EUR 16.0 intact.
Expecting weak demand in non-urgent healthcare
Pihlajalinna’s operations were heavily impacted by the emergency laws that came into force in mid-March. We expect to see the most negative impacts in April as especially the demand of non-urgent healthcare and oral healthcare started rapidly to decrease in late March. The management indicated earlier in H1 that the complete outsourcings and other fixed-priced invoicing have supported the company during the unexceptional times as the profitability of these kinds of contracts normally remains stable, even during times of lower demand. The demand of housing services for the elderly and recruitment services should also remain relatively stable.
Still waiting for the FCCA’s decision
We expect the customer flows have started slowly to recover. However, we expect to see better improvement later in H2’E as the pent-up demand of social services and non-urgent healthcare should normalize after the restrictions were lifted. The visibility of H2E remains blurry and the demand is depended on the pandemic situation. The tender offer by Mehiläinen is still being under review of the FCCA and the second phase investigation should be ready by the end of August. If approved, the process is expected to be completed during Q3’20E.
"HOLD” with TP of EUR 16.0
We have only made minor adjustments to our estimates. We expect Q2’20E revenue of EUR 112.1m (-13.6% y/y) and adj. EBIT of EUR 0.2m (EUR 2.1m in Q2’19). We expect 20E revenue of EUR 517m (-0.3% y/y) and adj. EBIT of EUR 22.3m (6.7% y/y). We keep our rating “HOLD” and TP of EUR 16.0 intact.
Scanfil’s Q2 clearly beat our estimates. The company’s active plant network management should help secure good profitability in the coming years even if the pandemic will eventually begin to hurt business more. Our TP is now EUR 6.25 (5.25); we reiterate our BUY rating.
Communication and Energy & Automation up organically
Scanfil Q2 revenue was EUR 156m (up 9% y/y and of which two-thirds due to HASEC i.e. mostly Industrial). Communication posted a 49% revenue surge. Business jumped due to 5G networks but also e.g. camera surveillance systems. Energy & Automation grew by 15% as many accounts drove growth. Industrial top line grew by 17% mainly due to HASEC, yet also organically with e.g. KONE elevators. Medtec & Life Science was flat. Consumer Applications demand fell as the pandemic altered consumer behavior. The segment supplies e.g. TOMRA reverse vending machines and Scanfil says many accounts cut business sharply in Q2, leading to 26% y/y drop in revenue. Scanfil is however seeing signs of stabilizing demand for the segment. The EUR 10.2m in Q2 EBIT (vs our EUR 8.7m estimate) was more than satisfactory as Scanfil estimates the pandemic’s effects’ net cost was EUR 0.8m in H1. The pandemic notably elevated freight and safety costs. On the other hand, Scanfil also received state subsidies in compensation for shortened working hours.
Fundamentally strong thanks to active plant management
We make minor estimate changes, mostly reflecting latest segment updates. We see FY ’20 EBIT at EUR 40.4m. While FY guidance is likely to hold it’s early to say much about next year. However, Scanfil’s Hamburg plant closure will further help profitability going forward. Scanfil expects the decision to yield EUR 2.5m in annual cost savings since two other nearby plants are in a better position to serve the current Hamburg accounts. Scanfil also prunes its Chinese operations, having sold the Hangzhou plant (sheet metal mechanics) and thus focusing on Suzhou (electronics manufacturing and demanding integration).
In our opinion higher multiples are justified
The pandemic could begin to hurt volumes even if so far Scanfil’s overall levels have not been impacted. Scanfil however remains valued at attractive levels, ca. 6.5x EV/EBITDA and 9.0x EV/EBIT on our FY ’20 estimates. Our new TP is EUR 6.25 (5.25), rating BUY.
Etteplan reports Q2 results on August 11th. The coronavirus pandemic will have had a detrimental impact on results, but we see a rapid adaption to have limited some of the earnings impact. We expect an organic revenue decline of ~9% and EBITA of EUR 4.1m. We retain our HOLD-rating with a TP of EUR 8.3 (8.0).
Weaker Q2 but rapid adaption should limit some downside
Etteplan will report Q2 results on August 11th. Earnings uncertainty is clearly elevated due to the coronavirus pandemic, with Q1 challenges having been mainly limited to operations in China. Etteplan adapted rapidly to the situation through temporary layoffs and reducing its cost base which together with the order backlog should according to our estimates still yield a fairly decent profitability given the circumstances. We expect revenue of EUR 63.3m, representing a perceived organic growth decline of approx. 9%, and group EBITA to decline to EUR 4.1m (Q2/19: EUR 6.5m). With the loan agreements made earlier we do not see any significant risk to Etteplan’s financial position.
Uncertainty remains elevated in 2020
The development in 2020 remains shrouded by uncertainty due to the pandemic but we currently expect the biggest dent to be seen in Q3 and Q4 to also remain weaker. The Engineering Solutions service area will have some challenging times ahead while Software and Embedded Solutions should be rather resilient due to digitalization demand. Reported new order values in Q2 for some key customers indicate a double-digit decline y/y, with expectations of demand picking up towards the end of the year. Etteplan’s customer base is relatively diverse and thankfully for instance automotive and aviation, which have been hit hard by the pandemic, account for only a small share of revenue.
HOLD with a target price of EUR 8.3 (8.0)
We have made minor upwards adjustments to our 2020 estimates following an in our view somewhat improved sentiment post-Q1 and revisions based on updates on temporary layoffs. We adjust our target price to EUR 8.3 (8.0) and retain our HOLD-rating.
Scanfil’s Q2 clearly exceeded expectations. Revenue grew by 9% y/y and slightly more than a third of the increase was organic, the rest being attributable to the HASEC acquisition (mainly recognized in the Industrial segment).
CapMan’s Q2 results were better than expected on bottom-line figures. AUM growth is seen to pick up with the establishment of the NRE III (target EUR 500m) and Growth II funds (target EUR 85m). We have revised our 2020 EBIT estimate to EUR 9.4m (prev. 1.2m), with the solid 2021 earnings prospects intact.
EBIT beat from higher investment returns
CapMan’s delivered an upbeat Q2 earnings report. Q2 EBIT of EUR 4.1m beat our expectations (Evli EUR 2.6m) following a clear recovery in investment returns. Revenue amounted to EUR 8.7m, short of our expectations (Evli EUR 10.4m) due to continued weaker Services business sales and somewhat soft management fees given no new fund closings. AUM (EUR 3.2bn) continued to stall at near previous quarter levels. AUM is seen to grow during H2 following the establishment of the NRE III and Growth II funds, which combined could bring in near EUR 600m in equity commitments. Investor demand for the new funds has according to CapMan been strong.
Solid 2021 earnings prospects despite weak 2020
We continue to expect 2020 to be somewhat of a gap-year due to the weak start but have raised our EBIT estimate to EUR 9.4m (prev. EUR 1.2m) mainly due to higher expectations for investment returns. We expect a clear increase in fee-based profitability in 2021 due to an increase in management fees from fundraising during H2/20. Investment returns are also set to pick up clearly after the challenging 2020. CapMan will re-organize its Service business (no changes to CaPS) and Scala’s private placement business will be discontinued, but the earnings impact is not seen to be notable. All in all, we see a clear improvement in 2021 and expect an EBIT of EUR 33.7m.
BUY with a target price of EUR 2.20 (1.95)
The Q2 report in our view served to prove that CapMan remains on a healthy track despite the elevated uncertainty of Q1 and with the solid earnings outlook 2021E P/E of ~11x is not particularly challenging. We retain our BUY-rating with a TP of EUR 2.20 (1.95).
Suominen reports Q2 results on Wed, Aug 12. We have slightly lowered our revenue estimates due to a currency headwind, while on the other hand we now expect gross margin to have improved modestly q/q also in Q2. Our new TP is EUR 4.75 (4.25), and thus we reiterate our BUY rating.
Raw materials prices imply gross margin should hold high
Suominen posted a big gross margin jump in Q1 as the figure gained almost 400bps q/q to 12.1%. Improved product mix and production efficiency as well as low raw materials prices fueled the rise. Moreover, Suominen upgraded FY ’20 outlook in June by changing the wording from clear to significant improvement in comparable EBIT. The update had only a minor impact on our estimates since we changed our FY ’20 EBIT estimate from EUR 23.1m to EUR 24.0m. Perhaps more important was the fact that Suominen removed the previous disclaimer according to which estimating the result for H2 was hard due to the pandemic. It seems Suominen’s strategy is proceeding according to plan and financial performance is on a solid upward trend thanks to strong outlook for value-add end-uses such as household and workplace wipes. With respect to raw materials prices Suominen is unlikely to suffer cost inflation pressure for a while. We see the outlook for pulp prices muted, while the same is only true at best for oil-based inputs polyester and polypropylene. In fact, raw materials prices have developed so soft Suominen faces some negative pressure on nonwovens pricing. We expect gross margin further improved modestly to 12.5% in Q2, and see the figure settling on this level in the short-term.
Recent dollar weakness a (small) negative for top line
The dollar has lately declined by some 5% against the euro, the implication being a negative translation impact on US revenue. We update our estimates to reflect the headwind, which we estimate at some EUR 10m on an annual level. The overall result of our update is that we now estimate Q2 EBIT at EUR 6.8m (previously EUR 6.2m). We now see FY ’20 EBIT at EUR 24.4m.
Multiples are low while figures are on a solid trend up
Suominen trades some 6x EV/EBITDA on our estimates for this year while the multiple for next year is about 5.5x. We view these multiples attractive now that profitability is on a steep improvement path. Our TP is now EUR 4.75 (4.25), remain BUY.
CapMan's net sales in Q2 amounted to EUR 8.7m, below our and consensus estimates (EUR 10.4m/10.6m Evli/cons.). Profitability was better than expected due to larger fair value changes and EBIT amounted to EUR 4.1m, above our estimates and above consensus estimates (EUR 2.6m/2.5m Evli/cons.).
Detection Technology delivered a decent Q2 operating result despite the significant drop in net sales due to the ongoing corona pandemic. Medical business is going strong, but challenging situation in aviation segment weighs on SBU and visibility into how long situation will continue is poor. Although 2020E will be challenging, we see that DT is well positioned to weather out the storm and its competitive position with its new products remains good. We maintain our target price of 22 euros and BUY recommendation.
Decent quarter considering circumstances
Given the ongoing pandemic affecting especially DT’s security business, DT delivered a decent and broadly in-line Q2 operating result despite a quite significant drop in net sales. Q2 net sales amounted to EUR 21.1m (-23.2% y/y) vs. EUR 25m/25.3m Evli/consensus estimates. Q2 EBIT was EUR 2.6m (12.3% margin) vs. EUR 1.9m/3.0m Evli/cons. R&D costs amounted to EUR 2.7m or 12.7% of net sales (Q2’19: 2.9m, 10.7%). SBU had net sales of EUR 11.2m vs. EUR 15.2m Evli estimate. SBU sales declined -42.1% y/y, mainly due the COVID-19 pandemic affecting the demand for security X-ray devices. MBU delivered net sales of EUR 9.9m which was in line with our estimate of EUR 9.8m. Net sales of MBU increased by +22.5% y/y due to continued strong demand in medical CT imaging.
Short term visibility poor with aviation segment weighing on SBU
DT continues to expect lower demand in the security segment to continue in Q3 and SBU sales to decrease in 2020. DT however sees SBU sales starting to improve towards end of the year. DT estimates airport CT standard equipment upgrades in Europe and U.S. to be postponed at least 12 months. Regarding China, it remains unclear when similar Chinese airport standardization will start and if any security infrastructure related government recovery measures will take place. The situation regarding aviation remains the biggest near-term uncertainty for DT. We estimate aviation to contribute roughly half of SBU net sales. That said, -42% drop in SBU Q2 net sales is a relatively good performance given that aviation grinded almost completely to a halt in Q2. MBU sales growth is expected to continue in H2, although product mix is likely to shift from basic CT devices to more high-end devices, which should support MBU margins further.
Maintain BUY recommendation with TP of 22 euros
Based on the report, we have trimmed our 2020E sales and EBIT estimates by 7% and 4% respectively. We expect SBU sales to decline -23,5% from last year’s highs and MBU to grow +18%, resulting in 2020E net sales to decline -10% and EBIT of 12.5 MEUR. We have increased our sales growth estimates for 2021-22E to account for postponement of CT standardization related upgrades. On our revised estimates, DT is trading at 19.8x and 13.6x EV/EBIT multiples for 20-21E, some 10-20% below our peer group now that peer multiples have rerated since DT’s Q1 report. Although 2020E will be challenging, we see that DT is well positioned to weather out the storm and its competitive position with its new products remains good. Therefore, we continue to see DT as an attractive investment story given the strong longer-term drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. We maintain our target price of 22 euros and BUY recommendation. Our target price implies EV/EBIT multiple of 16.4x on our 21E estimates, which is still ~7% below peer group.
DT’s Q2 net sales were EUR 21.1m (-23.2% y/y) vs. EUR 25m/25.3m Evli/consensus estimates. SBU sales declined -42.1% to EUR 11.2m (EUR 15.2m our expectation) and MBU sales increased +22.5% to EUR 9.9m (EUR 9.8m our expectation). DT’s Q2 EBIT came in at EUR 2.6m vs. our estimates of EUR 1.9m (EUR 3.0m cons). DT continues to expect SBU sales to decrease and MBU sales to increase in 2020.
Talenom’s Q2 results fell slightly shy of expectations, with the coronavirus pandemic having had some impact on transaction-based invoicing volumes, but relative profitability remained solid. Talenom’s potential remains unchanged, which has been reflected in its share price and valuation is becoming rather stretched. We retain our HOLD-rating with a target price of EUR 8.5 (7.0).
Minor impact from COVID-19 but profitability still strong
Talenom’s Q2 results fell slightly shy of expectations, with revenue of EUR 16.5m (EUR 17.2m Evli/cons.), affected by a decrease in transaction-based invoicing in for instance payroll services due to customer layoffs. EBIT amounted to EUR 3.6m (EUR 3.7m Evli/cons.) and relative profitability remained on par with expectations, with an EBIT-margin of 21.8%. The new small customer concept is expected to be released later on in the year and long-term potential expectations appear to be high. The impacts of the coronavirus overall have been quite in line with company expectations.
Continued growth and profitability improvement in 2020
Talenom’s guidance for 2020 (net sales EUR 64-68m, EBIT 12-EUR 14m) remains intact and should in our view not be in jeopardy unless a clearly unfavourable development in transaction-based invoicing volumes is seen during H2. We expect net sales of EUR 66.3m and EBIT of EUR 12.4m. Growth potential remains intact, with emphasis seen to be shifting towards M&A and Sweden as well as smaller customers as regional coverage in Finland limits growth. We assume a relative lower profitability of potential acquisitions to limit some margin upside in the coming years.
HOLD with a target price of EUR 8.5 (7.0)
Talenom’s share price has risen to record-high levels, with the stability of the business providing benefits under current market uncertainty and valuation levels are becoming harder to justify. We raise our target price to EUR 8.5 (7.0), valuing Talenom at ~40x 2020E P/E, which we still consider reasonable given growth potential and the defensive nature. Our rating remains HOLD.
Talenom's net sales in Q2 amounted to EUR 16.5m, slightly below our and consensus estimates (EUR 17.2m Evli/cons.). EBIT amounted to EUR 3.6m, in line with our and consensus estimates (EUR 3.7m Evli/cons.). Guidance remains intact, net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
Tokmanni had a successful Q2 as sales grew by 19.2% y/y to EUR 286m. Adj. EBIT amounted to EUR 30.6m (~64% y/y). The good momentum is expected to continue throughout 20E. We keep our rating “BUY” with TP of EUR 18.4 (16.4).
Benefiting from the lockdown
Tokmanni continued its solid growth in Q2 with sales totaling EUR 286m, growth of 19.2% y/y (LFL growth of 17.5% y/y). This also beat the revenue growth of department store and hypermarket chains (10.7%, FGTA). Revenue was driven by attractive pricing and growth was strong especially in leisure, gardening, home improvement products and food products, reflecting the situation where people are spending more time at home. At the same time, the demand in clothing was weaker. Tokmanni’s adj. gross margin was 34.5% (35.2% in Q2’19) vs. our 34.1%. The drop was due to cheaper prices and unusual structure of sales. Adj. EBIT totaled EUR 30.6m vs. EUR 30.9m/28.5m Evli/cons.
The success story expected to continue in H2E
Supported by the broad product assortment, attractive pricing and a wide store network, Tokmanni benefited from the situation where people are spending more time at home. On the other hand, the sales structure has been different compared to the normal conditions and the weaker share of Tokmanni’s private labels weighed down adj. gross margin. As the situation is now recovering and people are likely to return back to the offices we expect somewhat normalizing growth in H2E. We expect the sales structure to move closer to normal which supports margin development. The cost control has been successful and this is expected to continue. Tokmanni has also taken precautions to secure its most important season, Christmas (import from China has a key role) and some products are already being shipped to Finland, which is earlier than normally. The company reduced its investments during Q2 but these will continue relatively normally in H2E. Capex in 20E is expected to be EUR ~15m.
“BUY” with TP of EUR 18.4 (16.4)
Tokmanni expects strong growth in revenue and LFL revenue in 20E. Adj. EBIT margin is expected to increase from 2019. We have further increased our estimates and we expect 20E sales growth of 9.5% y/y (EUR 1034m) and adj. EBIT margin of 8.8% (EUR 90.6m). On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 14.7x and 14.0x, which translates into 22-25% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 18.4 (16.4).
Detection Technology will report Q2 earnings next Tuesday, August 4th at 9:00 EEST. DT’s share price has been lagging the market due to its exposure to aviation segment, but we see the overall investment case intact. We maintain our target price of 22 euros and BUY recommendation ahead of the Q2 result.
Expecting declining sales and operating profit due to weakened demand in SBU
We expect Q2 net sales to decrease -9% to 25 MEUR (25,3 MEUR cons.) due to lower SBU sales affected by the pandemic. For Q2, we estimate SBU declining -21,6% as demand in security applications is lower due to COVID-19. We expect MBU growing 21% with the help of increased demand in medical CT solutions. Due to lower net sales, our Q2 EBIT estimate is 1,9 MEUR (3,0 MEUR cons), which is down -60% compared to 4,8 MEUR last year.
Focus on market outlook and situation in China
Our focus in the Q2 result will be on management’s comments on the outlook for both security and medical imaging markets, as well as hearing the latest developments in China. DT has indicated that it expects healthy demand in MBU for Q2 and H2, whereas SBU sales are expected to decrease in Q2 and FY20. Looking at other industries, we note that Chinese market has been first to recover after the pandemic resided. That said, there is still a lot of uncertainty related to aviation, which is a crucial part of DT’s security business, accounting for roughly 2/3 of DT’s net sales. DT saw positive signs in demand for medical CT solutions at the end of Q1 (after a slowdown around end of 2019), stemming from CT imaging being used to detect pulmonary changes caused by the COVID-19 virus, as well as diagnosis and treatment of patients.
DT’s share price has been lagging the market, we see investment case intact
DT’s share price is YTD -23% vs. -5% HEX25, and since mid-March +26% vs. +41% HEX25. We see this relating to SBU’s exposure to aviation segment. Although 2020e will be challenging, we see DT well positioned to weather out the storm and its competitive position with its new products remaining good, thus investment case is intact. We maintain our target price of 22 euros and BUY recommendation ahead of the Q2 result.
Innofactor posted solid Q2 profitability figures, with EBITDA at EUR 2.1m (Evli 1.1m) for a 12.3% EBITDA-margin. We assume a slightly weaker H2 due to the coronavirus pandemic, but progress made supports the long-term case. Our 2020-2022 EBITDA estimates are up some 20% post-Q2. We raise our TP to EUR 1.35 (0.95) with our BUY-rating intact.
Delivered a positive earnings surprise
Innofactor delivered a pleasant surprise in second quarter profitability figures, with EBITDA of EUR 2.1m clearly topping our estimates (Evli EUR 1.1m). Net sales grew 0.6% y/y to EUR 16.8m (Evli 16.6m). Net sales in the other Nordic countries developed somewhat unfavourably due to the coronavirus pandemic, resulting in negative EBITDA figures for their part, while Finland continued strong. The impact of the pandemic was still not as large as the company had anticipated. The order backlog continued y/y and q/q growth, up to EUR 56.9m (Q2/19: 44.2m).
Profitability development on a solid track
We have raised our 2020E EBITDA estimate to EUR 7.2m (prev. EUR 5.9m) and our 2021-2022E estimates by ~20%. We expect some margin decline in H2 compared to H1 due to the pandemic given slower sales development, although cost base reductions due to travel restrictions should ease some of the pressure. Our sales growth assumptions in 2021-2022 remain modest (avg. 3.5% p.a.) given the company target (~20% p.a.), with limited signs of more rapid pick-up in growth. Innofactor acquired the remaining ~55% of shares in Arc Technology and with the improved cash flows we expect likely further M&A activity to boost growth.
BUY with a target price of EUR 1.35 (0.95)
Innofactor’s share price has rallied some 40% since our previous update in May but on our revised estimates and peer multiples we still see upside in valuation. On our revised estimates we adjust our target price to EUR 1.35 (0.95), for an implied 2020 EV/EBITDA of 8.7x and retain our BUY-rating.
Tokmanni’s Q2 revenue increased by 19.2% (LFL growth of 17.5%) and was EUR 286m. Tokmanni’s adj. EBIT was EUR 30.6m vs. EUR 30.9m/28.5m Evli/cons. Adj. gross margin was 34.5%. The company expects strong growth in revenue and LFL revenue in 20E. Comparable EBIT margin is expected to improve on the previous year.
Innofactor’s Q2 results were above our expectations and profitability remained at a good level. The net sales in Q2 amounted to EUR 16.8m (Evli EUR 16.6m), while EBITDA amounted to EUR 2.1m (Evli EUR 1.1m). Guidance remains intact. The impact of the coronavirus pandemic was limited but EBITDA in Sweden, Norway and Denmark fell in the red due to lowered sales.
Finnair’s April-June revenue decreased by 91% y/y (EUR 69m) while adj. EBIT totaled EUR -174m. Flights are slowly recovering in Europe and Asia but the costs related to the ramp-up will increase H2E comparable operating loss. We keep our rating “HOLD” with TP of EUR 0.50 (0.60).
Heavy losses during Q2
Finnair’s Q2 result was weak as expected. April-June passenger numbers were down by ~98% y/y. Revenue declined by ~91% y/y and was EUR 69m vs. EUR 54m/49m Evli/consensus. Adj. EBIT was EUR -174m vs. EUR -177m/-179m Evli/consensus. ASK decreased by ~97% y/y and PLF was 33.1% (-49.4pp). Finnair’s revenue in the second quarter was greatly supported by the cargo business, which generated more than 70% of the revenue. The company reiterated its previous guidance (20E revenue will decline significantly compared to the previous year and the comparable operating loss will be significant). Revenue guidance for Q3E was not given. However, the comparable operating loss in Q3E will be of a similar magnitude than in Q2, due to clearly reduced capacity and costs related to the ramp-up.
The historically gloomy quarter is now behind and Finnair is slowly recovering its flights as travel restrictions in many European and Asian countries are gradually being lifted. In July, the company operates approx. 25% of its normal amount of flights. The estimated level in September is approx. 50%. The current traffic plan might change based on the pandemic situation and changes in the country specific restrictions. Finnair’s cargo business has increased its importance during this time and especially on Asian long-haul routes, the profitability is supported by the cargo business thus the good development of freight supports the launch of passenger flights. The company has been able to improve its cash position due to the rights offering proceeds of approx. EUR 500m (wasn’t fully booked by the end of June) and EUR 200m instalment of the EUR 600m statutory pension premium loan which was drawn in June.
“HOLD” with TP of EUR 0.50 (0.60)
Based on the new information we have further cut our estimates. We expect 20E revenue of EUR 1497m and adj. EBIT of EUR -503m. We highlight that the visibility remains very weak and there are significant uncertainties also with our 21E-22E estimates. We keep our rating “HOLD” with TP of EUR 0.50 (0.60).
Consti’s Q2 operating profit of EUR 2.4m was better than expected (Evli/cons. 1.8m/1.4m) and free cash flow and financial position improved clearly. The coronavirus pandemic has and will have some impact on demand in 2020 but the long-term demand situation remains favourable and the company now appears to be in good shape after recent year challenges. We upgrade our rating to BUY (HOLD) with a target price of EUR 10.0 (7.4).
Q2 profitability better than expected
Consti’s Q2 results were better than expected, as although the revenue of EUR 69.3m came in around expectations (Evli/cons. 68.5m/70.3m), the operating profit of EUR 2.4m clearly exceeded expectations (Evli/cons. EUR 1.8m/1.4m). The order intake in the quarter was also favourable, with new orders of EUR 66.8m, and the order backlog continued on a slight upwards trend since the end of 2019. Free cash flow in the quarter (EUR 8.1m) was exceptionally strong, boosting the rolling 12-month cash conversion ratio to 133.5%. As a result, net debt excl. IFRS 16 improved to EUR 8.3m (2019: 15.3m).
Company in good shape after previous year challenges
Consti’s Q2 report was clearly positive and following measures taken during the past years and management comments the company now appears to be in good shape. We expect sales to continue to decline y/y in H2 due to stricter bidding discipline but for profitability to continue to improve as a result of the healthier order backlog. The coronavirus pandemic has and will in our view have a slight impact on the demand situation during the year, but long-term demand drivers remain intact.
BUY (HOLD) with a target price of EUR 10.0 (7.4)
We have raised our 2020 EBIT estimate by 10% and slightly raised our 2021-2022 profitability estimates. With the higher profitability as well as cash flow and net debt improvements, possible near-term risks from the coronavirus pandemic and St. George arbitration proceedings are reduced. We raise our target price to EUR 10.0 (7.4) and upgrade our rating to BUY (HOLD).
Verkkokauppa.com benefited from the lockdown and was able to increase its Q2 sales by ~14% y/y. At the same time profitability development was strong as adj. EBIT totaled EUR 4.8m (EUR 0.2m in Q2’19). We keep our rating “BUY” with TP of EUR 6.3 (6.2).
Strong growth in both, revenue and profitability
E-commerce took a big leap during H1 as consumers moved online quickly once the movement restrictions came into force. This boosted Verkkokauppa.com’s Q2 result. Sales were up by ~14% y/y (EUR 123m), outpacing the consumer electronics market growth of ~9% (GfK). Adj. EBIT totaled EUR 4.8m (Q2’19: EUR 0.2m) and was driven by improved gross margin (17.4% vs. our 16.4%). The improvement in gross margin was due to the sales mix, improvements in category management and declining wholesale sales. The preliminary Q2 figures were already given in connection with the positive profit warning issued last week thus there were no surprises with the result. The company expects 20E revenue of EUR 520-545m and adj. EBIT of EUR 13-18m.
Expecting normalizing demand in H2
It is clear that Verkkokauppa.com has benefited from the epidemic situation. The company has a low cost base which is supported by small physical footprint and that has been a major advantage during this time. Category management has been successful and as the demand of consumer electronics has increased, the competition hasn’t probably been as price-driven as normally. On the other hand, we expect that the strong growth in demand of consumer electronics during H1 will be shown as weaker sales growth and profitability development in H2E. Thus, we see this only as a momentary market change. In addition, consumers are likely to become more price aware, especially ahead of the campaign season in Q4 which will add pressure on margins.
“BUY” with TP of EUR 6.3 (6.2)
We have kept our estimates largely intact and expect 20E revenue of EUR 535m and adj. EBIT of EUR 17.1m. Thus, our estimates are at the higher end of the given guidance. On our estimates, Verkkokauppa.com trades at 20E-21E EV/sales multiple of 0.4x, ~17% below its online-focused Nordic & European peers. We keep our rating “BUY” with TP of EUR 6.3 (6.2).
Finnair’s Q2’20 adj. EBIT was EUR -174m vs. our expectation of EUR -177m and consensus of EUR -179m. Revenue decreased by 91% and was EUR 69m vs. our expectation of EUR 54m and consensus of EUR 49m.
Verkkokauppa.com’s Q2’20 result was extremely strong. The report did not offer surprises as the company issued a positive profit warning and released preliminary information on April-June figures earlier this week. Revenue grew by 14.1% and was EUR 123m. Gross profit was EUR 21.4m (17.4% margin) vs. our EUR 20.2m (16.4% margin). Adj. EBIT was EUR 4.8m (3.9% margin). 2020E guidance: The company expects revenue to be EUR 520-545m and comparable operating profit to be EUR 13-18m.
Raute reported Q2 results below our expectations. We turn slightly more cautious as uncertainty remains quite elevated. Our TP is now EUR 20 (21), rating HOLD (BUY).
Uncertainty is high as many regions grapple with the crisis
Raute posted EUR 24m in Q2 revenue vs our EUR 29m estimate. Services revenue was as expected (EUR 10m) while project deliveries were EUR 5m below our EUR 19m expectation. Russian revenue, at EUR 12m, was EUR 7m lower than we estimated, and the low figure is explained by order book timing with regards to the large EUR 58m Russian order to be delivered mostly this year. Order book timing as well as the pandemic (which complicated installations and services) meant profitability was weak also in Q2 as the company recorded EBIT at EUR -1.0m vs our EUR 1.3m estimate. Order intake, at EUR 13m, was also lower than we expected (EUR 19m) and was due to softness in both machinery and services orders. Order intake declined by half y/y as the pandemic postponed project decisions. Russian orders were lower in Q2 than we expected (EUR 3m vs our EUR 9m estimate). Although no major projects were initiated during the quarter Raute says cancellations are unlikely and many investment decisions could receive green light when the situation stabilizes.
We make minor estimate changes
According to Raute activity levels are still good in Russia and China, and customers are planning some big strategic investment projects but for now there’s no way to reliably estimate a time frame during which the leads might translate to actual orders for Raute. We expect Q2 to prove the slowest quarter for Raute in terms of order intake, but there’s significant uncertainty as to how rapidly order intake might improve in H2.
Long-term strategy intact yet short-term outlook hazy
We continue to view Raute’s prospects beyond this year’s weak results. A significant pick up in order activity would likely follow the operating environment’s inevitable normalization, but this might take some time to be reflected in the order book. We view Raute well positioned to capture large plywood and LVL machinery orders in the coming years once the sector is ready to commit itself to new capacity investments. However, in the current uncertain environment we see the overall valuation picture neutral. Our new TP is EUR 20 (21), rating HOLD (BUY).
Consti's net sales in Q2 amounted to EUR 69.3m, in line with our estimates and consensus (EUR 68.5m/70.3m Evli/cons.). EBIT amounted to EUR 2.4m, above our and consensus estimates (EUR 1.8m/1.4m Evli/cons.). Free cash flow improved to a solid EUR 8.1m (Q2/19: EUR 2.7m).
Raute’s Q2 results were clearly below our expectations with respect to revenue and profitability as well as order intake.
Verkkokauppa.com issued a positive profit warning and gave preliminary information on April-June figures. The company now expects 20E revenue of EUR 520-545m and adj. EBIT of EUR 13-18m. The company’s Q2 result is due on Friday. We keep our rating “BUY” with TP of EUR 6.2.
Strong performance during spring & summer
Verkkokauppa.com issued a positive profit warning as its spring/summer sales and profitability have developed better than first anticipated but also due to the brighter H2’20E outlook. The company now expects 20E revenue of EUR 520-545m (Evli prev. 525m) and comparable operating profit of EUR 13-18m (Evli prev. 14.3m). The company previously expected 20E revenue of EUR 510-530m and comparable operating profit of EUR 12-15m. Verkkokauppa.com also provided preliminary Q2 figures. April-June revenue is approx. EUR 123m, growth of ~14% y/y (Evli 113m/cons. 113m) while adj. EBIT is approx. EUR 4.8m (EUR 0.2m in Q2’19) vs. EUR 1.3m/1.4m Evli/consensus. According to the company, comparable operating profit improved as a result of strong sales and improved gross margin.
Consumers have been active during Q2
Based on the preliminary second quarter figures, it seems that the demand of consumer electronics has continued strong. Due to the increased demand, we expect less price driven competition in the consumer electronics market which impacts positively on gross margin. However, we see this only as a temporary change. Also, good demand in other smaller categories (offering higher margins) supports gross margin development. We now expect Q2E gross margin of 16.4% (14.2% in Q2’19). According to the management, the pandemic might not have as big impact on consumer demand as first anticipated which is also likely to impact on H2’20E.
“BUY” with TP of EUR 6.2
We have increased our estimates as a result of the positive profit warning. We expect sales to grow also in H2’20E, although the growth is expected to normalize from H1’20. We now expect 20E revenue of EUR 535m (6% y/y) and adj. EBIT of EUR 17.1m (51% y/y). On our estimates, the company trades at 20E-21E EV/sales multiple of 0.4x, ~20% below the online focused Nordic & European peers. We keep our rating “BUY” with TP of EUR 6.2.
Vaisala delivered a decent Q2 result, with improved EBIT despite decrease in net sales and orders received. Vaisala maintained its 2020 guidance although market outlook is still weighed down by COVID. Although there are still short-term risks related to the pandemic, we see Vaisala coming out rather unscathed from the pandemic, and therefore we are ready to emphasize more the coming years and Vaisala’s post-COVID performance. Our estimates remain unchanged, and we continue to see Vaisala executing well but valuation is challenging. We maintain HOLD recommendation with target price of 29 euros (prev. 26).
W&E stronger than expected, while IM soft
On a whole, Vaisala’s Q2 result was broadly in line. Q2 net sales decreased -5% to 91,4 MEUR vs. 93,5 MEUR Evli and 94 MEUR consensus. Q2 EBIT improved 9,7% y/y to 7,9 MEUR (8,7% margin) vs. 8,1 MEUR our expectation (cons. 7,9 MEUR). EPS was 0.16 (0.19 Evli, 0.20 consensus). Gross margins held up nicely (54,5% vs. 54,2% last year) despite lower volumes. Orders received decreased -2% to 95,9 MEUR due to weakened order intake in IM and especially in APAC region. Overall, W&E fared slightly better than we expected with Q2 EBIT at 0,7 MEUR (0,2 MEUR Evli) and decent orders received +1% due to strong EMEA. On the other hand, IM was softer than we had expected. IM net sales declined -5% to 33,8 MEUR (37,1 MEUR Evli) and EBIT was 7,1 MEUR (7,9 MEUR Evli), due to lower net sales. IM order intake declined -8% in all regions, especially APAC. According to Vaisala, IM’s high-end humidity and high-end carbon dioxide markets were affected by COVID as customers suspended operations and delayed decision making.
2020 outlook maintained
Vaisala estimates that lost order intake during H1 was roughly 15–25 MEUR and lost net sales was in range of 5–15 MEUR. Looking forward, it’s clear that uncertainties will continue. W&E outlook is weighed by the weakened outlook for aviation and lack of larger infra projects, especially in developed countries. IM is also expected to suffer short term from COVID repercussions. Vaisala maintained its 2020 outlook it issued in April, expecting FY20 net sales of 370–405 MEUR and EBIT of 34–46 MEUR. Our estimates remain broadly unchanged after the report. We believe pulling out of COVID will help IM fare better in H2, and our 20E estimates are at midpoint of guidance. We expect 2020e net sales to decline roughly 4% to 388 MEUR and reported EBIT to decline to 39,5 MEUR. Our 2021-22E estimates remain unchanged and we continue to see Vaisala’s targeted above 5% sales growth achievable and road to >12% margins resuming after pandemic resides.
Valuation remains challenging
On our estimates, Vaisala is still trading at premiums compared to our peer group, and as noted before, we see valuation stretched given Vaisala’s weaker financial performance compared to peer group. Peer group valuation multiples have however risen, and premiums are now more acceptable. Although there are still short-term risks related to the pandemic, we see Vaisala coming out rather unscathed from the pandemic, and therefore we are ready to emphasize more the coming years and Vaisala’s post-COVID performance. We raise our target price to 29€ (prev. 26€) and maintain our HOLD recommendation. Our target price values Vaisala at 21-22e EV/EBIT multiples of 22x and 19x which is above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.
SRV’s Q2 profitability fell short of our estimates due to one-offs, with revenue and construction profitability slightly better than expected. We have raised our 20-22E EBIT estimates by some 5-10% on a fairly good H1 order intake and higher construction margin expectations. We upgrade our rating to BUY (HOLD) with a target price of EUR 0.66 (0.64).
One-offs affected profitability, good construction margins
SRV’s revenue in Q2 grew 28% y/y to EUR 265.0m for a slight expectations beat (EUR 243.4m/243.0m Evli/cons.). The operative operating profit was at EUR 0.5m (Evli 3.8m), affected by an EUR 3.1m provision for expenses recognized due to a ruling by a Russian court as well as recovery programme costs and costs stemming from impacts of the coronavirus. Construction profitability was good and slightly better than expected, with an operative operating profit margin of 2.8% (Evli 2.6%). The effects of the coronavirus were limited, although some additional costs were incurred, and housing sales were slower during April-May. Shopping centres were also affected and in Russia a large share of stores were and remain closed due to restrictions.
20-22E EBIT estimates raised by some 5-10%
We have post-Q2 raised our 20-22E EBIT estimates by some 5-10%, prompted by a fairly good H1/20 order intake and slightly raised construction margin expectations. The coronavirus pandemic continues to pose a risk, but current recovery prospects in Finland and a higher share of housing units sold to investors in the construction portfolio remain supportive factors.
BUY (HOLD) with a target price of EUR 0.66 (0.64)
Uncertainty of shopping centre exits has increased due to the pandemic and will most likely be delayed, with Pearl Plaza discussions already having been in late stages. On our 21-22E estimates and peer multiples, current valuation levels in our view essentially appear to only assign a value to SRV’s construction operations. We upgrade our rating to BUY (HOLD) with a target price of EUR 0.66 (0.64).
Exel’s Q2 volumes developed as expected while profitability was a big positive surprise. We weigh the strong performance against valuation prudence; caution is warranted since volumes are sensitive even in benign business climates. However, we view the current valuation simply too low. Our TP is EUR 6.25 (5.50), rating BUY.
Top line as expected, profitability a major positive surprise
Exel’s Q2 was as expected in terms of group-level revenue. The figure was EUR 27.2m i.e. in line with the EUR 27.9m/27.2m Evli/cons. estimates and up 3% y/y. Wind power grew by 52% y/y, and the EUR 7.9m figure was clearly above our EUR 6.6m estimate. The increase was driven by Asia-Pacific. All in all, it seems the pandemic has had only a limited impact on Exel’s business so far. Revenues have rolled in as expected and Q2 order intake only fell by 4% y/y, which in our view is a remarkable result considering the business and the current macro context. In this sense the Q2 update was a bit unsurprising relative to the Q1 release. The surge in profitability, however, was unforeseen. Exel achieved EUR 2.9m in adj. EBIT, compared to the EUR 2.0m/2.0m Evli/cons. estimates. The US unit fueled the positive surprise.
Profitability outperformance has been extended
Guidance wasn’t reinstated (Exel guided increased revenue and adj. EBIT earlier this year). In our view the reluctance to issue guidance for now reflects order uncertainties. Deliveries could be hit should the environment rapidly worsen, which is a relevant possibility. Yet in our view Exel is on a clear track to achieve higher earnings, considering the EUR 5.0m in H1’20 adj. EBIT vs the EUR 4.2m in H1’19. The company has topped the expectations we had prior to the pandemic. The earnings report changes our top line estimates very little, but we upgrade our profitability estimates. We previously expected EUR 3.7m in H2’20 adj. EBIT, and now see the figure at EUR 5.1m. For FY ’21 we now estimate the figure at EUR 11.1m (previously EUR 9.5m).
Valuation is undemanding especially compared to peers
Exel has continued to outperform our expectations while the macroeconomic situation does justify some valuation caution. We nevertheless see clear upside to current multiples. Our new TP of EUR 6.25 (5.50) implies ca. 6.5x EV/EBITDA and 10.5x EV/EBIT on our estimates for this year. Our rating remains BUY.
Vaisala’s Q2 EBIT was broadly in line, but pandemic had its toll on both business areas and orders received. Vaisala’s Q2 net sales decreased 5% to 91,4 MEUR vs. 93,5 MEUR our expectation and 94 MEUR consensus. Q2 reported EBIT was 7,9 MEUR (8,7% margin) vs. our expectation of 8,1 MEUR (7,9 MEUR consensus).
Exel Composites reported Q2 revenue in line with expectations while profitability was clearly higher than expected. Higher profitability was mainly due to the US unit’s improved performance. Overall Exel’s performance seems very solid despite the pandemic, however the company does not yet reissue guidance.
Consti will report Q2 results on July 24th. As the direct impacts of the Coronavirus pandemic have been limited, we expect profitability to have remained at a good level and clearly above the weak comparison period. The order backlog will remain of support for the quarter while a thinness in demand may start to show during the latter half of the year. We retain our HOLD-rating and adjust our target price to EUR 7.4 (7.0).
Limited direct pandemic impact to support profitability
Consti continued on a track of improved profitability in Q1 and we do not expect any major deviations from that trend. The direct impacts of the Coronavirus pandemic on the second quarter results are expected to be limited, as on-going worksites have to our understanding been able to operate without significant interruptions. We expect EBIT to improve clearly from the weak comparison period (Q2/2019: EUR 0.1m), which was affected by certain weak-margin projects, to EUR 1.8m in Q2/2020. We expect a revenue of EUR 68.5m, a decline of 15.7% y/y, as a result of the weakened order backlog from more disciplined bidding procedures.
Short-term demand thinness to be expected
Going forward, we expect our main attention to be pointing toward the overall demand situation. Given the timing of the housing company General Meeting season, decision-making for certain renovation projects will have been delayed to the fall or possibly next year. Decisions of corporations will possibly also have been affected while the public sector should have been less affected. The renovation sector fundamentals, however, remain unaffected and the impact should as such be of more temporary nature.
HOLD with a target price of EUR 7.4 (7.0)
Our estimates remain unchanged ahead of the Q2 results. Following lower COVID-19 uncertainty and increases in peer multiples we adjust our target price to EUR 7.4 (7.0) and retain our HOLD-rating.
SRV's net sales in Q2 amounted to EUR 265.0m, above our and consensus estimates (EUR 243.4m/243.0m Evli/cons.). EBIT amounted to EUR 3.3m, below our estimates and above consensus estimates (EUR 3.8m/2.4m Evli/cons.).
Raute reports Q2 results on Thu, Jul 23. Order book stands at a decent level but Q2 must have been slow with respect to new orders. Raute issued two releases in Q2 which speak of the company’s strategy proceeding according to plan; however, these news items will not immediately impact our estimates. In our view valuation is turning attractive on our unchanged estimates. Our TP is EUR 21, rating BUY (HOLD).
Order intake was likely low, but strategy appears on track
Raute didn’t disclose any large orders in Q2, which in our view is unsurprising. However, the company did book an order for the delivery of modern veneer drying and automated lay-up lines to South China. Although the order is moderate in size, amounting to perhaps a few million euros, it may prove to hold significant reference value for Raute as the machinery represents the inaugural Chinese purchase of such advanced plywood production technology. The order will be delivered by the end of this year. In our view the order is an initial encouraging sign that the Chinese plywood market, by far the biggest, is gradually maturing towards higher quality standards. Raute has so far been unable to make meaningful inroads into the market and it remains to be seen in what time frame significant results might materialize. Raute also recently announced the acquisition of a Finnish software company specializing in demanding industrial solutions, including machine vision. From a financial perspective the deal has no impact on our current estimates but is consistent with Raute’s strategy, according to which the company continues to invest in further developing its technological edge.
We see soft Q2 order intake, expect improvement in H2
We expect Raute to have booked EUR 19m in Q2 new orders i.e. about half the average quarterly level last year. As with so many other industries, the focus will be on comments regarding the changes and improvement in activity following the most acute weeks of the pandemic lockdown.
We view valuation low especially relative to peer multiples
This year will not be great in terms of profitability. On our estimates for next year Raute currently trades ca. 5.5x EV/EBITDA and 8.5x EV/EBIT; despite uncertainty regarding the sharpness of next year’s profitability improvement we view these multiples attractive. Our TP remains EUR 21, rating now BUY (HOLD).
Verkkokauppa.com reports its April-June result on next week’s Friday, 24th of July. We expect Q2E sales of EUR 113m (5% y/y) and adj. EBIT of EUR 1.3m. We keep our rating “BUY” with TP of EUR 6.2 (4.5).
Expecting a strong Q2
Verkkokauppa.com had a strong start for the year as Q1’20 sales increased by over 8% y/y, boosted by exploded online sales caused by the COVID-19. Remote working has become the new normal during this time thus we expect good growth in the consumer electronics market. The management indicated that the demand of several other categories has developed favorably as well (e.g. sports, home). We also expect the good weather in the early summer to have a positive impact on sales. We have increased our Q2’20E sales expectation by 3% to EUR 113.2m. We expect Q2’20E adj. EBIT of EUR 1.3m (Q2’19: EUR 0.2m).
Targeting improved brand awareness
Verkkokauppa.com transferred to the main list of Nasdaq Helsinki in early June as the company is targeting to increase its brand awareness and to improve its liquidity. The total expenses related to the listing are EUR ~0.8m. According to the listing prospectus, some 16% of total sales in Q1’20 came from outside of Finland (2019: 12%). Due to the global movement restrictions, we expect significantly lower international sales during Q2E. We expect gross margin to improve in Q2E (14.9% vs. 14.2% in Q2’19) as the consumer electronics market should ease temporarily but also due to the good development of other smaller categories (offering higher margins). We expect good control over costs, supporting earnings development.
“BUY” with TP of EUR 6.2 (4.5)
We have increased our 20E adj. EBIT expectation by ~5% (EUR 14.3m) while slightly increasing our 20E sales expectation (EUR 525.4m). The company expects 20E sales of EUR 510m-530m and adj. EBIT of EUR 12-15m thus our estimates are at the higher end of the given guidance. We have also increased our 21E-22E sales expectation by 1-1.5% and adj. EBIT expectation by 6-7%. On our estimates, the company trades at 20E-21E EV/sales multiple of 0.4x, which translates into ~25% discount compared to the online focused Nordic and European peers. We keep our rating “BUY” with TP of EUR 6.2 (4.5).
Finnair reports its Q2 result on next week’s Friday, 24th of July. As well known, April-June figures will not be pretty. We expect Q2E revenue of EUR 54m and adj. EBIT of EUR -177m. We upgrade to “HOLD” (“SELL”) with TP of EUR 0.60.
Historically gloomy traffic
Finnair’s April-June traffic figures were extremely weak, as expected. Passenger numbers decreased by 97% y/y as Finnair carried only ~100k passengers during this time. ASK decreased by 97% y/y and RPK decreased by 99% y/y. The were no flights to North Atlantic nor to Asia during most of the quarter and the remaining operations have been mainly related to cargo. Finnair has estimated that its daily comparable operating loss will be approx. EUR 2m throughout Q2. We expect Q2’20E revenue of EUR 54m and adj. EBIT of EUR -177m.
Jet fuel prices dropped during Q2
Jet fuel prices have dropped significantly during Q2. The average price in both, USD and in EUR dropped by 49% on a q/q basis compared to Q1’20. On a y/y basis, the average price in USD fell by 62% and in EUR by 61%.
Flights starting gradually to recover
Finnair has gradually started to add frequencies and routes to its network as many travel restrictions have now been removed and the pandemic situation has improved, at least in Europe and Asia. The company estimated earlier that it aims to fly some 30% of its normal amount of flights in July. Some 70% of the normal capacity is expected to be operated by the end of the year. The company should be able to expand its offering relatively quickly depending on the country specific restrictions and demand.
“HOLD” (“SELL”) with TP of EUR 0.60
As a result of Finnair’s rights offering issued during the summer, Finnair receives net proceeds of approx. EUR 501m. The total number of Finnair’s shares increased to 1.4b. There are no major changes in our 20E-22E estimates. We expect 20E revenue of EUR 1595m and adj. EBIT of EUR -304m. We expect the traffic slowly to recover during 21E-22E but we don’t expect to see levels reached prior the pandemic any time soon. We keep our TP of EUR 0.60 and upgrade to “HOLD” (“SELL”).
Tokmanni’s Q2’20 sales increased by 19.1% y/y to EUR 286m which is a positive surprise after the company withdrew its guidance in March due to the COVID-19. Tokmanni will report its Q2 result on 29th of July. We keep our rating “BUY” with TP of EUR 16.4 (13.5).
Q2 sales increased by 19.1% y/y
Tokmanni published its Q2 sales beforehand (Q2 result will be published on 29th of July) as its April-June sales increased by 19.1% y/y (EUR 286m). The exceptional jump in sales came as a surprise as the company withdrew its guidance in March, due to the coronavirus situation and the consensus expectation indicated decrease in sales. According to the company, the customer numbers decreased towards the end of March but have since recovered. LFL growth was 17.4% y/y and online sales accounted for 1.4% of sales. Our previous Q2E sales expectation was EUR 191m. Tokmanni expects comparable gross margin in Q2E to decrease by ~1ppt y/y, resulting from the active measures to increase sales and the structure of sales.
Restrictions impacting positively on consumer behavior
Due to the movement restrictions caused by the COVID-19, Finns have spent more time at home and at their summer cottages and domestic tourism has become more popular. Therefore, the demand of leisure, gardening and home improvement products has strongly increased. Also, the demand of food products has been strong during Q2. On the other hand, clothing sales decreased y/y. We don’t expect a significant increase in customer numbers during the quarter but rather in the average basket size. We expect that Tokmanni’s cost base has remained stable despite of the increase in sales, resulting in improved profitability. We expect Q2’20E adj. gross margin of 34.1% and adj. EBIT of EUR 30.9m.
“BUY” with TP or EUR 16.4 (13.5)
As result of the latest information, we return back to our view prior the COVID-19 and expect Tokmanni to reach sales of over EUR 1bn in 20E. We expect 20E sales of EUR 1026m and adj. EBIT of EUR 90m. As the significant increase in Q2’20 revenue was exceptional, we expect normalized sales during H2’20E and sales to remain in the same level also in 21E. Our view of Tokmanni’s 21E-22E hasn’t changed. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 13.0x and 13.1x, which translates into 25-31% discount compared to the international discount peers. We keep our rating “BUY” with TP of EUR 16.4 (13.5).
Suominen revised its outlook upwards for the second time this year. We update our estimates; the announcement has only minor impact in quantitative terms but turns us more confident towards Suominen’s sustainable profitability improvement. Our TP is now EUR 4.25 (3.25) and thus we rate the shares BUY (HOLD).
The update reflects conviction in value-add wiping demand
Suominen previously expected comparable FY ‘20 EBIT to improve clearly from ‘19. The updated outlook guides significant improvement. The figure amounted to EUR 8.1m last year, and we now expect Suominen to post EUR 24.0m this year (our previous estimate was EUR 23.1m). In our view the outlook update therefore has somewhat limited information value as such, although it’s worth mentioning that Suominen also removed the previous disclaimer according to which the result estimate for the second half of the year was uncertain due to the pandemic. In other words, the announcement does not change our estimates quantitatively as much as it does qualitatively. Suominen did not comment on market developments, but in our view the update reflects certain value-add wiping product categories’, namely those meant for household and workplace uses, improved prospects due to the pandemic.
Our higher gross margin estimate offsets weaker USD
During the last two months USD has declined by about 5% relative to EUR. We thus update our revenue estimate for this year downwards to EUR 443m from the previous EUR 454m. There have been no meaningful interim changes in raw materials prices, and as we expect value-add wiping product demand to remain brisk we revise our FY ’20 gross margin estimate up by some 50bps to 12.1%. These changes’ net effect on our FY ’20 EBIT estimate is an increase to the tune of EUR 0.9m.
Valuation is attractive as profit recovery gains traction
Suominen currently trades at about 5.7x and 4.8x EV/EBITDA on our estimates for this year and next. In our view higher multiples are now warranted as profitability improvement looks increasingly robust. Our new EUR 4.25 (3.25) TP implies the respective multiples at levels of 6.2x and 5.3x. Suominen is also valued clearly below peer group multiples. We now rate the shares BUY (HOLD).
Finnair will strengthen its balance sheet with a rights offering of approx. EUR 500m, which have been fully underwritten. We have also cut our 20E estimates to be in line with the latest traffic plan. We keep our rating “SELL” with TP of EUR 0.6 (3.3).
Aiming to raise gross proceeds of approx. EUR 500m
Finnair has announced the terms and conditions of its rights offering of approx. EUR 500m, which have been fully underwritten. The proceeds from the offering are intended for strengthening the company’s balance sheet and to support the company’s long-term strategy. The company offers up to ~1279m new shares for subscription for the existing shareholders. The existing shareholders receive one subscription right for each share held on the record date and each subscription right carries the right to subscribe for ten offer shares. The subscription price is EUR 0.40 per offer share. The state of Finland, which is the largest shareholder of Finnair, has committed to subscribe in full for offer shares on the basis of subscription rights allocated to it (a total of 55.9% of the offer shares). The subscription period commences on 17 June 2020 and ends on 1 July 2020.
Further estimates cut for 20E
We have also adjusted our H2’20E estimates downward based on the traffic plan introduced earlier in May. Finnair will start gradually to add frequencies and routes back starting from July. For instance, the company will fly to several European destinations, concentrating first on the key cities. Also, long-haul flights to Asia will start in phases. The company aims to operate approx. 30% of its normal amount of flights in July. Finnair estimated that it will fly approx. 70% of its normal capacity at the end of this year.
“SELL” with TP of EUR 0.6 (3.3)
We now expect 20E revenue to decline by ~48% y/y, amounting to EUR 1605m (prev. EUR 1752m). We expect 20E adj. EBIT of EUR -305m (prev. EUR -265m). We keep our rating “SELL” with TP of EUR 0.6 (3.3).
SRV is approaching the final leg of its recovery programme and initiated a rights issue, seeking to raise EUR 50m gross proceeds. The good progress so far remains somewhat overshadowed by the development of the Russian economy. We adjust our TP to EUR 0.64 (1.10), HOLD-rating intact.
Seeking to raise EUR 50m gross proceeds
SRV initiated a rights issue with the aim of raising gross proceeds of EUR 50m and resolved upon offering up to ~131m new shares, corresponding to 49.8% of all shares if fully completed, with existing shareholders receiving one subscription right for each owned share and the subscription price for new shares set at EUR 0.38. The share issue proceeds are primarily intended for strengthening of the company’s balance sheet. SRV also completed a directed share issue in May, resulting in gross proceeds of approx. EUR 75m but no cash proceeds, as outstanding hybrid bonds were converted into equity. The company expects that the issues along with measures taken as part of the company’s recovery programme will improve the company’s equity ratio excl. lease liabilities from 26.4% (31.12.2019) to 30-33% by the end of Q2.
Profitability improving, financial expenses hamper earnings
We assume full completion of the rights issue in our estimates given the EUR 40m commitments made and the discount of the subscription price. Apart from adjustments due to the expected expenses related to the share issues our estimates remain intact. We expect the operative operating profit to improve to EUR 15.3m following improved construction profitability, while expecting net earnings to remain negative due to the high financial expenses.
HOLD with a target price of EUR 0.64 (1.10)
Our SOTP implies an equity value of EUR 0.69 per share while peer multiples remain challenging. The ruble has seen recovery from its Q1 dip but together with the state of the Russian economy pose a risk to easing balance sheet strains through exits. We adjust our target price to EUR 0.64 (1.10) with our HOLD-rating intact.
Cibus performed strong. The fundamentals are solid as before, yet wider property valuations are subject to higher uncertainty. We retain our SEK 150 TP and BUY rating.
There’s little reason to expect performance to be impaired
Cibus’ portfolio performed as expected with Q1 rental income at EUR 14.0m vs our EUR 13.9m estimate, while net rental income amounted to EUR 13.0m (vs our EUR 13.0m expectation). We did expect temporarily elevated administration costs due to the Coop acquisition, as the company suggested, and estimated the Q1 figure at EUR 1.1m. The figure came in at EUR 1.5m and thus the EUR 11.5m Q1 operating income missed our EUR 11.9m estimate. Meanwhile we overestimated financial costs (excluding currency losses) since net operating income excluding currency losses was EUR 7.7m, compared to our EUR 7.6m estimate. In terms of earnings capacity, the updated property expenses line is higher than we expected while the administration cost line is slightly lower. We make only small revisions to our estimates.
Cash flow is solid, yet valuation is not immune to macro
In our view Cibus’ figures and comments prove the pandemic will have little impact operationally. While in the big picture retail rents are likely to be under pressure (mainly due to shopping centers) in our opinion there’s no valid reason to expect this will apply to daily-goods stores. Cibus hasn’t noticed changes to deal flow and bank financing prospects. We see the daily-goods property market remaining stable and would not expect distressed sellers to surface in any meaningful numbers. Even though the pandemic will provide strong tailwind for online grocery sales the fact remains that such operations still struggle profit-wise in the Nordics. We expect Cibus will continue to generate robust cash flow as before. We view wider property valuation trends as the main risk for Cibus’ shareholders: uncertainty runs high and it remains to be seen how exactly e.g. telecommuting practices will affect office vacancy rates.
We reiterate our SEK 150 TP and BUY rating
Cibus continues to scan e.g. the Norwegian market, but for now the focus is on Finland and Sweden. The purchased Swedish properties are being converted into Coop stores (Coop purchased them from Netto last year); Cibus says the conversion is progressing well. We retain our SEK 150 TP and BUY rating.
Cibus Nordic reported Q1 property portfolio performance in line with our estimates, while operating income was slightly below our estimate due to the Coop portfolio acquisition which temporarily elevated central administration expenses.
Marimekko’s Q1 result was below expectations as net sales declined by 8% y/y, amounting to EUR 24.9m (27.9m/25.4m Evli/cons). Adj. EBIT was EUR 1.2m (1.7m/1.4m Evli/cons). The coronavirus hampered sales in all Marimekko’s market areas. We downgrade to “HOLD” (“BUY”) with TP of EUR 24 (28).
All market areas were impacted by the coronavirus
COVID-19 hampered all Marimekko’s market areas which led to a decline in net sales (-8%). Net sales totaled EUR 24.9m (27.9m/25.4m Evli/cons). Finland was the only market area with a positive sales development (+6%) in Q1. Net sales in the second largest market area APAC, declined by 28% y/y. Wholesale sales in APAC fell by -30% y/y not only due to the coronavirus but also as the corresponding figures in the comparison period were high due to an exceptional delivery pattern. Relative sales margin was affected by increased logistics costs and nonrecurring expenses resulting from the relocation of the company’s main warehouse. Decline in sales and weakened relative sales margin weighed down adj. EBIT which was EUR 1.2m vs. EUR 1.7m/1.4m Evli/cons.
Consumers likely to become more cautious
Our expectations for the upcoming months are not high as the movement restrictions and the temporary closure of stores will no doubt have a significant negative impact on Marimekko’s sales and profit. The company’s online store supports the business in some level as the online sales have increased significantly, though the management did not provide information regarding the magnitude of this. The outlook for ’20 wholesale sales in Asia is affected by the temporary closure of partner-owned stores and changing customer sentiment. At the same time, domestic wholesale sales in ’20 are boosted by nonrecurring promotional deliveries, which will be mainly taking place during H2. Going forward, the globally weakening economic outlook and declining purchasing power will have a negative impact on consumer behavior. We expect retail sales and wholesale sales to decline by 12% and 11%, respectively in 20E.
“HOLD” (“BUY”) with TP of EUR 24 (28)
We have cut our 20E sales expectation by ~4% and adj. EBIT expectation by ~8%. The company expects COVID-19 to have a significant negative impact on sales and profit in ‘20 but did not provide more detailed guidance at this point. Due to the weakening economic outlook we have also cut our 21E-22E sales expectation by 7-9% and adj. EBIT expectation by 10-12%. On our estimates, Marimekko trades at 20E-21E EV/EBIT multiple of 17.3x and 10.3x, which translates into 50-60% discount compared to the luxury peers. We downgrade to “HOLD” (“BUY”) with TP of EUR 24 (28).
Endomines Q1 report was largely uneventful, with no gold concentrate production at Friday during the quarter. Financial transactions in Q2 will aid the strained cash position. Q2 is set for first Friday gold concentrate sales, while the COVID-19 pandemic is creating uncertainty around production ramp-up to design capacity. We retain our SELL-rating with a target price of SEK 5.5 (5.0).
No gold concentrate sales in Q1
Endomines Q1 report contained limited new information of value. No gold concentrate sales from Friday occurred and revenue amounted to SEK 3.1m due to Pampalo clean up gold. Lesser cost activation saw costs higher than our estimates and as a result a weaker EBITDA, at SEK -27.8m (Evli -13.6m). 3,700 tonnes of lower grade (5.7 g/t) ore was mined during the first quarter. Design capacity (3,445 tonnes/month) at Friday is sought to be reached in Q2, however, COVID-19 impacts on staff and component availability may cause delays. The first gold concentrate shipment from Friday was made during Q2.
Financing arrangements to aid cash position
Post-Q1 financial transactions will bring much needed relief to Endomines’ strained cash position (Q1/20: SEK 1.3m), raising some SEK 81m through two loans and a rights issue. We expect further financing to be needed during 2020, as evident by the signing of an engagement letter with a financial advisor for long-term financing. Closing of the transaction with Transatlantic Mining provides additional production potential, although little is yet known of the assets. 2020 will in our view revolve around ramping-up production at Friday and planning for production at other assets from 2021 onwards.
SELL with a target price of SEK 5.5 (5.0)
Following adjustments to our valuation approach following the favourable gold price development and taking into account the transactions in Q2 we raise our target price to SEK 5.5 (5.0). Our SELL-rating remains intact.
Endomines did not sell any gold concentrate from Friday in Q1. Design capacity at Friday is sought to be reached in Q2, although impacts of the COVID-19 pandemic may cause delays. No numeric production guidance was given. 3,700 tonnes of ore at 5.7g/t grade mined during Q1. EBITDA lower than our expectations at SEK -27.8m (Evli -13.6m).
Marimekko’s Q1 result was below expectations as net sales decreased by 8%, amounting EUR 24.9m vs. EUR 27.9m/25.4m Evli/cons. Adj. EBIT was EUR 1.2m vs. EUR 1.7m/1.4m Evli/cons. Marimekko expects the coronavirus to have a significant negative impact on net sales and profitability in 2020. Guidance for ’20 was not given at this point.
Our updated TP is SEK 150 (155), rating now BUY (HOLD).
Cibus has performed according to expectations
Cibus’ portfolio performance has delivered the promises since the IPO in March 2018. Moreover, the portfolio’s exposure to supermarkets, in our view the preferred daily-goods store type, has increased following a string of acquisitions large and small. The company has also advanced on the organizational side. Cibus is now more independent entity, and Sirius’ partial exit made entry for other institutional investors easier and helped facilitate the Swedish property market expansion earlier this spring.
The Swedish market entry fits the strategy well
Cibus was able to acquire the EUR 180m Coop supermarket portfolio at a yield of close to 6%, which to us was a surprisingly high level, especially considering the portfolio’s quality, 10-year triple-net lease structure as well as Coop’s agreement to invest SEK 3m into each of the 110 stores for rebranding purposes (Coop acquired the stores from Netto last year). We view the portfolio a good base for further expansion in Sweden.
We base our TP on the portfolio’s current CF capacity
Cibus continues to trade at attractive levels relative to other listed Nordic property portfolios since Cibus’ assets are small in the institutional investor context and thus there’s a paucity of buyers as this specific asset class isn’t the most convenient way to deploy large amounts of capital. Single grocery stores can often be purchased at high yields. We’d describe Cibus a vehicle for capitalizing on the yield differential. Since Cibus’ portfolio is well diversified we see there’s scope for fair value gains every time Cibus buys a property. Having said that Cibus isn’t the only Nordic daily-goods property portfolio (although it’s the only publicly traded one) and so we view it prudent to focus on the current portfolio cash flow capacity. We value Cibus’ current cash flow prospects with a yield we see sufficiently below that of the underlying daily-goods property market (to account for diversification benefits) on the one hand, and adequately above that of the wider property market (the vehicular benefits shouldn’t be exaggerated) on the other. Our TP is now SEK 150 (155), rating BUY (HOLD).
Pihlajalinna’s Q1 revenue amounted to EUR 133m (+0.4% y/y) vs. our EUR 135m. Adj. EBIT was EUR 4.2m vs. our EUR 5.2m. The tender offer by Mehiläinen is currently being under review of the FCCA and the final decision should be ready at the end of Q2 or latest in Q3. We keep our TP of EUR 16.0 and downgrade our rating to “HOLD” (“BUY”).
Non-urgent and oral healthcare took hit from COVID-19
Pihlajalinna’s Jan-March result was rather good even though it slightly missed our expectations. Q1 revenue increased by 0.4% y/y to EUR 133m (EUR 135m/133m Evli/cons). Adj. EBIT landed at EUR 4.2m (EUR 5.2m/4.4m Evli/cons). According to the management, revenue and profitability developed as expected during the first months of the year but the coronavirus and the emergency laws that came into force in mid-March had a negative impact on the company’s business. Negative impacts were especially seen on the demand of non-urgent healthcare and oral healthcare. Fitness centers were also closed at the end of March. The decreased customer flows reduced the invoicing by approx. EUR 3.3m.
Demand should start slowly to recover
We expect the coronavirus had the most negative impacts on Pihlajalinna’s business in April due to the movement restrictions but the demand should start slowly to recover as the government is starting to ease the restrictions. Also, the management of Pihlajalinna indicated that some signs of recovering demand have already been seen. During these unexceptional times, complete outsourcings and other fixed-price invoicing have supported the company as the profitability of these kinds of contracts normally remains stable, even during times of lower demand. Also, the coronavirus should not have significant impacts on the demand of housing services for the elderly or recruitment services. Thus, more than half of the business operations are expected to remain stable during this time. The outlook for H2 still remains blurry as the visibility around the situation is very weak. Therefore, guidance for 20E was not given at this point.
“HOLD” (“BUY”) with TP of EUR 16
We have cut our 20E adj. EBIT estimate by ~20% while making only minor adjustments to our revenue expectation. We expect 20E revenue of EUR 517m (-0.3% y/y) and adj. EBIT of EUR 21.6m (3% y/y). The tender offer by Mehiläinen is currently being under review of the FCCA (in the phase two investigation). The investigation process should be completed at the end of Q2 or latest during Q3. We keep our TP at the tender offer price of EUR 16 and downgrade our rating to “HOLD” (prev. “BUY”).
Pihlajalinna’s Q1 result was slightly below our expectations but in line with consensus. Q1 revenue amounted to EUR 133m vs. EUR 135m/133m Evli/cons, while adj. EBIT landed at EUR 4.2m vs. EUR 5.2m/4.4m Evli/cons estimates. Guidance for 20E was not given at this point.
Exel’s Q1 met expectations. The pandemic has so far had a limited impact on operations. Short-term demand outlook is uncertain, but we don’t see long-term fundamentals impaired. Our TP is now EUR 5.50 (6.75), rating still BUY.
Strong development continued during Q1
Exel’s EUR 27.8m Q1 revenue grew by 3% y/y and matched EUR 27.9m/27.2m Evli/cons estimates. The company updated its reporting structure, now disclosing revenue for seven customer industries instead of the previous three broad segments. Buildings & infrastructure and Wind power, which previously made up the Construction & Infrastructure segment, reported a combined EUR 12.0m in revenue, which was in line with our estimate (Wind power only grew by 1% y/y due to timing issues). Machinery & electrical, Transportation and Telecommunications, i.e. the former parts of Industrial Applications, reported a combined EUR 8.4m. This was less than we expected but Equipment & other industries and Defense made up with a total of EUR 7.4m. Adjusted EBIT, at EUR 2.1m, also met EUR 2.2m/2.0m Evli/cons estimates. ROCE increased to 12% from 3% a year ago and the US unit reached profitability. Order intake growth accelerated to 23% y/y pace and the EUR 34.5m in new orders meant order backlog stood at EUR 37.1m, up 50% y/y. A big US order is scheduled to be delivered through FY ’20.
We now expect adjusted EBIT to increase to EUR 7.8m
Although strong development continued Exel is not immune to macro uncertainty and thus the company withdrew guidance. We revise our estimates down. We previously expected 6% top line growth for this year, and we have revised the figure down to 3%. We cut our FY ’20 EBIT estimate down by EUR 0.9m to reflect potential operational challenges. In our opinion the long-term case remains intact. Exel also has a good liquidity situation. The EUR 10m overdraft facility was extended by two years.
We cut our TP due to significantly higher uncertainty
In our view higher multiples are justified by the fact that Exel has continued to perform according to expectations. Meanwhile the pandemic raises uncertainty even if development has remained good. We update our TP to EUR 5.50 (6.75) due to lowered estimates and higher uncertainty; yet in our view Exel still trades at relatively low multiples and we thus retain our BUY rating.
Etteplan’s Q1 results were better than feared and market turbulence had a rather minor impact, with a slight decline in organic growth. We expect an average organic growth of around -7% in 2020 and EBITA to decline to EUR 16.9m (2019: 25.9m). We retain our HOLD-rating with a target price of EUR 8.0 (6.9).
Q1 results better than expected
Etteplan’s Q1 results beat our and consensus estimates. Revenue amounted to EUR 71.3m (EUR 67.0m/70.0m Evli/Cons.) and EBIT to EUR 5.7m (EUR 4.4m/5.0m Evli/cons.). The assumed effect of the COVID-19 pandemic and labor market turbulence in Finland on Q1 was fortunately smaller than expected. The organic growth did however turn negative and was -1.9% on comparable FX. The number of hours sold in China decreased 25% y/y but business was nearly back to normal by the end of March.
We expect 2020 organic growth of around -7%
Uncertainty in the coming quarters is elevated by the COVID-19 pandemic and visibility is low, due to which Etteplan is also not giving a guidance for 2020. We use the number of temporary layoffs as a benchmark for our 2020 estimates, for which we assume an upper bound for the Q2 average FTE capacity decrease of around 8%. Pricing pressure is further likely to increase along with a risk for credit losses, for which Etteplan made minor reservations in Q1. We currently assume that the situation will improve in the latter quarters but still expect an average organic growth of around -7% in 2020, with our 2020 revenue estimate at EUR 259.8m (2019: 262.7m). We expect 2020 EBITA to decline to EUR 16.9m (2019 25.9m).
HOLD with a target price of EUR 8.0 (6.9)
Etteplan is currently trading at 8.2x 2020 EV/EBITDA on our estimates, with peers trading at ~8.8x. With the COVID-impact now more accurately reflected in peer multiples we assign a higher weight on peer multiples, keeping the pre-COVID average NTM EV/EBITDA of 9.0x as a benchmark, and along with some added confidence from the Q1 report raise our target price to EUR 8.0 (6.9) and retain our HOLD-rating.
Exel Composites’ Q1 results met expectations. The company nevertheless had to withdraw FY ’20 guidance. The pandemic has so far had only a limited impact on business.
Aspo’s operations ran rather normal in Q1, but profitability is under more pressure in Q2 and it’s quite uncertain how strong EBIT might rebound in H2’20. We have cut our estimates, our TP is now EUR 6.00 (6.25), rating HOLD.
The segments will perform far short of their potential
The nascent pandemic began to impair ESL’s EBIT early on in Q1 as the escalating situation in China had a substantial negative effect on shipping rates. ESL’s Q1 EBIT thus fell to EUR 2.3m from EUR 3.2m a year ago. ESL was able to run its operations without interruptions and cargo volumes declined only slightly to 3.5m tonnes (3.6m tonnes a year ago), helped by stable levels for smaller vessels. Demand for larger vessels, however, remains rather weak and this also negatively affects demand for loading services. Q2 is thus set to be worse. Telko’s EUR 2.4m EBIT in the face of falling volumes and prices was in our view strong show (revenue down 12% y/y), yet the operational improvements are probably not going to help figures that much in the near-term considering the kind of macroeconomic outlook e.g. vaporizing oil prices are indicating. Leipurin’s EBIT improved to EUR 0.6m, but many customers such as restaurants, cafes and small bakeries are suffering. Large industrial bakeries saw demand briefly spike but the situation has since normalized.
We now expect FY ’20 EBIT to decline almost 20%
We have cut our estimates especially for Telko. We now expect Telko’s FY ’20 revenue to decline by 14% and see EBIT down to EUR 6.4m compared to EUR 8.0m last year. For Q2 we see Telko revenue down 22% y/y. We estimate Aspo’s FY ’20 EBIT at EUR 17.4m (previously estimated EUR 20.7m) as macroeconomic recovery prospects have continued to deteriorate. H2’20 remains particularly uncertain in terms of ESL’s cargo volume outlook (on which EBIT improvement mainly relies). In our view Aspo’s creditworthiness is not in question (the company also has a EUR 67m liquidity position), but from a shareholder point of view the pace of improvement remains crucial, and right now it’s unclear just how quickly profitability could reach more attractive levels.
We see current valuation fair in the present environment
Our view is unchanged in the sense that higher profitability potential remains, but for now it’s difficult to rely on long-term estimates. Our TP is EUR 6.00 (6.25), rating still HOLD.
Innofactor posted solid profitability figures in Q1 along with continued revenue growth. A minor COVID-19 impact is expected for the rest of the year. We continue to expect minor sales growth along with EBITDA improvement in 2020. We retain our BUY-rating with a target price of EUR 0.95 (0.90).
Solid Q1 profitability and sales growth
Innofactor’s Q1 results beat our expectations and profitability reached solid levels. Revenue amounted to EUR 17.2m (Evli 16.8m) and grew 6.2% y/y. EBITDA amounted to EUR 2.0m (Evli 1.2m). All countries were profitable and showed sales growth in Q1. Non-cash internal debt exchange rate fluctuations kept PTP in the red but operating cash flow was a solid EUR 3.1m. The order backlog was at a good level of EUR 54.1m and the pipeline remains healthy according to the company. Guidance remains intact, with net sales and EBITDA expected to increase compared to 2020.
COVID-19 impact expected to be minor
Innofactor expects the impacts of the Coronavirus pandemic on the rest of the year to be minor. Our 2020 estimates remain largely intact as the solid Q1 offset adjustments due to the pandemic for the later quarters. We expect minor growth in 2020, with revenue of EUR 65.1m (2019: 64.2m), and an EBITDA of EUR 5.9m (2019: 5.1m). The high share of recurring revenue, some 55% in Q1, will prove to be beneficial under current circumstances. Additional funding of EUR 3.0m was secured for financial flexibility and possibly pursuing inorganic growth opportunities. The ownership in Arc Technology was increased and will be reported as a subsidiary from Q2, 2020 net sales impact is approximately EUR 1.0m.
BUY with a target price of EUR 0.95 (0.90)
Innofactor has been on a good track on EPS growth and improved operational efficiency and the impact of COVID-19 is estimated to be limited. Valuation has become fairer on peer multiples, but we see long-term potential intact. We retain our BUY-rating with a target price of EUR 0.95 (0.90).
Aspo disclosed its preliminary Q1 figures already on Apr 9, in addition to withdrawing guidance for FY ’20, so there was little surprise with regards to the results released today. The pandemic did hurt Q1 figures to some extent, but the impact will be felt harder during Q2.
Innofactor’s Q1 results were above our expectations and profitability was at solid levels. The net sales in Q1 amounted to EUR 17.2m (Evli EUR 16.8m), while EBITDA amounted to EUR 2.0m (Evli EUR 1.2m). Guidance remains intact. COVID-19 impact so far limited, minor impact on net sales and profitability expected for the end of the year.
Solteq’s Q1 growth was clearly better than expected, 11.6% in comparable terms, with sales at EUR 15.7m (Evli 14.4m). The adj. EBIT was in line with our expectation at EUR 0.9m (Evli 0.8m). We expect reasonable growth in comparable terms in 2020 despite some COVID-19 headwind. We retain our HOLD-rating with a TP of EUR 1.15 (0.95).
Growth in Q1 a positive surprise
Solteq’s revenue growth in Q1 was a clear positive, with revenue growing 5.0% (comparable growth 11.6%) to EUR 15.7m (Evli EUR 14.4m). Growth was driven by the Solteq Digital as a result of good order intake. The adj. EBIT was in line with our estimates at EUR 0.9m (Evli EUR 0.8m), with a lower relative profitability y/y (Q1/19: comp. EBIT 1.2m) due to higher product development depreciation, long-term project revenue recognition and COVID-19 provisions.
Expect growth in comparable revenue despite COVID-19
Based on the positive Q1 revenue figures we have revised our 2020E estimates, expecting revenue to amount to EUR 58.9m and increase some 6.5% from 2019 comparable revenue figures. We assume a dip in sales growth during mid-2020 due to the COVID-10 pandemic but for growth to pick up in 2021. We expect the adj. EBIT in 2020E (Evli EUR 2.4m) to be slightly below 2019 comparable figures largely due to an increase in depreciation related to capitalized product investments. Solteq does not provide a guidance for 2020 due to the pandemic. During 2021-2022 we expect stronger relative growth pick up in Solteq Software with the ramp-up of new projects and a perceived lesser impact of the pandemic along with a notable improvement in relative profitability.
HOLD with a target price of EUR 1.15 (0.95)
On our revised estimates we retain our HOLD-rating with a target price of EUR 1.15 (0.95). Should growth continue at a similar pace as in Q1 valuation upside potential would be clearer, but visibility is currently limited due to the COVID-19 pandemic and earnings multiples on our estimates rather unattractive.
SRV’s Q1 results were better than expected, most importantly profitability improved to healthy levels (EBIT Act./Evli EUR 4.5m/-5.1m), and order intake is showing positive development. Steps to improve the financial position continue to be of focus, COVID-induced uncertainty poses a threat to shopping centre exit plans. We retain our HOLD rating with a TP of EUR 1.1 (1.0).
Back to healthier profitability in Q1
SRV’s Q1 results were better than expected. Revenue amounted to EUR 208.1m (EUR 187.0m/198.0m Evli/cons.) and EBIT to EUR 4.5m (EUR -5.1m/-0.4m Evli/cons.). Compared to our estimates, profitability was higher mainly due to a misjudgment of FX hedging and the higher revenue. Q1 included EUR 2.1m profit margin eliminations from the sale of holdings in REDI and Tampere Deck and Arena. Overall, Q1 profitability was in our view a clear but still early positive sign of a turnaround. New orders have developed positively so far during 2020, with EUR 198m new orders in Q1.
2020 EBIT estimate raised to 14.8m (4.3m)
Apart from adjustments based on Q1 figures, our 2020 estimates are largely intact. SRV’s estimate for developer-contracted housing unit completions in 2020 was revised to 520 (586), but we had for housing construction already as a precaution to possible near-term housing market uncertainty due to the coronavirus pandemic assumed a clearly lower number of units recognized as income compared to completion guidance. Our revised 2020E estimates for revenue and EBIT are EUR 957.2m (prev. 956.2m) and EUR 14.8m (prev. EUR 4.3m).
HOLD with a target price of EUR 1.1 (1.0)
Following estimates revisions, we adjust our target price to EUR 1.1 (1.0) and retain our HOLD-rating. Q1 showed good progress on the profitability front, next steps will be the measures to improve the financial position. Received commitments support the upcoming rights issues, shopping centre exits will likely see delays due to the COVID-induced uncertainty.
Finnair’s Q1 result was weak as expected due to the coronavirus pandemic. Revenue declined by 16% y/y to EUR 561m while adj. EBIT was EUR -91m. We have decreased our 20E-22E estimates and downgrade our rating to “SELL” (“HOLD”) with TP of EUR 3.3 (4.0).
Weak Q1 result due to COVID-19
Finnair’s Q1 result was heavily impacted by COVID-19. Revenue declined by 16% y/y to EUR 561m vs. EUR 585m/555m Evli/cons. Adj. EBIT was below estimates at EUR -91m vs. EUR -73m/-59m Evli/cons. ASK decreased by 9.4% y/y while RASK decreased by 7.3% y/y. The company expects a significant comparable operating loss in 20E. Earlier Finnair cut its capacity by over 90% due to the coronavirus and the company will operate the current minimum network throughout Q2. Finnair estimates that its comparable operating result will be a daily loss of approx. EUR 2m throughout Q2.
Ugly Q2 ahead – H2 remains blurry
Due to the coronavirus pandemic, Q2E result will be even uglier than in Q1. We expect Finnair’s Q2E ASK to decrease by 95% y/y, resulting in a significant decline in revenue. We expect comparable operating loss of EUR ~170m in Q2E. The situation should start slowly to recover after Q2 but we still expect significant capacity cuts during the late summer and autumn. H2’20E remains blurry as it still is unknown how the coronavirus situation will evolve in different markets. Finnair also gave insights of how the mid-term outlook of air travel might look like and indicated that the passenger numbers are not expected to recover to the levels prior the crisis at least not during the next couple of years. It is likely that the air travel will face permanent structural changes and will never return as it was before the crisis.
“SELL” (“HOLD”) with TP of EUR 3.3 (4.0)
We have decreased our 20E revenue estimate by ~20% and adj EBIT estimate by ~80%. We have also cut our 21E-22E revenue estimates by ~14% and adj EBIT estimates by ~30-50%. We now expect Finnair’s 20E revenue to decline by 43% y/y to EUR 1752m and comparable operating loss of EUR 265m. We note that there are significant uncertainties with our estimates. Prior the crisis, Finnair had a strong cash position and a healthy balance sheet. The company is also implementing a substantial funding plan, including sale and leasebacks of unencumbered aircraft, a revolving credit facility of EUR 175m, which has already been raised and a statutory pension premium loan totaling to EUR 600m. Therefore, we see that Finnair is well placed to continue its operations after the crisis, even if the situation is prolonged. Finnair is also planning for an approx. EUR 500m share issue to strengthen its equity. We downgrade our rating to “SELL” (“HOLD”) with TP of EUR 3.3 (4.0).
Raute’s Q1 results missed our estimates due to order timing and certain delays, while order intake was a positive surprise. The pandemic has so far had a limited impact. In the big picture our view is not meaningfully changed since Raute’s results tend to be volatile also in more normal times. Our TP remains EUR 21 and rating HOLD.
Outlook seems to have turned more positive in early Q1
Q1 revenue fell by 42% y/y to EUR 24m vs our EUR 36m estimate. Services’ EUR 10m top line fell short of our EUR 13m expectation, but most of the gap was due to project deliveries’ order timing as the EUR 58m Russian order was recognized at a lower rate than we expected. Certain unseen delivery delays also had an impact. Project revenue thus amounted to EUR 14m while we had estimated EUR 23m. The EUR -3.0m EBIT (vs our EUR 1.5m estimate) was also due to higher investments in R&D, which Raute booked EUR 1.4m in Q1, or slightly higher than our expectation (Raute says there were certain exceptional items to the line and says ca. EUR 1.2m would be a more normal figure). The report’s positive note was found in order intake, which at EUR 25m was above our EUR 15m estimate. Technology services’ order intake, at EUR 11m, was as we expected and so the EUR 14m in project deliveries orders clearly exceeded our estimate.
Raute’s competitive position is unlikely to be hit
Maintenance and spare parts demand continued good, but safety policies began to restrict business with the onset of the pandemic. Raute saw positive signs in terms of potential uptick in demand prior to the pandemic. Since then customers’ comments have been mixed and there’s no consensus on how long-term fundamentals might have been altered. Our view is that end-demand, i.e. wood-based construction, is not meaningfully impaired. Government actions could possibly help construction but right now there are few facts. The EUR 92m order book is highly current i.e. cancellations are unlikely. The EUR 40m cash position means liquidity is no problem.
We see reasons why more long-term valuation is justified
Multiples for FY ‘20 begin to look high but should normalize next year. We see Raute well-positioned for an uncertain macro environment and thus in our opinion a more long-term view is justified. Our TP is still EUR 21, rating HOLD.
Solteq’s revenue in Q1 was better than expected at EUR 15.7m (Evli EUR 14.4m). Comparable growth was 11.6%. The adj. operating profit was in line with expectations at EUR 0.9m (Evli EUR 0.8m). Product development investments in 2020E EUR 3.0m (2019 3.9m).
Tokmanni’s Q1 revenue increased by 5.8% y/y to EUR 199m (EUR 197m our view), while adj. EBIT was EUR 0.3m (EUR -2.2m our view). We expect sales and margins to decline in Q2 due to the movement restrictions but the situation should normalize relatively fast during the summer. We keep our rating “BUY” with TP or EUR 13.5 (12.5).
Good sales and profitability development in Q1
Tokmanni’s Q1 result was slightly above estimates as revenue increased by 5.8% y/y to EUR 199m vs. EUR 197m/194m Evli/cons. LFL growth was 4.4%. Revenue was supported by good growth in online sales while the mild winter in Southern Finland had a negative impact on sales. The movement restrictions that came into force in mid-March had also a negative impact. For the first time in the company’s history, adj. EBIT was positive in Q1 as it amounted to EUR 0.3m vs. EUR -2.2m/-1.4m Evli/cons. The positive development in EBIT was mainly due to improved adj. gross margin which was 32.1% (Q1’19: 31.2%). Due to the situation around the coronavirus, the company did not provide a guidance for 20E.
Attracting new customer groups as the economic outlook weakens
The customer numbers in stores saw a significant drop when the movement restrictions came into force in mid-March. The stores have been open during this exceptional time. We expect the customer numbers to remain in a lower level during Q2 compared to the normal levels but expect the numbers to increase relatively fast after the restrictions are removed. We expect good growth in grocery sales and as people are staying at home, the demand in categories such as leisure and gardening is likely to remain strong. As an only nationwide general discount retailer with a broad product assortment, we expect Tokmanni to attract new customer groups as it is likely that consumers become more price conscious when the economic outlook weakens and the purchasing power declines. We expect a decline in sales and margins in Q2 compared to the previous year but the situation should normalize relatively quickly after that. Due to the temporary changes in the sales mix, we expect only a slight improvement in gross margin in 20E.
“BUY” with TP of EUR 13.5 (12.5)
After the Q1 result we have increased our 20E revenue expectation by ~1% and adj. EBIT expectation by 17%. We now expect 20E revenue of EUR 931m (-1.4% y/y) and adj. EBIT of EUR 64.5m (-8% y/y). On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 16.0x and 11.9x, which translates into ~15-30% discount compared to the international peers. With the estimates upgrade, we increase our TP to EUR 13.5 (12.5) and retain our rating “BUY”.
Consti’s Q1 revenue declined more than expected (Act./Evli EUR 59.0m/64.7m), while EBIT was below our overly optimistic estimates (Act./Evli EUR 0.5m/1.9m). The impact of COVID-19 has been limited, some headwind is seen in new projects. We adjust our TP to EUR 7.0 (7.2), HOLD-rating remains intact.
Below our optimistic estimates, good cash conversion
Consti’s Q1 results were below estimates but quite in line with company expectations. Revenue declined more than expected, 19.7% y/y, to EUR 59.0m (EUR 64.7m/67.9m Evli/cons.). EBIT was below our estimates as a result of the lower revenue and admittedly also our overly optimistic estimates, at EUR 0.5m (EUR 1.9m/0.4m Evli/cons.). Conti’s cash conversion remained solid (LTM cash conversion ratio 105.7%) and free cash flow amounted to EUR 2.0m. The order intake development was positive and amounted to EUR 62.1m, with the order backlog at EUR 202.2m (-14.9% y/y).
Some headwind seen in new projects
We have lowered our estimates based on the perceived new revenue level after the high volumes in 2019 and Q1 figures. We now expect revenue of EUR 271.9m (prev. 282.3m) and EBIT of EUR 7.6m (prev. 10.1m) in 2020E. The coronavirus pandemic has so far had a limited impact on Consti, as worksites have been able to be kept open. Negotiations for new renovation projects have been successful, for instance a EUR 11.3m school renovation project. Some projects in the negotiation stage have however been cancelled and the start of some projects have been postponed. Our estimates currently only include a limited impact of the pandemic.
HOLD with a target price of EUR 7.0 (7.2)
On our revised estimates we adjust our target price to EUR 7.0 (7.2), valuing Consti at ~10x 2020E EV/EBIT, and retain our HOLD-rating. Uncertainty is elevated by the pandemic and the St. George arbitration proceedings, which saw the time limit for delivering the final arbitration award extended to June 2021.
Finnair’s Q1’20 adj. EBIT was EUR -91m vs. our expectation of EUR -73m and consensus of EUR -59m. Revenue decreased by 16% and was EUR 561m vs. our expectation of EUR 585m and consensus of EUR 555m.
Raute’s Q1 revenue and EBIT came in clearly below our expectations. According to Raute the pandemic had some negative impact, but the miss relative to our estimates seems to have been mostly attributable to order book scheduling. Order intake was clearly above our estimate, meaning order book increased slightly during the quarter.
SRV's net sales in Q1 amounted to EUR 208.1m, above our and consensus estimates (EUR 187.0m/198.0m Evli/cons.). EBIT amounted to EUR 4.5m, above our and consensus estimates (EUR -5.1m/-0.4m Evli/cons.). SRV estimates that 520 developer-contracted housing units will be completed in 2020 (previously 586).
Tokmanni’s Q1 revenue increased by 5.8% (LFL growth of 4.4%) and was EUR 199.0m vs. EUR 196.6m/193.5m Evli/consensus. Tokmanni’s adj. EBIT was EUR 0.3m vs. EUR -2.2m/-1.4m Evli/cons. Adj. gross margin was 32.1% vs. 31.4% Evli. The company did not provide a guidance for 20E, due to the coronavirus situation.
Consti's net sales in Q1 amounted to EUR 59.0m, below our estimates and below consensus (EUR 64.7m/67.9m Evli/cons.). EBIT amounted to EUR 0.5m, below our estimates but in line with consensus (EUR 1.9m/0.4m Evli/cons.). Uncertainty has increased as a result of the coronavirus pandemic, but impact so far limited.
Vaisala delivered a better than expected Q1 result. Overall, Vaisala is well positioned to weather the corona storm, but clouds are gathering above W&E as project business is exposed to the pandemic. Given the uncertainty to W&E’s performance in H2, we do not see short term risk/reward profile particularly attractive now. Based on our slightly raised estimates, we raise our target price to 26€ (prev. 25€), our recommendation is now HOLD (prev. SELL).
No major impact of corona in Q1
Vaisala delivered a better than expected Q1 result as corona did not have major impact on business in the quarter and delivery capabilities remained good. Q1 net sales grew 4% to 87.2 MEUR vs. 84.5 MEUR our expectation and 84.3 MEUR consensus. Q1 reported EBIT was 5.2 MEUR (6% margin) vs. our expectation of 2.1 MEUR (3.2 MEUR consensus). EBIT improvement was due to strong 3pp improvement in gross margins (56.4% vs. 53.2% Q1’19), which was attributed to projects and digital services in W&E and exceptionally high GM of 65.8% in IM. Q1 order intake decreased -21% due to lower order intake in W&E. It’s worth noting however that order intake comparison period was exceptionally good (including two large projects) and variations between quarters can be large depending on timing of projects. Order book grew +2% q/q and -6% y/y. The Ethiopian project order (13 MEUR) is not yet included in order book.
W&E business exposed while IM continues on track
Vaisala reiterated its 2020 guidance (updated on April 21st); expecting net sales of 370–405 MEUR and EBIT of 34–46 MEUR. With W&E’s current strong order book, descent order intake, and delivery capabilities remaining at current acceptable levels, we expect W&E business to perform well in H1. The effects of the corona pandemic impact more on W&E business in H2, where delays or postponements of projects become more likely if current situation is prolonged. Vaisala sees developed countries market remaining more stable while developing countries being more hit by the pandemic. IM is expected to continue growing, albeit slower than last year’s organic growth of roughly 9.5%.
Valuation stretched given weakened financial outlook in W&E
We’ve only made small adjustments to our estimates based on the report. We expect IM to continue performing well, while W&E to decline in H2 partly due the pandemic and high comparison period. We expect 2020e net sales to decline 3% to 392 MEUR and reported EBIT to decline to 39 MEUR, mainly due to the lower performance in W&E in H2. On our estimates, Vaisala is still trading at clear premiums compared to our peer group. Also, our 2020-21e PPA-adjusted EV/EBIT multiples of 22x and 19x, are ~25% above our peer group. Given the uncertainty to W&E’s performance this year, we do not see short term risk/reward profile particularly attractive now. Based on our slightly raised estimates, we raise our target price to 26€ (prev. 25€), our recommendation is now HOLD (prev. SELL). Our target price values Vaisala at 20-21e EV/EBIT multiples of 23.5x and 20x which is above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.
DT’s Q1 result clearly missed expectations due to weaker than expected demand and profitability development caused by COVID-19. DT expects weakness in SBU sales to continue throughout the year, while MBU is enjoying good momentum. DT is well positioned to weather out the corona storm and its competitive position with new products remains good. We have lowered our estimates for 2020e and based on the estimates cut, we lower our target price to 22€ (prev. 24€) but maintain BUY recommendation.
Corona pandemic affecting SBU demand and profitability
DT’s Q1 net sales amounted to 19.9 MEUR (-13.6% y/y) vs. 22.2/22.0 MEUR Evli/consensus estimates. Q1 EBIT was 1.2 MEUR (5.9% margin) vs. 2.8/2.6 MEUR Evli/cons. R&D costs amounted to 2.6 MEUR or 13% of net sales (11% Q1’19). SBU had net sales of 11.5 MEUR vs. 14.2 MEUR Evli estimate. SBU sales declined -20% y/y, mainly due the COVID-19 pandemic. Both air and land transport decreased from 30 to 90% in different segments. MBU delivered net sales of 8.4 MEUR which was in line with our estimate of 8.0 MEUR. Net sales of MBU decreased by -2% y/y due to the expected softness in the CT market outside China at the beginning of the year, and the ramp-down in production of a product family started by one of DT’s key customers last year. The COVID-19 pandemic increased demand in CT applications towards the end of Q1, but relatively high comparison figures led to the overall development in net sales remaining negative.
Mid-term fundamentals remain good for both BU’s
DT expects lower demand in the security segment to continue in Q2 and SBU sales to decrease in 2020. DT sees that despite the short-term challenges in the aviation segment, ECAC C3 standard equipment upgrades will continue at European airports, but the deadline for CT machine installations will be probably extended by 6-12 months. The CT upgrades in the US have continued, however a slight delay is expected for future purchases. China is also preparing similar standardization and has informed earlier that they will publish details by the end of 2020. On the other hand, MBU sales is enjoying better momentum as CT imaging is used to detect pulmonary changes caused by the COVID-19 virus, as well as in the diagnosis and treatment of patients. DT sees demand in medical CT applications remaining at a good level also in H2 and MBU sales to increase in 2020.
Investment story remains attractive despite bump in the road
Based on the report, we have cut our 2020e sales and EBIT estimates by 8% and 23% respectively, while keeping our 2021-22e estimates broadly unchanged. We expect SBU sales to decline -13% from last year’s highs and MBU to grow 17%, resulting in 2020e net sales to decline -3% and EBIT of 13 MEUR. On our revised estimates, DT is trading at 19x and 13x EV/EBIT multiples for 20E-21E. Valuation picture is now more mixed as 2020e metrics will be clearly lower due to the pandemic, and growth and profitability should resume in 2021e. DT is now trading on slight EV/EBIT premium on our 2020e estimates, but on a 12% discount on our 2021e estimates. Although 2020e will be challenging, DT is well positioned to weather out the storm and its competitive position with its new products remains good. Therefore, we continue to see DT as an attractive investment story given the strong longer-term drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. Based on the estimates cut, we lower our target price to 22€ (prev. 24€) but maintain BUY recommendation. Our target price implies EV/EBIT multiple of 15.5x on our 2020e estimates, broadly in line with our peer group.
Talenom’s Q1 results slightly beat our expectations, with net sales of EUR 17.4m (Evli 16.9m) and EBIT of EUR 3.7m (Evli 3.5m). Net sales and EBIT guidance for 2020 was set at EUR 64-68m and 12-14m respectively. Growth outlook remains favourable and any plausible impact from the coronavirus pandemic for now appears limited. We adjust our target price to EUR 7.0 (6.7), HOLD-rating intact.
Q1 slightly better than expected
Talenom’s Q1 results were slightly better than expected. Net sales grew 17.4% to EUR 17.4m (Evli 16.9m) and EBIT amounted to EUR 3.7m (Evli 3.5m). Talenom gave a numeric guidance for 2020, expecting net sales of EUR 64-68m and EBIT of EUR 12-14m. Sales plans have progressed almost in line with plans despite the coronavirus pandemic. Investments are being made to customer interfaces and plans for a new concept for small customers were floated, which sounds promising but will likely have little sales impact before 2021. Additional financing of EUR 10m was secured for acquisitions and growth projects in Finland and Sweden.
Near-term risks limited
Our post-Q1 estimates revisions are minuscule and we expect 2020E net sales and EBIT of EUR 67.3m and EUR 12.5m respectively. Near-term risks due to the pandemic are limited, with transactional volumes possibly affected. A prolonged situation and an increase in defaults would have a heavier impact on 2021 due to customer bookkeeping obligations. The resilience of the bookkeeping market is noteworthy, and the near-term uncertainty may open more opportunities for inorganic growth.
HOLD with a target price of EUR 7.0 (6.7)
Talenom remains an attractive investment case through its track-record and defensive nature, valuation slightly less so, with the share price essentially at pre-COVID levels. We adjust our target price to EUR 7.0 (6.7), valuing Talenom at ~32x 2020E P/E, and retain our HOLD-rating.
Talenom's net sales in Q1 amounted to EUR 17.4m, slightly above our and consensus estimates (EUR 16.9m/17.0m Evli/cons.). EBIT amounted to EUR 3.7m, slightly above our and consensus estimates (EUR 3.5m/3.5m Evli/cons.). Net sales for 2020 are expected to amount to EUR 64-68m and operating profit to EUR 12-14m.
DT’s Q1 net sales were EUR 19.9m (-13.6% y/y) vs. EUR 22.2m/22.0m Evli/consensus estimates. SBU sales declined -20% to EUR 11.5m (EUR 14.2m our expectation) and MBU sales declined -2% to EUR 8.4m (EUR 8.0m our expectation). DT’s Q1 EBIT came in at EUR 1.2 m vs. our estimates of EUR 2.8m (EUR 2.6m cons). DT expects SBU sales to decrease and MBU sales to increase in 2020.
• Group level results: Q1 net sales amounted to EUR 19.9m (-13.6% y/y) vs. EUR 22.2m/22.0m Evli/consensus estimates. Q1 EBIT was EUR 1.2m (5.9% margin) vs. EUR 2.8m/2.6m Evli/cons. R&D costs amounted to EUR 2.6m or 13% of net sales (11% Q1’19).
• Security and Industrial Business Unit (SBU) had net sales of EUR 11.5m vs. EUR 14.2m Evli estimate. SBU sales declined -20% y/y, mainly due the COVID-19 pandemic. Both air and land transport decreased from 30 to 90% in different segments.
• Medical Business Unit (MBU) delivered net sales of EUR 8.4m which was in line with our estimate of EUR 8.0m. Net sales of MBU decreased by -2% y/y due to the expected softness in the CT market outside China at the beginning of the year, and the ramp-down in production of a product family started by one of DT’s key customers last year. The COVID-19 pandemic increased demand in CT applications towards the end of Q1, but high comparison figures led to the overall development in net sales remaining negative.
• Outlook update: DT expects lower demand in the security segment to continue and SBU sales to decrease in Q2. Demand in medical CT applications, however, will remain at a good level, and MBU sales will grow. DT expects the demand in medical CT applications to remain at a good level also in H2, and MBU sales to increase in 2020. DT estimates that drop in demand in the security segment will continue at least to the end of the year, and thus DT expects SBU sales to decrease in 2020.
Verkkokauppa.com delivered a strong Q1 result as revenue increased by 8% y/y to EUR 125m (121m/118m Evli/cons). Adj. EBIT increased by 63% y/y to EUR 3.8m (2.7m/2.5m Evli/cons). The management had a good control over the business despite of the challenging times. We have slightly increased our estimates and upgrade our rating to “BUY” (“HOLD”) with TP of EUR 4.5 (3.5).
Strong sales growth without forgetting profitability
Verkkokauppa.com delivered a strong Q1 result. Revenue increased by 8.2% y/y to EUR 125m (121m/118m Evli/cons). Good sales growth was driven by strong online sales and effective marketing. Development was good in all the major product categories but strong performance was also seen in evolving categories such as sports and home. Gross profit improved by 12% y/y to EUR 19.4m (15.5%) vs. our EUR 18.3m (15.1%), resulting from good control over sales mix. This impacted positively on adj. EBIT which was up by 63% y/y, totaling EUR 3.8m (2.7m/2.5m Evli/cons).
A strong online presence offering competitive advantages
Verkkokauppa.com’s small physical footprint and strong online presence offer the company competitive advantages amid the coronavirus and the movement restrictions. The company’s agile business model and a strong cash position support the company during these challenging times and it enables the company to develop its business as planned. We don’t expect the coronavirus to have significant negative impacts on Verkkokauppa.com’s operative business, although some availability issues might occur in some product categories later in H2. The increasing uncertainties are more related to the economic outlook and declining purchasing power. The company has introduced new delivery methods and sub-categories to enhance customer experience. Going forward, we expect the sales mix and broad product assortment to be the key drivers behind sustainable growth as the competition in the consumer electronics market is likely to remain tight, meaning that seeking growth in this category might become too expensive.
“BUY” (“HOLD”) with TP of EUR 4.5 (3.5)
We have slightly increased our estimates after the Q1 result. We expect 20E revenue of EUR 523m and EBIT of EUR 13.6m. Thus, our estimates are slightly above the midpoint of the given guidance (revenue of EUR 510-530m and adj. EBIT of EUR 12-15m). The outlook in the market remains blurry due to the weak visibility of the coronavirus and its full impacts but it is likely that the current situation speeds up the more permanent shift into online which benefits players like Verkkokauppa.com. On our estimates, the company trades at 20E-21E EV/sales multiple of 0.3x which translates into ~40 discount compared to the peers. We upgrade to BUY (HOLD) with TP of EUR 4.5 (3.5).
Scanfil operations continue to develop on a positive note as industrial OEM customer demand seems remarkably strong in the face of the pandemic. We have made rather small downward revisions to our estimates due to increasing uncertainty. Our TP is EUR 5.25 (5.75), rating BUY.
No dramatic effects to segment performances so far
Q1 revenue grew by 11% y/y (two-thirds due to the HASEC acquisition) to EUR 144m and thus beat estimates by ca. EUR 10m. ROI, at 17.8% in Q1, continued to develop strong. February saw the Chinese plants stall due to the coronavirus situation that hadn’t back then escalated into a pandemic. There has been only one production plant closure so far since (in Poland). In fact, March was the strongest month in terms of (organic) growth and helped to compensate for slow February. According to Scanfil supply chains have continued to work well and only a few customer accounts have seen demand forecasts drop for Q2 and Q3. Naturally uncertainty is growing but for now Scanfil can reiterate its previous strong outlook for this year.
Scanfil continues to perform and is ready for acquisitions
We have slightly revised our estimates down due to increased uncertainty. The adjustments are remarkably small, amounting to an average of EUR 6m in quarterly revenue, or 4%. We have also done a small downward adjustment to operating margin, now expecting 6.5% instead of the previous 6.75%. We thus see EBIT at the low bound of the guidance range i.e. at EUR 39.0m; we previously expected EUR 41.4m. Scanfil says it has a liquidity position of some EUR 60m ready to be deployed for e.g. M&A.
A valuation above peer multiples is well justified
The pandemic seems to pose no cracks to Scanfil’s fundamentals. According to one narrative the pandemic will reverse globalization and thus supply chains and actors such as contract manufacturers are hit particularly hard. In our opinion such stories fly a bit too high and are based on unsound reasoning. Scanfil’s comments readily confirm industrial OEMs still want to outsource significant amounts of production. We update our TP to EUR 5.25 (5.75) due to increased macroeconomic uncertainty but note how few facts seem to impair Scanfil’s long-term story. We see good upside to Scanfil’s 5.5x EV/EBITDA and 7.5x EV/EBIT ‘20e valuation multiples.
Raute downgraded its outlook for FY ‘20 ahead of the Q1 report, which the company releases on Wed, 29 Apr. We cut our estimates; TP now EUR 21 (25), rating still HOLD.
We expect FY ’20 revenue down almost 20% y/y
Raute issued a profit warning. The company had previously guided flat revenue and decreasing operating profit for 2020 compared to 2019. The updated outlook guides declining top line as well as clearly weakening operating profit. The downgrade is not particularly surprising since Raute noted increasing uncertainty in the operating environment already last year due to cooling demand in the wake of major new capacity investments. There was a dearth of demand for mid-sized projects like modernizations. Raute saw demand for large and small orders at a good level, however it’s always hard to anticipate when big investment decisions will receive green light and the current extraordinary macroeconomic environment will not help. Safety policies will also limit assembly, commissioning and maintenance works at plywood and LVL mills.
We estimate FY ’20 EBIT falling close to 40% y/y
We cut our estimates for this year and next. We expect Raute’s top line at EUR 123m in ’20 (previously estimated EUR 142m) while we see EBIT down to EUR 5.2m (prev. EUR 7.6m). This year finds support from the record EUR 58m Segezha order, but extended weakness in order intake will mean next year revenue prospects will be under pressure as well. Should order intake begin to improve during the latter half of ‘20 we expect Raute to achieve rather stable development in ’21. We now estimate ’21 revenue at EUR 127m (prev. EUR 140m) and have revised ’21 EBIT estimate down to EUR 7.4m (prev. EUR 9.3m). We don’t see the pandemic hurting Raute’s long-term competitive positioning as the market leader within its niche. If anything, in our view it’s more likely that the opposite would be true.
We still view valuation neutral given competitive position
Raute trades some 7x EV/EBITDA and 12x EV/EBIT on our new estimates for ‘20. On our next year estimates the multiples stand at 5.5x and 8.5x, respectively. In our view current valuation falls within an acceptable range considering earnings have plenty of potential to rebound from the low level to be seen this year. Our new TP is EUR 21 (25), rating remains HOLD.
Suominen’s Q1 revenue only slightly exceeded our estimate but as gross margin improved close to 400bps EBIT came in almost double our estimate. Suominen upgraded FY ’20 EBIT guidance. We have updated our estimates, and our new TP is EUR 3.25 (2.50), rating now HOLD (SELL).
Profitability would have jumped even without the pandemic
Suominen reported flat y/y Q1 revenue at EUR 110.2m, while our estimate was EUR 108.0m. Suominen says its sustainable products sales are developing well (new products contributed more than 25% of sales vs 20% previously). The investment in Green Bay, WI plant helped volumes and contributed to a more favorable i.e. higher quality product mix. The pandemic also began to have a positive effect on volumes towards the end of Q1. Especially cleaning and disinfection applications demand has increased. Nonwovens demand in general has received a boost due to applications like surgical drapes and face masks, however such products represent relatively small business for Suominen. New products, improved production and raw material efficiency as well as low raw material prices together lifted gross margin almost 400bps (we had expected only slight improvement), and thus EBIT amounted to EUR 5.7m vs our EUR 2.9m estimate.
We now expect FY ’20 EBIT at EUR 23m (prev. EUR 12m)
Suominen sees Q2 another strong quarter, and thus updated FY ’20 guidance, now guiding clear EBIT improvement (previously improving) even if there’s much uncertainty with regards to H2’20 as the demand surge induced by the pandemic may cool down. Nonwovens prices will adjust with a few months’ time lag to accommodate changes in raw materials prices. We see some downward pressure on Q2 gross margin due to lower nonwovens prices, expecting a 60bps decline to 11.5%. So far Suominen’s operations have run basically normal. There could be raw material shortages and Suominen or its customers might have to close plants due to the pandemic.
Long-term story receives a boost, yet uncertainty still high
Suominen trades 5x EV/EBITDA and 10x EV/EBIT on our estimates for ‘20. In our view these are attractive levels, yet much depends on the gross margin going forward. Although new products sell well, the size of the pandemic’s positive impact is still hard to gauge. Our TP is now EUR 3.25 (2.50), rating HOLD (SELL).
SSH’s Q1 report was in line with our expectations and we have not made any material changes to our estimates based on the report. We continue to see growth as main value driver and, as noted previously, we see SSH’s limited growth investment capacity as main strategic obstacle. We maintain our TP of 0.70€, our recommendation is SELL (prev. HOLD).
Q1 in line, more transparency to come in reporting
SSH’s Q1 net sales were 3.1 MEUR (3.1 MEUR Evli), an increase of 16% y/y on relatively low comparison figures, mainly driven by strong license sales and supported by growth in subscription revenue. Software fees were 0.9 MEUR (0.8 MEUR Evli), professional services were 0.0 MEUR (0.1 MEUR Evli), and recurring revenue was 2.1 MEUR (2.2 MEUR Evli). Q1 operating loss was –0.6 MEUR (vs. -0.5 MEUR Evli). The report did not provide materially new information that would affect our estimates at present, but SSH did provide a more transparent and candid overview into its result and operations than previously. SSH plans on introducing monthly recurring revenue (MRR) figures in coming quarters. According to SSH, MRR was approximately 1 MEUR in December (reported FY’19 recurring revenue 8.6 MEUR).
Newly appointed CEO to update strategy in June
SSH’s new CEO, Mr. Teemu Tunkelo started in end of March. Mr. Tunkelo has held various global management and technology leadership roles in companies such as Voith, Siemens, ABB, Invensys, and Compaq. According to the CEO, preliminary guidelines for SSH’s new strategy can be expected in June. He acknowledged the need for further investments into go-to-market and talked about the potential in being first mover in cloud PAM (PrivX) and IoT applications. The COVID-19 outbreak has not had a significant impact during the first quarter, but SSH has seen some project delays and it is still too early to assess the full business impact of the pandemic. As such, SSH’s cash position is good (11.7 MEUR Q1’20) and share of recurring revenue around 60%, which should help SSH weather the storm. SSH is reviewing options for further funding for product development, as well as options for its 12 MEUR hybrid debt. Negotiations regarding the hybrid have however stalled due to the pandemic. The hybrid debt’s interest rate increased from 7.5% to 11.5 % as of March 30th. Under the current circumstances the hybrid is valuable despite the increase in financial expenses.
Estimates unchanged, target price of 0.70€ maintained
We have not made any changes to our estimates based on the report and we note that SSH is in a good position to ride out the corona pandemic. After the share price rally yesterday, current valuation looks challenging given sales growth uncertainty. On our estimates, SSH is trading at 2020-21e EV/Sales multiples of 2.8x and 2.4x, which is, as previously noted, clearly below the cyber security sector and could prompt SSH to become an acquisition target of larger players wanting to enter the space or a consolidation play. However, as a standalone business, we’d like to see the results of SSH’s strategy materializing somewhat in the growth figures in order to justify higher valuation multiples.We maintain our TP of 0.70€, with SELL recommendation (prev. HOLD). Our target price implies an EV/Sales multiple of 2.2x on our ‘20E estimate, slightly below Nordic software peers, which we see as warranted given weaker growth and profitability metrics and the uncertainty to our estimates.
Verkkokauppa.com’s Q1’20 result beat our and consensus estimates. Revenue grew by 8.2% and was EUR 125m vs. Evli EUR 121m and consensus of EUR 118m. Gross profit was EUR 19.4m (15.5% margin) vs. EUR 18.3m (15.1% margin) Evli view. Adj. EBIT was EUR 3.8m vs. EUR 2.7m/2.5m Evli/cons. 2020E guidance reiterated: The company expects revenue to be EUR 510-530m and comparable operating profit to be EUR 12-15m.
CapMan’s Q1 results were slightly better than expected and underlying performance remained good, although EBIT as a result of negative fair value changes as expected fell clearly, to EUR -6.0m (Evli/cons. -7.5m/-3.9m). Fundraising projects continue but delays of 0-6 months are seen. Cost savings of up 10% of the cost base are sought without affecting growth ambitions. We retain our BUY-rating and TP of EUR 1.95.
Negative FV changes spoiled otherwise good profitability
CapMan’s Q1 results came in slightly better than we had expected, with revenue of EUR 11.9m (Evli/cons. 10.7m) and EBIT of EUR -6.0m (Evli/cons -7.5m/-3.9m). Termination of the 2018 share plan caused a one-off cost of approx. EUR 1.4m. Unrealized FV changes amounted to EUR -10.5m. Profitability of the Management company and Service businesses improved clearly y/y, the latter aided by success fees from Scala but also seeing good development overall.
2020 an unfortunate dent to solid progress
With the significant negative FV changes in Q1 and assuming a cautionary view on carry and success fees in the current market environment we expect adj. EBIT to decline in 2020 to EUR 1.2m (25.0m). We expect the fee-based profitability to continue to improve through growth in AUM. Fundraising projects are seen to be delayed by 0-6 months but are continuing nonetheless, and CapMan also flashed a second Growth fund. CapMan is seeking to achieve cost savings of up to 10% of its cost base, which are sought to be achieved without affecting growth ambitions.
BUY with a target price of EUR 1.95
The expected weak earnings in 2020, mainly due to the negative unrealized FV changes, makes valuation on near-term figures more challenging. Upside potential can be seen on 2021E peer multiples and dividend yields but with the weakened visibility due to the Coronavirus we assume a near-term uncertainty discount and retain our target price of EUR 1.95 and BUY-rating.
Scanfil’s Q1 revenue clearly exceeded our and consensus estimates. Communication, Energy & Automation as well as Industrial segments were stronger than we expected. Scanfil says profitability developed as expected and reaffirms FY ’20 outlook.
Suominen reported Q1 revenue slightly above our estimate, while EBIT came in double our estimate. The beat was driven by higher gross margin. Suominen updates its guidance for FY ’20, expecting EBIT to improve clearly (previously improve).
SSH reported a Q1 result that was in line with our expectations. New CEO says financial performance was not significantly affected by the COVID-19 outbreak during the first quarter, but they’ve seen some project delays and it is still too early to assess the full business impact of the pandemic.
• Q1 net sales were EUR 3.1 million (vs. 3.1m our expectation). Net sales increased by 16% compared to the previous driven mainly by strong license sales and supported by growth in subscription revenue.
• Software fees were EUR 0.9 million (0.8m Evli), Professional services were EUR 0.0 million (0.1m Evli), and Recurring revenue was EUR 2.1 million (2.2m Evli)
• Q1 operating loss was EUR – 0.6 million (vs. -0.5m our expectation)
• EPS was -0.02 (vs. -0.02 our estimate)
• Liquid assets were EUR 11.7m (12m Q4/19)
• PrivX update: development of the SaaS version of PrivX is proceeding well, and SSH anticipates the pilot launch during Q2. SSH has started the active conversion of existing CryptoAuditor customers to use PrivX.
CapMan's net sales in Q1 amounted to EUR 11.9m, above our and consensus estimates (EUR 10.7m/10.7m Evli/cons.). EBIT amounted to EUR -6.0m, above our estimates and below consensus (EUR -7.5m/-3.9m Evli/cons.). Profitability burdened by fair value changes amounting to EUR -8.4m (Evli -9.7m).
Consti will report Q1 results on April 29th. We expect a third consecutive quarter of healthier profitability, while the points of interest will be less on Q1 financials and more on comments on any impact of the Coronavirus pandemic and order backlog development. Our estimates overall remain intact for now. With the added uncertainty we adjust our target price to EUR 7.2 (8.0) and retain our HOLD-rating.
Profitability expected to have remained at healthier levels
With the on-going Coronavirus pandemic, the Q1 financials will be of lesser interest, as we expect that Consti should have been able to post a third consecutive quarter of healthier profitability. Our Q1 revenue and EBIT estimates are at EUR 64.7m and EUR 1.9m respectively. Of key interest in the Q1 report will be any comments regarding the possible impacts of the Coronavirus pandemic and order backlog development. The renovation sector in general is less prone to near-term shocks due to lengthier orders but the coinciding housing company General Meeting season could affect order backlog development and revenue later on in the year.
Sales decline 2020E, additional risk from COVID-19
Our estimates on annual basis remain largely intact for now. We expect a 10.3% decline in 2020 revenue based on completion of larger projects in 2019 and the order backlog development. We expect EBIT to improve to EUR 10.7m (2019: 4.6m) as profitability burdening projects have been completed. The Coronavirus pandemic poses a risk to our estimates through plausible project delays and potential supply chain problems, dependent also on the general economic impact, but we still see fundamental drivers in place and a slow-down in new construction volumes due to the pandemic could benefit renovation construction.
HOLD with a target price of EUR 7.2 (8.0)
Our estimates remain largely intact for now in awaiting the Q1 results, but with the elevated risk level we adjust our target price to EUR 7.2 (8.0), with our HOLD-rating intact.
Finnair will report its Q1 result on next week’s Wednesday, 29th of April. The company’s Q1’20 traffic data was below our expectations thus we have cut our estimates. We expect Q1’20E revenue of EUR 585m and adj. EBIT of EUR -73m. We keep our rating “HOLD” with TP of EUR 4.0 (3.5) ahead of Q1.
Q1 traffic hampered by the coronavirus
Finnair’s traffic figures were substantially below our expectations in Q1, due to March traffic figures, which slumped more than we expected. In Jan-Mar, capacity (ASK) decreased by 9% vs. our +2% expectation, while sold capacity (RPK) declined as much as by 16% vs. our -1% expectation. Thus, passenger load factor (PLF) declined by 5.7 percentage points to 72.6%. Traffic figures and cargo were heavily impacted by the coronavirus in all Finnair’s market areas. Total passenger number declined by 16% y/y. We expect Q1’20E revenue of EUR 585m (Q1’19: EUR 668m) and adj. EBIT of EUR -73m (Q1’19: EUR -16m).
Drop in fuel prices
Oil prices have dropped significantly since the beginning of the year amid the coronavirus pandemic and the price war between Saudi Arabia and Russia. The average fuel price in both USD and EUR dropped by 20% on a q/q basis compared to Q4’19. The average price in Q1’20 was 19% lower y/y in USD and 17% lower y/y in EUR.
“HOLD” with TP of EUR 4.0 (3.5)
We have cut our 20E estimates as the ongoing movement restrictions are likely to continue for several weeks or even months and the air travel is not expected to return to normal, not at least during this summer. Finnair has cut some 90% of its capacity due to COVID-19. We now expect 20E revenue of EUR 2213m (-29% y/y) and adj. EBIT of EUR -144m (-190% y/y). We note that there are significant uncertainties with our short-term estimates due to the situation. We have also decreased our 21E-22E revenue estimates by ~6% and adj. EBIT estimates by ~9%. Despite of the weak short-term outlook we still see Finnair’s mid-term outlook rather positive. Prior the crisis Finnair had a strong cash position and a healthy balance sheet. The company is also implementing a substantial funding plan, including sale and leasebacks of unencumbered aircraft, a revolving credit facility of EUR 175m, which has already been raised and a statutory pension premium loan totaling to EUR 600m. It has been proposed that the State of Finland would guarantee the loan. Therefore, we see that Finnair is well placed to continue its operations relatively normally after the crisis. We keep our rating “HOLD” with TP of EUR 4.0 (3.5) ahead of Q1.
Vaisala issued yesterday a profit warning due to estimated impacts related to the coronavirus pandemic. Consequently, we’ve revised down our estimates for 2020. Despite Vaisala being a great company, we see current valuation unattractive given the weakened financial outlook. We maintain our SELL with new target price of 25 euros (prev. 29.5).
W&E’s project and services business suffering from corona
Vaisala expects delays or interruptions particularly in project and services deliveries due to the extensive restrictions imposed by governments and authorities. Demand in W&E has to some extent already weakened and Vaisala estimates that the situation will become more challenging as governments have tighter budgets, especially in emerging markets. The profit warning did not come as a complete surprise given that Vaisala’s largest segment, W&E, consists roughly 40-45% of projects and services, and the growth is very dependent on investments from emerging market governments. Vaisala does not expect demand for IM to change materially, but growth will slow down from last year (+22.2%).
New guidance broader as predicting is currently difficult
Vaisala’s now expects 2020 sales will be between 370–405 MEUR and EBIT between 34–46 MEUR (prev. sales 400–425 MEUR and EBIT 38–48 MEUR). The outlook’s range for both net sales and EBIT is wide due to high uncertainty related to the duration and impact of coronavirus pandemic as well as unknown speed of recovery. Vaisala will provide an update to its market outlook in connection with its Q1 report due next week on Tuesday 28th.
Valuation still stretched given weakened financial outlook
Based on the new outlook, we have cut our estimates for 2020e and the coming years. For 2020e, we’ve cut our sales and EBIT estimates with 8% and 20% respectively. We expect 2020e net sales to decline 3% to 390 MEUR and reported EBIT to decline to 34.9 MEUR, mainly due to lower performance in W&E. On our renewed estimates, Vaisala is still trading at clear premiums compared to our peer group, which we do not see justified given the financial performance outlook currently weighed down by W&E. We maintain our SELL with new target price of 25 euros (prev. 29.5). Our target price values Vaisala at 20e EV/EBIT multiple of 25x which is still above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.
CapMan will report Q1 results on April 23rd. We expect weak earnings on paper due to negative fair value changes (non-cash) as a result of implications of the Coronavirus pandemic. CapMan was heading into a year of major AUM growth potential, which is now put at some risk due to plausible fundraising challenges. We adjust our target price to EUR 1.95 (2.50) following revised estimates and upgrade to BUY (HOLD).
Negative fair value changes to burden Q1 results
We expect CapMan to report weak Q1 results due to negative fair value changes, although these are non-cash items. The largest relative hit will come from portfolio companies due to peer valuation declines. We currently estimate fair value changes of EUR -14.2m in 2020. We estimate a Q1 adj. EBIT of EUR -7.5m. Apart from the fair value changes, the Coronavirus pandemic will not yet have had a significant impact on other business areas and we expect decent results from the Management Company and Service businesses, not expecting significant carry or success fees in the quarter.
2020 growth outlook more challenging
CapMan was heading into a year of major AUM growth potential with on-going projects as well as significant new fundraising projects announced in late 2019. COVID-19 will in our view have a detrimental effect on fundraising and we will be looking for any comments implying the magnitude of the impact from the Q1 results. Although growth expectations are pointing downwards, the Management Company business enjoys a healthy base of recurring fees that for now remain unaffected. We expect the Services business revenue and profits to decline in 2020, as Scala in particular would be affected by any possible dry-up of new fundraising projects.
(BUY) HOLD with a target price of EUR 1.95 (2.50)
Following estimates revisions and the increased uncertainty we adjust our TP to EUR 1.95 (2.50) based on our SOTP and peer multiples and upgrade to BUY (HOLD) due to share price declines.
Detection Technology will report Q1 earnings next Monday, April 27th. We’ve slightly lowered our near term estimates due to the pandemic. Despite the current headwinds related to coronavirus, we see longer term investment case intact. We maintain our target price of 24 euros, rating is now BUY (prev. HOLD).
COVID-19 – both a threat and part opportunity
DT usually doesn’t give full year guidance due to short visibility into customer demand. With the ongoing corona pandemic, it’s even harder to make predictions now. As airline travel is constrained, the pandemic can be expected to weigh negatively in H1 on SBU, which represents roughly 2/3 of DT’s sales. On the other hand, CT scanning is used to detect virus-related pulmonary changes, which in turn increases demand for CT scanners especially in China. DT’s recently launched new production facility in Wuxi provides additional capacity to support the possible increase in demand for CT equipment. As CT equipment plays an important role in diagnosing and treatment of COVID-19, DT has been permitted to keep its Beijing site operational and start manufacturing in Wuxi despite restrictions set by the local and national authorities in China.
Estimates cut, but investment story remains compelling despite near term uncertainties
Given the change in the landscape due to COVID-19, we’ve slightly lowered our Q1 estimates, especially for SBU. For Q1’20, we estimate SBU declining -2% and MBU declining -7% y/y, with total Q1 net sales declining -4% y/y to 22.2 MEUR (22.3 MEUR cons). Our Q1 EBIT estimate is 2.8 MEUR (2.9 MEUR cons), which is down 30% compared to 3.9 MEUR last year. We’ve revised down our FY’20E sales growth estimate from 10% to 6%. We still expect most of the growth to materialize in H2 as growth returns, especially in China, and volumes of new Aurora and X-Panel CMOS products ramp-up. Consequently, we’ve also lowered our FY’20E EBIT estimate by 11% due to lower sales and increased spending. Our estimates beyond 2020E are broadly unchanged, and we expect EBIT to improve in medium term due to volume growth and better GM’s due to mix and new products. We note however that coronavirus poses a clear near-term threat to our estimates, especially if the current situation is prolonged.
We maintain TP of 24 euros, with rating BUY (prev. HOLD)
On our revised estimates, DT is trading at 15x and 12x EV/EBIT multiples for 20E-21E. This is roughly 15-20% below our peer group, which we see inexpensive and unwarranted given strong market drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. We maintain our target price of 24 euros, rating is now BUY (prev. HOLD).
Suominen reports Q1 results on Thu, Apr 23. We have left our estimates unchanged. We expect Suominen to perform relatively well in the current environment, however we don’t see the pandemic producing absolute gains based on current info. Our TP is EUR 2.50 (2.25), rating SELL (HOLD).
Last year was weak for European sales
Suominen’s revenue declined by 5% last year to EUR 411m as the European business lost volumes and sales fell by 13% to EUR 150m. Americas was flat. Product split held steady as baby wipes were the largest group (40%) followed by personal care and home care wipes with about a fifth each. Suominen gives no short-term sales guidance but expects EBIT to improve this year. We estimate Q1 top line to have declined by 2% y/y to EUR 108m assuming volumes have improved a bit while nonwovens prices have declined slightly along with raw materials prices. We still expect Q1 gross margin at 8.5% i.e. marginally up from the 8.3% Q4 figure. We see SGA stable, and thus expect Q1 EBIT at EUR 2.9m (EUR 3.0m a year ago). Assuming stabilizing raw materials prices and gross margins for the rest of the year, we expect FY ’20 revenue up by 3% due to improving volumes. We thus see FY ’20 EBIT at EUR 12.0m vs EUR 8.1m last year.
In our view the pandemic might not inevitably help sales
Relatively speaking Suominen should perform well amid the pandemic, but in terms of absolute gains we don’t see the picture that clear. Suominen’s recent challenges were not due to lack of nonwovens demand, but rather caused by abundance of supply. Also, customer specific considerations matter as the ten largest accounts generate 65% of sales. We see a possibility that the pandemic and its aftermath will help accelerate volume growth, which is what the company needs in order to reach its long-term financial targets. Suominen is reportedly planning to enter face mask production in Finland in co-operation with Ahlstrom-Munksjö, however in our view it’s still early to estimate and value the possible impact on bottom line.
Valuation seems to have gone ahead of itself
In our view the current share price reflects rather hasty assumptions about the pandemic’s impact on the nonwovens market. We see caution warranted as a boost to total volumes is not inevitable. Our TP is now EUR 2.50 (2.25), rating SELL (HOLD).
Verkkokauppa.com will report its Q1’20E result on Friday. We expect the coronavirus to boost online sales but expect decreasing sales in the physical stores. We have made small adjustments to our 20E estimates and retain our rating “HOLD” with TP of EUR 3.5 ahead of Q1.
Online sales boosted by COVID-19
The exceptional situation due to COVID-19 has pushed retailers online as the demand in physical stores slumped quickly when the movement restrictions came into force. This is likely to have a positive impact on Verkkokauppa.com’s sales development in Q1’20E as the company has a strong online presence and only four physical stores in Finland. According to the management, the demand for instance in home office supplies has increased as people have switched their working spaces to their homes.
Expecting good market growth in Q1’20E
We expect the market growth in consumer electronics to be relatively good in Q1’20E but in the near future, consumers might become more cautious due to the weakening economy, especially if the situation is prolonged. Despite of the good online sales outlook we expect to see decreasing sales in Verkkokauppa.com’s physical stores during this situation. We have slightly increased our Q1’20E estimates. We expect Q1’20E revenue to increase by 4.5% y/y to EUR 121m (cons. EUR 118m) and EBIT of EUR 2.7m (cons. EUR 2.4m).
“HOLD” with TP of EUR 3.5 intact
We have made small adjustments to our 20E estimates and expect revenue of EUR 518m (2.7% y/y) and EBIT of EUR 13.0m (~15% y/y). According to the guidance given for 20E, the company expects revenue to be between EUR 510-530m and EBIT of EUR 12-15m, thus our estimates are at the lower end of the guidance. COVID-19 might speed up the more permanent leap into online in long-term which should benefit players such as Verkkokauppa.com. At the same time, the rumors of Amazon entering the Nordic market have once again increased. On our estimates, Verkkokauppa.com trades at 20E-21E EV/sales multiple of 0.3x which translates into ~50% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 3.5 intact ahead of Q1 result.
Gofore released its business review for March 2020 and first quarter figures, with net sales up 12.8% in Q1 and profitability at high levels, with the adj. EBITA-% at 17.3%. We have slightly lowered our estimates due to the Coronavirus pandemic but currently expect only a limited impact in particular due to the comparatively large exposure to the public sector. With our lowered estimates we adjust our TP to EUR 7.8 (8.2), HOLD-rating intact.
Profitability in Q1 back at solid levels
Gofore released its business review for March 2020 and first quarter figures. Net sales in Q1 grew 12.8% to EUR 18.8m. The adjusted EBITA amounted to a solid EUR 3.3m, at a margin of 17.3% (Q1/19: 17.2%). EBITA amounted to EUR 2.5m, affected by non-recurring costs and provisions relating to the divestment of the UK business. Gofore’s profitability figures were clearly positive given the challenges faced during the latter half of 2019.
Currently expect a rather limited impact of the pandemic
We have lowered our 2020 sales growth and EBITA estimates by 3pp and 12.5% respectively. The adjustments relate mainly to the estimated impact of the Coronavirus pandemic. We currently do not expect a major impact due to the comparatively large public sector exposure. We assume some challenges in sales of new projects due to customer investment caution, which we expect to show during H2/2020 as a slightly lower billing rate and thus lower sales and profitability. So far, the effects of the pandemic have been limited to employees shifting to working remotely and March sales figures were at a solid level.
HOLD with a target price of EUR 7.8 (8.2)
Current circumstances relating to the pandemic do not suggest a significant negative impact on Gofore’s operations, but a further prolongation would without a doubt have an adverse effect. On our revised estimates we lower our target price to EUR 7.8 (8.2) and retain our HOLD-rating.
Aspo withdrew FY ’20 guidance as the pandemic is yet another setback for operations. We have cut estimates according to our assumption that business will begin to normalize during Q2 as many governments are reportedly about to ease restrictions. Yet we remain cautious given the uncertainty; our TP is now EUR 6.25 (8.25), rating HOLD.
Q1 was very weak for ESL, Telko performed relatively strong
Aspo disclosed preliminary Q1 figures. ESL operated in challenging conditions as the Chinese situation in the beginning of the year already affected shipping rates. ESL’s steel and energy transport volumes decreased in Q1 and the uncertainty means there’s no solid view on cargo volume potential for the rest of the year. Aspo says smaller vessels’ cargo volumes remained at a normal level. ESL’s Q1 top line decreased by 2% y/y to EUR 42.7m (our estimate was EUR 46.7m) and EBIT decreased to EUR 2.3m compared to EUR 3.2m a year ago and our EUR 4.9m expectation. Meanwhile Telko performed relatively good as Q1 revenue amounted to EUR 63.6m i.e. down by 12% y/y but close to our EUR 63.9m estimate. Telko’s Q1 EBIT, unchanged y/y at EUR 2.4m, was slightly above our EUR 2.2m estimate. This indicates Telko’s profitability measures are having some effect. Leipurin’s Q1 revenue amounted to EUR 26.9m, up 4% y/y and in line with our EUR 26.8m estimate. Leipurin’s EBIT increased slightly to EUR 0.6m while our estimate was EUR 0.7m.
The H2’20 EBIT improvement slope is very hard to assess
Aspo previously guided FY ’20 EBIT to be higher than in ’19 (EUR 21.1m). In our view Aspo’s profitability for this year is especially difficult to estimate with current information as last year’s result doesn’t represent a high hurdle as such given the long-term potential. In a scenario closer to normal we would have expected Aspo to reach the guidance easy. Yet the potential is now even more subject to uncertainty as the macro picture is very murky. We expect better results in Q3 but see Q2 EBIT down to EUR 2.6m (we previously estimated Q2 EBIT at EUR 7.0m).
The environment justifies low valuation relative to potential
In our view the potential for higher EBIT remains, however in the current situation it’s challenging to rely on long-term estimates. Our TP is now EUR 6.25 (8.25), rating remains HOLD.
Solteq withdrew its guidance for 2020 due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries within core business areas have so far remained unaffected but we expect to see some weakness within smaller project deliveries. Ramping up sales of newly developed own products will likely also prove to be more challenging. We expect a 6.5% decline in revenue in 2020. We retain our HOLD-rating with a TP of EUR 0.95 (1.40).
Guidance withdrawn due to Coronavirus uncertainty
Solteq withdrew its guidance for 2020 for the time being due to the prevailing uncertainty caused by the Coronavirus pandemic. Customer deliveries with core business areas, with typically larger contracts and longer customer relationships, have so far continued without interruption. We expect the implications of the Coronavirus pandemic going forward to act as a driver for digitalization, partly due to movement restrictions and increasing online demand. In the near term we nonetheless expect revenue to be affected, mainly from smaller project deliveries. We also expect a more challenging ramp up of some of newer software products, some of which had already shown a promising start.
Expect a 6.5% sales decline in 2020
We have lowered our 2020 sales growth estimate to -6.5% (-1.4%) and EBIT to EUR 2.1m (3.5m). We currently expect to see clear margin and sales growth picking up in 2021 but note the high estimates uncertainty due to the Coronavirus outbreak. An additional uncertainty element is caused by the high leverage and interest expenses. Solteq informed of intentions to consider initiating a written procedure to extend its outstanding EUR 24.5m notes by 12 months, that were to mature July 1st, 2020.
HOLD with a TP of EUR 0.95 (1.40)
Solteq’s cash flows were set to improve in the near-term due to lower investments and improved operational profitability. Although Solteq should be able to show relative resilience, the increased uncertainty amid the company’s ambitions to change track towards a software focus is clearly suboptimal and we adjust our TP to EUR 0.95 (1.40), retaining our HOLD-rating.
The Ministry of Justice of Finland has informed that it will start preparing a bill proposal to limit maximum consumer loan interest to 10%. According to Fellow Finance the proposal in its current form would – ceteris paribus – reduce current intermediated loan volumes by approx. 50% compared to March 2020 volumes. We keep our estimates largely intact for now but derive valuation scenarios based on which we adjust our TP to EUR 2.5 (3.0), HOLD-rating intact.
Proposal to cap consumer loan interest at 10% (20%)
The Ministry of Justice of Finland has informed that it will in the upcoming weeks start preparing a bill proposal to limit maximum consumer loan interest to 10% from the current 20% due to the Coronavirus pandemic. The changes are planned to be in effect until the end of 2020. According to Fellow Finance the proposal in its current form would cut current intermediated loan volumes by 50% compared with March 2020 volumes. Furthermore, if investors in a 12% interest risk class would lower interest requirements to the proposed 10% cap, around 80% of current loan volumes could be intermediated.
Proposal would affect near-term profitability
We keep our estimates largely intact for now as the outcome and content of the bill proposal is not yet certain. Given the economic impact of the Coronavirus pandemic and an ease of making drastic decisions we see a high likelihood of the proposed bill passing. We derive scenarios for the possible effects of the proposal and expect a 10% cap to put EBIT in the coming years at near zero or negative.
HOLD with a target price of EUR 2.5 (3.0)
We derive three scenarios based on the planned bill proposal, described more in detail on page two. Based on a weighted approach, assuming an 80% likelihood of the bill passing, we derive a target price of EUR 2.5 (3.0) and keep our HOLD-rating intact.
Etteplan withdrew its guidance for the time being due to uncertainty caused by the coronavirus outbreak. The increased uncertainty in the global economy has adversely affected customer demand and will have a negative impact on financial development. We have lowered our 2020 estimates, expecting revenue to remain at 2019 levels and EBITA to decline clearly. We lower our target price to EUR 6.9 (10.2) and retain our HOLD-rating.
Guidance withdrawn due to coronavirus uncertainty
Etteplan withdrew its guidance for the time being due to uncertainty caused by the coronavirus outbreak, having previously estimate revenue in 2020 to increase clearly and EBIT to be at the same level or improve compared with 2019. The coronavirus outbreak has adversely affected customer demand essentially across all customer segments. Europe is expected to show weak figures in Q2, while the in Q1 weak Chinese economy has now been picking up and demand development there is showing favourable signs.
2020 EBITA estimate down some 35%
We expect the outbreak to have a clear negative effect on financial development in 2020E. We expect the brunt of the impact on Q2/Q3 while Q1 is expected to have been somewhat weaker due to the situation in China. We note the challenges in near-term estimation due to the lacking visibility and unforeseeable nature of the consequences of the outbreak. We currently expect 2020 revenue to remain at 2019 levels, despite the current situation due to inorganic growth, and profitability to decline clearly, with our EBITA estimate at EUR 18.1m (27.5m).
HOLD with a target price of EUR 6.9 (10.2)
Etteplan has on a three-year average NTM EV/EBITDA traded at around 9.0x. Assuming a swift return to a normalized demand situation current valuation is in no way challenging. The significant near-term uncertainty, however, warrants a discount and we value Etteplan at 2020E EV/EBITDA of 7.0x, and with our 2020E EBITDA estimate down some 25% we lower our target price to EUR 6.9 (10.2) and retain our HOLD-rating.
SRV’s road has been bumpy in the past two years and measures are being taken to turn the tide. The slowing down of the Finnish construction market has created prerequisites for improved profitability by alleviating some supply chain pressure. The unfortunate Coronavirus outbreak casts a shadow over the planned turnaround and the uncertainty is reflected in valuation multiples. We adjust our target price to EUR 1.00 (1.30) and retain our HOLD-rating.
Seeking turnaround from recent weak profitability years
SRV’s profitability has been in the red the past two years and the company is under new management seeking to turn the tide. Measures are being taken to enhance operational profitability and improve the financial situation. Market development has shown beneficial signs, as a slowing down of new construction volumes should ease supply chain pricing pressure. The Coronavirus outbreak, however, creates significant near-term uncertainty and any possible impact is yet hard to quantify.
Volumes expected to decline, profitability improve
We expect sales to settle at a level of around 10% below the solid 2019 levels (EUR 1,060.9m) following an expected overall decline in construction volumes. 2020 remains supported by the lengthy order backlog while the completion of fewer developer-contracted housing units will lower sales. We expect profitability to improve in 2020 from the recent weak comparison years due to a diminishing burden of non-recurring items but margins to still remain relatively low. We estimate a 2020 operative operating profit margin of 1.1%.
HOLD with a target price of EUR 1.00 (1.30)
Our DCF and SOTP implied equity fair values are EUR 1.10 and 0.64 respectively. We derive a target price or EUR 1.00 (1.30) per share, assigning more weight to our DCF fair value due to an unjust near-term weight on profitability of our SOTP-model and retain our HOLD-rating.
Pihlajalinna withdrew its 20E guidance as it is challenging to assess and predict the total impacts of the coronavirus. Half of the operations are expected to remain stable but the demand for non-urgent health care and oral health services has declined. We expect 20E revenue to remain at the same level as in ’19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). However, there are significant uncertainties with our short-term estimates. Our rating is now “BUY” (“HOLD”) with TP of EUR 16.
20E guidance temporarily withdrawn
Pihlajalinna withdrew its guidance for 20E as it is challenging to predict the total financial and operational impacts caused by COVID-19 and the given emergency laws. A new guidance will be given at a later point, when the total impacts can be more reliably assessed. According to the company, during the first months of the year, turnover and profitability have developed as expected. Based on the previous guidance given in February, Pihlajalinna expected turnover and adj. EBIT to improve from the previous year.
Non-urgent and oral health services hampered by COVID-19
According to the company, comprehensive outsourcing in the context of the social welfare and healthcare reform and other fixed-price invoicing is related to a steady recognition of income over time. Profitability of these kinds of contracts normally remains stable, even during periods of low demand. Demand for housing services for the elderly and recruitment services is not expected be affected by the situation. Therefore, more than half of the business operations are expected to remain stable. Also, demand for remote services has increased. Pihlajalinna’s fitness centers have been temporarily closed since late March and the demand for non-urgent healthcare and oral health services has decreased due to the coronavirus. We expect the demand for these services to increase after the situation, which should partly compensate this period of low demand.
“BUY” (“HOLD”) with TP of EUR 16
We have decreased our 20E turnover expectation by ~3% and adj. EBIT expectation by ~24%. We now expect 20E turnover to remain at the same level as in ‘19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). Adj. EBIT is expected to improve due to the cost savings resulting from the efficiency improvement program that was launched last summer. However, we note that there are significant uncertainties especially with our short-term estimates. The tender offer by Mehiläinen is currently being under review of the FCCA. As expected, the FCCA initiated the phase two investigation, meaning that the process will be completed at the end of Q2’20E or latest during Q3’20E. We keep our TP at the tender offer price of EUR 16 and upgrade our rating to “BUY” (“HOLD”).
Tokmanni withdrew its 20E guidance as there is a clear decline in customer flows due to the coronavirus. New guidance will be given at a later point when the visibility is more clear. We expect 20E sales of EUR 919m (-2.7% y/y) and adj. EBIT of EUR 55.3m (-21% y/y). We note that there are significant uncertainties with our short-term estimates. We keep our rating “BUY” with TP of EUR 12.5 (16).
Coronavirus hampering customer flows
Tokmanni withdrew its guidance for 20E due to the situation around coronavirus. According to the company, after the emergency restrictions that came into force in March, the customer flows have clearly declined in stores. At the current stage, the company doesn’t give a guidance for the year 20E but expects that the coronavirus and the restrictions on movement will affect at least Q2’20E sales. As stated by the company, it is very challenging to estimate the development in H2’20E. Based on the guidance given in February, Tokmanni expected good revenue growth and slight growth in LFL-sales for 20E and profitability (adj. EBIT margin) to increase from the previous year.
Expecting declining sales in Q2’20E
We expect a clear decline in Q2’20E sales (-27% y/y) as the movement restrictions are likely to last for several weeks. Tokmanni aims to keep all the stores open during this unexpected time. We expect the consumer demand for grocery to remain stable but at the same time demand for non-grocery products is expected to decline. We expect online sales to increase but the contribution to the total sales is still expected to remain marginal. As the visibility is very weak it is difficult to estimate the total impacts on H2’20E sales. We expect the lockdowns in China, occurred in Q1’20, to have a negative impact on Tokmanni’s direct import, which will hamper gross margin development. As most of Tokmanni’s employees work in stores (85%), the company should be able to adjust its workforce in some level. We expect only limited adjustment possibilities in other operations, hampering profitability in Q2’20E.
“BUY” with TP of EUR 12.5 (16)
We have decreased our 20E sales expectation by ~8% and adj. EBIT estimate by ~30%. We now expect 20E sales to decline by 2.7% y/y (EUR 919m) and adj. EBIT of EUR 55.3m (-21% y/y), resulting in adj. EBIT margin of 6.0%. We note that there are significant uncertainties with our short-term estimates. We expect the customer flows and demand to normalize relatively fast after the situation and expect Tokmanni is able to return back to its growth path. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 16.7x and 10.4x, which translates into 4% premium in 20E and 29% discount in 21E compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 12.5 (16).
Fellow Finance withdrew its 2020 guidance due to the weakened visibility caused by the coronavirus outbreak. We expect the uncertainty to affect investor sentiment and have lowered our estimates for facilitated loan volumes and as a result our revenue and profitability estimates. Fellow Finance will also have to put the brakes on some expansion plans, which will further impede growth. We retain our HOLD-rating with a TP of EUR 3.0 (4.0).
Guidance withdrawn due to coronavirus uncertainty
Fellow Finance withdrew its 2020 guidance due to the weakened visibility caused by the coronavirus outbreak. The company previously expected turnover to grow in 2020 and the growth efforts to decrease operating profit compared to 2019, with growth expected to accelerate during 2021-2022. The uncertainty affects investor sentiment, which we expect to have a negative near-term effect on facilitated loan volumes. Furthermore, Fellow Finance will in the elevated uncertainty situation have to put the brakes on some of its growth plans internationally, which will affect growth in the coming years.
Estimates lowered on weakened investor demand prospects
We have lowered our estimates for facilitated loan volumes, driven by the change in investor sentiment, and as a result our estimates for revenue and profitability. Fortunately, fees from managing the current portfolio along with fees from Lainaamo’s loan commitments will support revenue while the variable cost components, mainly the commissions to loan brokers, should slightly soften the profitability impact. We now expect a 6% revenue decline in 2020 (prev. 4% increase) and an operating profit of EUR 0.6m (prev. EUR 1.3m).
HOLD-rating with a target price of EUR 3.0 (4.0)
On our revised estimates and increased uncertainty, we adjust our target price to EUR 3.0 (4.0). We assume only a fairly moderate deterioration of the economy due to the coronavirus, while a larger deterioration could result in a clear increase in loan defaults and have a clear negative impact on the company.
Marimekko withdrew its guidance for 20E as the consumer demand in all the market areas has dropped due to COVID-19. We now expect 20E sales to decline by 10% y/y and adj. EBIT of EUR 11.7 (-32% y/y) but we note that there are significant uncertainties especially with our short-term estimates. We upgrade to “BUY” (“HOLD”) with TP of EUR 28 (44).
Weakened consumer demand outlook due to COVID-19
Marimekko withdrew its 20E guidance as the situation around COVID-19 has clearly weakened the consumer demand outlook in all Marimekko’s market areas (prev. 20E sales are expected to increase from the previous year and adj. EBIT is expected to be at the same level or higher than on the previous year). At the current stage, the company doesn’t give a guidance for 20E. However, if the situation is prolonged, it will have significant impacts on the company’s sales and profitability. As a result of the current situation, Marimekko is planning to adjust its operations and initiates cooperation negotiations. Marimekko has also changed its proposal for the ’19 dividend payment (prev. dividend proposition of EUR 0.90) and proposes that the AGM would authorize the Board of Directors to decide on a dividend payment of a max. of EUR 0.90 per share to be distributed in one or several instalments at a later stage when the company is able to make a more reliable estimate on the impacts of COVID-19 to the company’s business.
Expecting a significant drop especially in retail sales
As most of the market areas have some level lockdowns and thus many stores are being closed, we expect negative impacts especially on Q2’20E sales. We have lowered our Q2’20E sales estimate by ~44% and our EBIT estimate by ~82%. We expect retail sales to face the hardest hit due to the rapid drop in consumer numbers. We don’t expect as dramatical decline in wholesale sales as the buyers (of distribution channels) should have already ordered the spring/summer lines. However, it is difficult to estimate how the situation will impact on H2’20E sales. We also expect negative impacts on production and supply chain in H1’20E.
“BUY” (“HOLD”) with TP of EUR 28 (44)
We’ve lowered our 20E sales expectation by 17% and adj. EBIT estimate by 42%. We expect 20E sales of EUR 113 (-10% y/y) and adj. EBIT of EUR 11.7 (-32% y/y). We note that there are significant uncertainties with our short-term estimates but we see Marimekko’s mid-term investment case unchanged and positive as we see Marimekko is able to achieve higher sales and margins after this shock. In normal circumstances, Marimekko also offers an attractive dividend yield. On our estimates, Marimekko trades at 20E-21E EV/EBIT multiple of 17.6x and 10.2x which translates into 22-40% discount compared to the luxury peers. We upgrade our rating to “BUY” (“HOLD”) with TP of EUR 28 (44).
SSH announced yesterday that it estimates the COVID-19 pandemic to negatively impact its outlook and thus it withdraws its guidance for the year 2020. We’ve clearly cut our estimates for 2020 and 2021. We note that estimating future performance now is exceptionally difficult, as the depth and length of the current crisis is unknown. Based on our lowered estimates and postponed turnaround, we lower our target price to 0.70€ (prev. 1.00€) but maintain HOLD recommendation.
Guidance for 2020 withdrawn due to COVID-19
SSH announced yesterday that as a result of the COVID-19 pandemic, operating conditions in their markets have deteriorated significantly. Large enterprises globally, including some of SSH’s customers, have already announced profit warnings or cost savings programs. SSH expects this to affect customer’s investment decisions and the timing of IT project deployments. Due to the continued uncertainty of the situation, SSH’s visibility into the scope and duration of these effects is limited. SSH notes, that they are pre-emptively preparing for the effects of this situation by systematically reducing operating expenses, although details regarding this were not given.
Estimates cut; turnaround postponed further
After a challenging 2019, SSH was guiding for clear improvement. For the year 2020, SSH was expecting revenue growth of 10-15 percent and an improving EBIT (FY’19: -1.2 MEUR), but this guidance is now withdrawn. We’ve cut our sales estimates for 2020E and 2021E roughly -16%. We estimate 2020E sales to decline -5%, resulting in -1.0 MEUR operating loss, despite measures to lower opex. Due to lower sales estimates, we estimate profit turnaround to be pushed forward to 2021E.
HOLD maintained with TP 0.70€ (prev. 1.00€)
We note that estimating future performance is now exceptionally difficult, as the depth and length of the current crisis is unknown. Based on our lowered estimates and postponed turnaround, we lower our target price to 0.70€ (prev. 1.00€) but maintain HOLD recommendation.
The continuing crisis around COVID-19 forces Finnair to cut its capacity by some 90% in April. We have cut our 20E estimates substantially and expect EUR -52m comparable operating loss in 20E. We keep our rating “HOLD” with TP of EUR 3.5 (5.0).
Second profit warning due to COVID-19
Finnair issued its second profit warning within a month as the COVID-19 continues to hammer the global airline industry. Earlier the company withdrew its capacity estimate for 20E and expected 20E comparable operating profit to be significantly lower than on the previous year. Due to the flight restrictions and low demand, Finnair now cuts its capacity by ~90% starting from April and indicates that the comparable operating loss will be significant in 20E. Also, the company decided to withdraw the ’19 dividend proposal of EUR 0.2 per share.
Strong financial position securing Finnair’s operations
In order to secure its financing, Finnair has started to implement a substantial financing plan. This includes funding instruments such as available credit lines (Finnair has an available non-used credit line of EUR 175m), sale and leasebacks of unencumbered aircraft (Finnair currently has 42 unencumbered aircraft, which represents about half of the balance sheet value of the total fleet) and a substantial, market-based pension premium loan. Also, the Finnish government will actively support the company. Prior the COVID-19 situation, the company had a healthy balance sheet and a strong cash position, which should support Finnair’s finance and operations even if the situation around COVID-19 is prolonged. The company will also make further cost adjustments (prev. aiming cost savings of some EUR 40-50m). We expect relatively quick savings from personnel expenses but many of the other cost savings are expected to be realized later in H1’20E.
“HOLD” with TP of EUR 3.5 (5.0)
We have significantly cut our 20E estimates. We now expect 20E revenue to decline by ~13% y/y (EUR 2707m) while we expect comparable operating profit to decline by ~132% y/y (EUR -52m). This is mainly due estimates cut in Q2’20E. With our updated estimates, Finnair’s 20E gearing would be some 137% (64% in 2019), while the company’s target is to keep the ratio below 175%. Our net debt/EBITDA estimate is 3.9 (1.3 in 2019). On our estimates, Finnair trades at 20E EV/EBITDA multiple of 5.4x, which translates into 105% premium compared to the peers. Despite of the severe situation, we expect Finnair has good possibilities to quickly continue its operations after the situation. As Finnair’s financial position is strong we continue to see Finnair’s mid-term outlook rather positive. Due to the exceptional situation, there are significant uncertainties with our short-term estimates. We keep our rating “HOLD” with TP of EUR 3.5 (5.0).
Cibus Nordic enters the Swedish property market with the EUR 180m portfolio acquisition of 111 Coop supermarkets. We view the deal as a fine way to gain more property mass and extend geographical reach in a controlled manner. Our new TP is SEK 155 (150), rating HOLD.
We believe Cibus is an ideal owner for the supermarkets
Cibus acquires a portfolio of 111 properties located in Southern Sweden for EUR 180m. The portfolio of grocery properties belonged to Coop, the second largest grocery retailer in Sweden (19% market share), which had acquired the portfolio last year from Netto. Coop will provide some SEK 3m into each store for rebranding purposes and sign 10-year triple-net lease contracts. In this sense the new Swedish portfolio is even more cost-efficient from Cibus’ point of view. The longer lease contracts will lift Cibus’ WAULT to 5.5 years from 4.9 years. Coop has in total about 800 stores in Sweden; thus the 111 properties mean Cibus’ relationship with Coop can be compared to that with Kesko, considering Cibus’ properties amount to more than 10% of Kesko’s facility sourcing. The properties now acquired are relatively modern (83% were either constructed or renovated during the last 15 years), and are mostly located in residential areas, traffic routes and city centers. The typical property is only some 1,000 sqm in area (compared to old Cibus’ 3,500 sqm), so they can be best described as rather small supermarkets. As Coop is now in the process of rebranding the stores the inventory selection is set to expand from 1,800 items per store to 6,000.
The deal is valued at a yield above that where Cibus trades
The price implies a yield of almost 6%, which is undemanding as Cibus trades only slightly above 5%. Cibus’ net debt LTV ratio stays close to the old almost 60% level. Cibus fully used the mandate to issue 6.22m shares and thus raised EUR 84m new equity via a directed share issue. The EUR 123m new senior bank debt carries a 2% interest; Cibus consequently has some EUR 25m more cash in its balance sheet to make add-on acquisitions in Sweden. Cibus expects the deal to close next week, on Mar 10.
Cibus’ valuation and yield development
Cibus trades at a 100bps wider yield compared to the median NTM EBITDA/EV of a listed Nordic Real Estate company. Cibus managed to issue new equity at a 1.18x P/NAV (or 2.7% below the day’s closing price) to fund the Swedish expansion, which we see as a strong signal that investors view Cibus’ book value as quite conservative. We have updated our estimates; we expect Cibus’ rental income to continue to increase at the rate of inflation, and we estimate annual operating income at more than EUR 10m higher going forward.
The deal adds some EUR 10m in operating income capacity
The deal is good news for Cibus as portfolio diversification further improves. Our TP is SEK 155 (150), remain HOLD.
Tokmanni continued its strong performance in 2019 as sales grew by 8.5% y/y while adj. EBIT margin improved to 7.5%. Profitability improvement through gross margin improvement and OPEX scalability is high on the company’s agenda and we see the set targets to be reachable. We keep our rating “BUY” with TP of EUR 16.
Targeting EUR 1bn of sales
Tokmanni targets EUR 1bn in sales with further store network expansion and LFL growth. With 191 stores at the end of 2019 and at the targeted store network expansion pace (12,000m2 or ~5 stores annually) Tokmanni is set to reach its target of over 200 stores within the next few years. The company’s LFL growth has notably improved from 2017 levels as it was 5.6% y/y in 2018 and 4.3% y/y in 2019. We expect Tokmanni to reach its sales target of EUR 1bn during 2020E.
Further adj. EBIT margin improvement potential
Tokmanni targets to increase its adj. EBIT margin to ~9%. The adj. EBIT margin target implies ~1.5 percentage point (pp) margin improvement compared to the level reached in 2019 (7.5%). Some 0.5-1.5pp of this is to come from gross margin, which is to improve primarily driven by increased direct sourcing and by increased share of private label products in the mix. The targeted gross margin improvement is in line with what we had already incorporated into our estimates and it reaffirms the validity of further sourcing improvement potential, which has been key to our investment case. OPEX scalability should contribute the remaining 0.5-1.0pp. Positive LFL growth and more efficient operations are expected to be a key driver behind OPEX scalability.
We retain our rating “BUY” and TP of EUR 16
We approach Tokmanni’s valuation through our scenario analysis and valuation multiples. Our scenario analysis, with emphasis on base case and optimistic estimates, yields a fair value of EUR 16.0. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 12.9x and 11.7x which translates into 7-10% discount compared to the Nordic non-grocery peers and 12-17% discount compared to the international discount peers. We keep our rating “BUY” and TP of EUR 16 intact.
Raute’s 2017-18 was busy as familiar customers executed major capacity investments; thus ’18 marked a record year for the company. European order intake fell substantially in ’19, and was soft in other markets as well, barring Russia. This year may prove a relatively stable one owing to the record-large Russian order, yet should the cool environment be prolonged revenue is bound to fall further from the EUR 150m level. Our TP is EUR 25, rating HOLD.
Demand for large and small orders remains at a good level
Raute left the record-year ’18 behind with a strong EUR 95m order book. Order intake remained at a decent level in early ’19, but activity began to cool steadily during the year due to increasing market uncertainty. This was manifest in mid-sized projects (such as repair and improvement investments) accounting for an exceptionally low share of order activity. Uncertainty has stayed high, but it should also be noted demand for spare parts and maintenance services remains stable, implying good capacity utilization rates at plywood and LVL mills. The record-large EUR 58m Segezha order means Raute can guide flat sales development for this year. Nevertheless, Raute guides decreasing EBIT for the year as the company has recognized a need to accelerate its investments in R&D and marketing. Raute looks to segment its machinery in order to better address lower price points and so achieve meaningful growth in emerging markets, but also aims to further improve its digital solutions offering.
Focus now on the missing middle-sized order demand
Raute’s customer demand is now focused on both large and small orders i.e. major new capacity projects, minor improvements and services. By contrast, demand for mid-sized projects, like modernizations, is at an exceptionally low level. It’s always hard to predict when big orders will materialize; we’ll focus on monitoring how mid-sized order activity develops going forward.
We view the multiples neutral in current market situation
Raute is now valued at 7x EV/EBITDA and 11x EV/EBIT ‘20e. We view the valuation neutral given the long-term fundamentals but high current uncertainty. Our TP is EUR 25, rating HOLD.
Talenom made a share issue without payment on the 28.2. to improve share liquidity, with five new shares for each existing share, after which the nr. of shares amounts to 41.836m. We adjust our target price to EUR 6.7 (prev. split adj. EUR 6.83) accounting for dividend distribution (split. adj. EUR 0.125 per share) and retain our HOLD-rating.
Share issue without payment to improve share liquidity
Talenom made a share issue without payment on the 28.2. to improve the liquidity of its share, with five new shares given for each existing share, upon which the number of shares increased to 41.836m (6x pre-issue). We have since our previous update adjusted our quarterly estimates due to the impact of the Income Register, which based on discussion with management should be just below double the Q4/19 impact and we have as such lowered our Q1/20 revenue and EBIT estimates by EUR 0.6m, while upward adjustments to the latter quarters in the year keep our full year estimates intact. Talenom announced the acquisition of Addvalue Advisors on the 28.2., a bookkeeping company with around EUR 0.5m in revenue. The acquisition has no material impact on our estimates.
Growth and profitability improvement in 2020
Talenom expects relative growth in net sales and relative profitability in 2020 to be in line with 2019. We expect revenue in 2020 to grow 18.7% to EUR 68.8m mainly due to organic growth in Finland, with revenue growth in Sweden in our view expected to start to show in 2021. We expect EBIT to amount to EUR 12.6m, with growth of ~21% y/y.
HOLD with a target price of EUR 6.7
We adjust our target price to EUR 6.7 (prev. split adj. EUR 6.83), taking into account the distribution of dividend (record date 27.2., split adj. EUR 0.125 per share). Our target price values Talenom at ~30x 2020E P/E. With valuation in line with our estimates we retain our HOLD-rating.
Finnair came out with revised 20E outlook and issued a profit warning as the impacts of the coronavirus are more severe and far reaching than first estimated. We have cut our 20E revenue estimate by ~1% and comparable EBIT estimate by ~23%. We keep our rating “HOLD” with TP of EUR 5.0 (EUR 6.3).
Revised outlook for 2020E
Finnair revised its 20E outlook due to the larger than first estimated impacts of the coronavirus. During Q4’19 result, the company indicated that the impacts on Q1’20E result will be limited and expected 20E capacity growth of ~4% y/y. According to the new guidance, Finnair expects Q1’20E comparable EBIT to be lower than in the previous year. The company foresees decreasing demand also in Q2’20E, resulting in a negative impact on revenue. Q2’20E comparable EBIT is expected to be significantly lower compared to Q2’19. Therefore, comparable EBIT for 20E is also expected to be significantly lower than in FY19. In addition, the company withdrew its capacity (ASK) growth estimate (~4%) for 20E and aims to adjust its capacity to the current situation. Finnair has also commenced to seek how to adjust its costs by EUR 40-50m to mitigate the negative financial impact resulting from the virus.
20E estimates cut
We have made small adjustments to our Q1’20E revenue expectation and cut our already rather conservative Q1’20E comparable EBIT estimate by ~15%. We also cut our Q2’20E revenue estimate by ~4% and our comparable EBIT estimate by ~48%. Thereby, our FY20E revenue estimate is reduced by ~1% and comparable EBIT estimate by ~23%. We now expect 20E revenue growth of 1.8% y/y (EUR 3154m) while we expect comparable EBIT to decline by ~19% y/y (EUR 133m). We foresee 20E capacity (ASK) growth of 2.4% y/y (prev. estimate of 3.5% y/y). We expect negative impacts especially on Asian routes (Finnair suspended all the flights to mainland China, which might continue until the end of March) but also on European routes and on global cargo during H1’20E. We also expect weaker demand in travel services.
“HOLD” with TP of EUR 5.0 (prev. EUR 6.3)
We have kept our 21E-22E estimates intact as we don’t expect long-term financial impacts resulting from the coronavirus. However, as the visibility around the coronavirus and its development remain weak, there are uncertainties especially with our short-term estimates. We keep our rating “HOLD” with TP of EUR 5.0 (6.3).
Next Games Q4 revenue (Act./Evli EUR 7.7m/8.2m) fell short of our expectations despite total gross bookings in line with our estimates while EBIT (Act./Evli EUR -1.8m/-1.7m) was in line with our estimates despite the revenue miss and a low gross profit. With Blade Runner Nexus moved backed to production phase we expect new game launches in mid to late H2/2020, with priority in our view set on launching the Stranger Things -game.
Slight revenue miss, EBIT held up fairly well
Next Games revenue in Q4 amounted to EUR 7.7m (Evli 8.2m), with gross bookings of EUR 8.2m (Evli 8.2m). EBIT was in line with our estimates at EUR -1.8m (Evli -1.7m) despite the lower revenue and a low gross profit margin (Act./Evli 53%/67%). The adj. EBIT amounted to EUR -1.0m (Evli -0.7m). Our World continued to be affected by retention issues and gross bookings continued to decline. Next Games added Publishing Operations to its reporting (live games revenue – costs), at an EBITDA of EUR 3.8m in 2019.
Next major steps should be seen during H2/2020
Next Games expects moderate revenue growth in 2020 and for its publishing operations EBITDA to be profitable. Revenue from live games is expected to continue on a flat or declining trend. Blade Runner Nexus was moved back to production phase and we now expect new game launches in mid to late H2/2020. Priority in our view will likely be on bringing the commercially more attractive Stranger Things -game to the market. Successful new launches along with seeking to solve Our World’s retention and reverse the declining will be key for 2020. We expect a revenue growth of 5% in 2020 and EBIT to remain clearly in the red due to development costs of new projects.
HOLD with a target price of EUR 0.84 (0.90)
We have overall slightly lowered our estimates post-Q4 and with the slight increase in uncertainty brought by the postponement of a BRN launch we adjust our target price to EUR 0.84 (0.90) and retain our HOLD rating.
Cibus reported an unsurprising portfolio performance for Q4, however administration costs were temporarily elevated due to development efforts. Nordic expansion could well be on the cards this year. We see Cibus’ yield still relatively attractive. Our TP is now SEK 150 (135), rating still HOLD.
The existing portfolio continues to perform well
Cibus’ Q4 rental income, at EUR 13.2m, was close to our EUR 13.3m estimate. There were no surprises in terms of property expenses, as these summed up to EUR 0.6m and thus net rental income was EUR 12.6m, compared to our EUR 12.5m estimate. Cibus’ budgeted admin costs run close to EUR 1.0m per quarter. The admin costs amounted to EUR 2.0m in Q4 due to many one-off considerations. First, the outsourcing contract with Pareto, now terminated, still had an effect. Second, Cibus booked EUR 0.5m in restructuring costs in order to achieve a more efficient legal structure. Cibus also incurred EUR 0.2m due to mapping of Nordic markets beyond Finland. Therefore Cibus’ Q4 operating income missed our estimate by ca. EUR 1.0m. There were no notable changes to key metrics as EPRA NAV (EUR 11.4), LTV ratio (59%), occupancy rate (95%) and WAULT (4.9 years) remained basically unchanged. Cibus also highlighted its active property management successes in certain less-than-metropolitan areas like Nastola and Kajaani by filling local vacancies with tenants such as Lidl and Rusta (a discount store chain).
Authorization could enable a EUR 200m GAV acquisition
The acquisition of three Tokmanni-anchored properties helped lift the portfolio’s annual net rental income capacity by about EUR 1.0m to EUR 50.9m. Last year Cibus managed to achieve its annual EUR 50m acquisition target, however this year a larger transaction might take place as Cibus is authorized to issue up to 6.22m new shares. Cibus is eyeing other Nordic markets beyond Finland. Sweden seems to be the most potential option; the market is, on average, slightly higher priced than Finland, but Cibus believes it can apply its own concept there successfully.
Cibus’ 1.23x P/NAV still offers a 100bps yield pick-up
Cibus’ shares have rerated along with the rest of the Nordic RE market. While Cibus trades at a clear premium relative to GAV/NAV (1.08x/1.23x), the portfolio remains priced at a competitive yield. Our TP is now SEK 150 (135), rating still HOLD.
Solteq’s Q4 results fell shy of our expectations. Revenue amounted to EUR 15.7m (Evli EUR 15.7m) while the adj. EBIT amounted to EUR 1.1m (Evli EUR 1.5m), affected by some project challenges. We expect revenue to decline slightly in 2020 due to the SAP ERP business divestment, while expecting the adj. EBIT to remain at 2019 levels. Following estimates revisions, we adjust our target price to EUR 1.40 (1.50) and retain our HOLD-rating.
Project challenges affected H2 profitability
Solteq’s revenue in Q4 amounted to EUR 15.7m (Evli 15.7m), growing 5.2% y/y. The adj. EBIT amounted to EUR 1.1m (Evli 1.5m) and EBIT to 3.3m (Evli 3.8m) due to the profit from the sale of Solteq’s SAP ERP business. Solteq seeks to distribute a dividend of EUR 0.05 per share, to be decided upon later. Project challenges in Finland during H2 affected revenue and as a result profitability. Comments on the positive development of own software products (i.e. Utilities, POS) and international growth were welcome, although near-term visibility is still limited. Product development expenses amounted to EUR 3.9m in 2019 and are expected to decrease clearly in 2020.
Slight sales decline expected in 2020
We expect revenue to decrease by 1.4% in 2020 following the impact of the sale of the SAP ERP business. The adj. EBIT is expected to remain at 2020 levels and with a pick-up in depreciation of capitalized development costs we expect operational performance to improve in 2020. Our EBITDA and adj. EBIT estimates for 2020-2021E are down by some 6-10% and ~20% respectively post-Q4 following an updated view on profitability improvement progress.
HOLD with a target price of EUR 1.40 (1.50)
Solteq saw good earnings growth in 2019 but with the capitalization of development costs cash flows remained weak. We expect improvements in 2020 but at a slower pace than previously anticipated. On our lowered estimates we adjust our target price to EUR 1.40 (1.50) and retain our HOLD-rating.
Next Games' net sales in Q4 amounted to EUR 7.7m, below our and consensus estimates (EUR 8.2m/8.1m Evli/cons.). Gross bookings amounted to EUR 8.2m (Evli EUR 8.2m). EBIT amounted to EUR -1.8m, in line with our and consensus estimates (EUR -1.7m/-1.8m Evli/cons.). Next Games expects moderate growth in 2020 and profitable publishing operations EBITDA.
Cibus Nordic reported property portfolio results in line with our expectations. However, administration costs were higher than we had estimated due to certain group restructuring and development-related costs.
Solteq's Q4 results were slightly below our estimates. Net sales in Q4 amounted to EUR 15.7m (Evli EUR 15.7m), while the adj. EBIT amounted to EUR 1.1m (Evli EUR 1.5m). Solteq expects that its adjusted EBIT will remain at the same level as in 2019.
Innofactor’s Q4 results were slightly below our expectations, with net sales of EUR 17.4m (Evli 17.0m) and EBITDA of EUR 1.6m (Evli 2.0m). The business development remains favourable through a continued healthy order backlog and revenue mix. With significant improvements in cash generation and a reasonable financial situation M&A activity could again be on the table to supplement the service offering in the Nordics and speed up growth.
Continued healthier profitability
Innofactor’s Q4 results were slightly shy of our expectations. Net sales grew 9.7% from the relatively weak comparison period to EUR 17.4m (Evli 17.0m) while EBITDA amounted to EUR 1.6m (Evli EUR 2.0m). Innofactor expects net sales and EBITDA in 2020 to increase from 2019. The order backlog remained at a good level of EUR 49.8m. Q4 saw no new significant orders but several orders have already been received during early 2020. The net sales mix remains favourable through a continued higher level of recurring revenue.
M&A activity could pick up
We continue to expect limited near-term growth (2020E: 4%) with the longer duration of the order backlog while expecting some further pick-up in margins (2020E: +1.2%p EBITDA-%). Wage inflation through changes to the Competitiveness Pact may pose a risk while the margin improvement potential remains supported by the to our understanding current suboptimal billing rates. With the improved cash generation and not particularly challenging financial position M&A activity could likely pick up again to supplement the offering of Innofactor’s pan-Nordic platform and accelerate growth.
BUY with a target price of EUR 0.90 (0.85)
Innofactor is in our view continuing to show good progress in building up a healthier business. With valuation not overly stretched we retain our BUY-rating and raise our target price to EUR 0.90 (0.85).
Next Games will report H2 results on February 28th. During Q4 Next Games announced that the Blade Runner Nexus game will not be launched during 2019 and updated its outlook. We expect Q4 revenue of EUR 8.2m, seeing some support from season 10 of TWD and the typically stronger Q4, as gross bookings have been on a declining trend for both live games, and an EBIT of EUR -1.7m.
Expect Q4 revenue of EUR 8.2m, EBIT EUR -1.7m
With Next Games having previously announced that the Blade Runner Nexus game will not be launched during 2019, of key interest in the H2 report will be any comments on the upcoming new products. We expect Q4 revenue of EUR 8.2m (Q4/18: EUR 11.3m), seeing some support for gross bookings from season 10 of TWD and the typically stronger Q4 due to holiday seasons, with gross bookings having been on a declining trend so far during 2019. We expect an EBIT of EUR -1.7m. Profitability has been burdened by the relatively high R&D costs in relation to revenue from live games.
Launch of new games in 2020 remain crucial
With the delay in the BRN launch from the company’s previous expectations, no new games were launched in 2019. Successful new game launches in 2020 remain crucial for ensuring cash flow stability. Both live games have previously been reported to be operated profitably as independent projects, but development costs relating to new products have kept earnings figures in the red. Our assumption is for BRN to be launched mid Q2/20 and the Stranger Things -game in early Q4/20. The successful rights issue during Q4 together with cost savings during 2019 provided some much-needed breathing room for the otherwise rather strained financial position.
HOLD with a target price of EUR 0.90
Following some estimates revisions due to BRN launch timetable assumptions we continue to expect weaker profitability in 2020 before revenue from new products kick in. We retain our HOLD-rating and target price of EUR 0.90 ahead of the H2 results.
Innofactor’s Q4 results were slightly below our expectations. The net sales in Q4 amounted to EUR 17.4m (Evli EUR 17.0m), while EBITDA amounted to EUR 1.6m (Evli EUR 2.0m). Innofactor expects that its net sales and EBITDA in 2020 will increase from 2019. The BoD proposes that no dividend be paid for 2019 (Evli EUR 0.00).
Solteq will report Q4 results on February 27th. Solteq will report exceptionally good results, aided by gains from the sale of its SAP ERP business to Enfo. We expect the operating profitability to have improved slightly from previous year levels. The divestment should further improve debt ratios sufficiently for Solteq to reinitiate dividend distribution and we expect a dividend proposal of EUR 0.03 per share. We retain our HOLD-rating and target price of EUR 1.50 intact ahead of the Q4 results.
Expect healthy profitability in Q4
We expect Solteq’s Q4 revenue to amount to EUR 15.7m and the adj. EBIT to EUR 1.5m. Solteq sold its SAP ERP business to Enfo Oyj during the quarter and is expected to book an approx. EUR 2.3m profit in Q4, which will clearly boost earnings. The sales of the SAP ERP business in 2019 is expected to be EUR 4m. With the sale of the business Solteq will focus more on the development of its own software products and services. We expect the sale to sufficiently improve debt ratios for Solteq to reinitiate dividend distribution, which have been on hold for two years due to bond covenants and expect a dividend proposal of EUR 0.03 per share.
SAP ERP business sale to affect growth
With the divestment of the SAP ERP business we have lowered our coming year estimates to account for the decrease in sales. With Solteq on a transformation journey towards becoming more focused on its own software products and related services we have not anticipated major growth in the near-term and with the divestment now expect a minor sales decline in 2020. We continue to expect for Solteq to remain on a margin improvement trajectory. 2020 guidance should in our view likely reflect growth in adj. operating profit compared to 2019.
HOLD with a target price of EUR 1.5
Apart from adjustments made based on the divestment of the ERP SAP business, our estimates remain unchanged. We retain our HOLD-rating and TP of EUR 1.5.
Scanfil’s Q4 results fell slightly short of our expectations, yet overall there were no significant changes in the wider picture. The HASEC acquisition helped Industrial as well as Medtec & Life Science top line, however both segments extended strong organic growth. Scanfil aims to grow at a 5% organic CAGR according to its updated long-term target; in our view there’s still good upside to current multiples. Our TP is now EUR 5.75 (5.25), remain BUY.
All segments continued to grow except Communication
Scanfil’s EUR 155m Q4 revenue didn’t quite meet our EUR 159m estimate yet grew by 10% y/y. The Industrial segment (key accounts include Kone) jumped by a third in Q4 (Q3 y/y growth was 52%), and so the EUR 47m revenue almost met our EUR 51m estimate. Scanfil says the performance has been due to organic growth but the HASEC acquisition also helped. Medtec & Life Science (potential customers include Thermo Fisher Scientific and Vaisala) top line grew by 17% y/y and so was in line with our EUR 29m estimate. Scanfil says the segment grew mostly in an organic fashion, receiving only slight lift from the German acquisition. Energy & Automation (e.g. Valmet) continued to grow at a stable organic 6% annual rate. Consumer Applications has stabilized for two quarters now, but the business is rather seasonal. Communication (e.g. Nokia) fell by 24%, yet Scanfil says the segment could well stabilize this year. Scanfil’s Q4 operating margin, at 6.5%, was 60bps below our estimate; we still think the company will easily reach its 7% long-run target.
Scanfil targets 5% organic CAGR during the next four years
We estimate Scanfil has grown at a 6% organic rate during the last two quarters. Considering Scanfil’s strong cost, quality and delivery record we view the company’s 5% CAGR target as highly feasible, especially given a good positioning in Industrial and Medtec & Life Science, which we estimate to contribute some two-thirds of all the organic growth going forward.
In our view Scanfil can be valued above peer multiples
Although lowish valuation multiples are in general well-advised for contract electronics manufacturers, in our view Scanfil’s strong profitability track record as well as organic growth outlook justify higher than the current 6x EV/EBITDA and 8x EV/EBIT ‘20e multiples. Our new TP is EUR 5.75 (5.25), retain BUY.
Gofore’s H2 results came in slightly better than expected. EBITA was at comparison period levels and amounted to EUR 3.0m (Evli EUR 2.8m). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Gofore expects revenue and the comparable adj. EBITA to grow compared to 2019. We retain our HOLD-rating with a TP of EUR 8.2 (8.0).
H2 EBITA slightly above our estimate at EUR 3.0m
Gofore’s H2 results were slightly better than expected. Revenue amounted to EUR 30.6m (pre-announced), with growth of 18.2% y/y, while EBITA remained at comparison period levels and amounted to EUR 3.0m (Evli EUR 2.8m). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Full year relative profitability declined slightly, driven by a 5% increase in average wages and a 1 %-point decrease in billing rates, while customer prices increased 2.3%.
Continued revenue and EBITA growth
Gofore expects revenue and the comparable adj. EBITA in 2020 to grow compared to 2019. Organic growth in H2 was according to our estimates clearly in the single-digits, affected by the drop in demand among certain larger customers in Q3. We expect organic growth to pick-up in 2020. Currently, the impact of inorganic growth in 2020 will be clearly smaller and we expect a decline in sales growth to 9.7% in 2020. Gofore is however sitting on a formidable cash position and continued M&A activity is not unlikely. Profitability in 2020 will be affected by one-offs relating to the divestment of the UK business but cost-savings will bring the impact to a net positive. We expect an improvement in adj. EBITA-margins to 13.6% in 2020.
HOLD with a target price of EUR 8.2 (8.0)
Gofore’s performance has slightly faltered, with slower organic growth and minor margin declines, but we still see performance and thus valuation at above peers. We value Gofore at 16x 2020 P/E (goodwill amortization. adj.) and adjust our target price to EUR 8.2 (8.0) and retain our HOLD-rating.
Gofore’s EBITA in H2 was slightly better than our expectations, at EUR 3.0m (Evli 2.8m). Revenue amounted to EUR 30.6m (pre-announced). The BoD proposes a dividend of EUR 0.23 per share (Evli EUR 0.20). Gofore expects that its net sales and comparable adjusted EBITDA will grow in 2020 compared to 2019.
Exel’s Q4 EBIT failed our estimate due to one-off items. We believe the company remains on an improvement track. Our TP is now EUR 6.75 (6.00), new rating BUY (HOLD).
We continue to expect top line to grow at high single digits
Q4 top line, at EUR 26.6m, was flat y/y and a little soft compared to our EUR 27.8m estimate. This was due to Construction & Infrastructure, where Q4 revenue declined by 2% y/y to EUR 12.6m, while we expected EUR 14.3m. Q4 was thus a relatively slow quarter for the segment, as y/y revenue growth had amounted to 12% in Q3. Exel says there have been no changes to e.g. wind energy demand; there can be wide variations in quarterly figures. Industrial Applications’ Q4 revenue declined by 1% y/y to EUR 8.5m and so the figure was above our EUR 8.0m estimate. Other Applications’ Q4 revenue was in line with our EUR 5.5m estimate. Although Exel’s Q4 top line fell short of our estimate only slightly, adj. EBIT was only EUR 1.3m vs our EUR 2.3m estimate. The gap was due to other operating expenses, which were high at EUR 6.4m (had averaged EUR 5.4m in the last few quarters). Exel says the high expenses were due to items like temporary production plant overlap in China as well as certain production-related one-offs. We find no other surprises on the cost side as gross margin remained at a 60% level and employee expense share continued to decline (down by 200bps y/y to 28%). Order intake continued to increase by 9% y/y.
Exel guides increasing revenue as well as adj. EBIT for ‘20
Exel will likely record some EUR 15m capex in ’20 due to the production plant investment in Austria and residual payments related to a past Chinese acquisition. Overall, we continue to view Exel’s volume outlook favorable. We expect wind energy to provide further strong uplift this year. Exel highlights good volume potential in applications such as cable cores and certain defense-related equipment. With regards to profitability, cost savings measures by themselves should contribute another EUR 1m this year, following the EUR 2m achieved last year.
We see more upside as volume outlook remains good
Exel’s valuation (ca. 8x EV/EBITDA and 13x EV/EBIT ‘20e) is still more than 20% below peer multiples. Although we believe some discount is warranted, we see upside from current levels. Our updated TP is EUR 6.75 (6.00), rating now BUY (HOLD).
Scanfil’s Q4 didn’t reach our expectations as top line missed our estimate by a few percentage points while operating margin was some 60bps lower than we expected.
• Scanfil Q4 revenue amounted to EUR 155m vs EUR 159m/157m Evli/consensus estimates.
• Communication top line was EUR 21m, while we estimated EUR 23m.
• Consumer Applications’ revenue was EUR 28m, compared to our EUR 27m estimate.
• Energy & Automation recorded EUR 29m Q4 revenue vs our EUR 29m estimate.
• Industrial top line amounted to EUR 47m vs our EUR 51m expectation.
• Medtec & Life Science Q4 revenue was EUR 29m, compared to our EUR 29m estimate.
• Scanfil’s Q4 EBIT stood at EUR 10.0m vs EUR 11.3m/11.0m Evli/consensus estimates. Operating margin thus amounted to 6.5%, whereas we estimated 7.1%.
• The BoD proposes EUR 0.15 (0.13) dividend per share to be distributed, which we had estimated at EUR 0.16.
• Scanfil guides ’20 revenue in the EUR 590-640m range and expects adjusted operating profit to amount to EUR 39-43m. We find this guidance range unsurprising as FY ’19 revenue stood at EUR 579.4m while adjusted operating profit was EUR 39.4m. Scanfil says the guidance is subject to exceptional uncertainty due to the coronavirus situation.
• Scanfil updates its long-term financial target, according to which Scanfil aims to reach EUR 700m revenue organically in ’23 (previously EUR 600m in ’20) with a 7% operating margin.
Exel Composites reported Q4 revenue slightly below our expectations, while adjusted operating profit fell short of our estimate more dramatically, by about EUR 1.0m, as other operating expenses were higher than we had estimated.
Verkkokauppa.com’s Q4 result didn’t meet the expectations as sales were negatively impacted by the postal strike and the changed timing of tax refunds. Q4 sales were EUR 159.9m (Evli 168.9m) while EBIT amounted to EUR 4.5m (Evli 6.0m). We keep our rating “HOLD” with TP of EUR 3.5 (3.3).
Q4 result hampered by the postal strike
Verkkokauppa.com’s Q4 result missed expectations as sales growth of 2.6% y/y remained below market growth (Gfk: 4.4%), amounting to EUR 159.9m vs. our EUR 168.9m (cons. 164m). Headwind from the postal strike was stronger than anticipated and the changed timing of tax refunds hampered December sales. Black Friday sales were however better than ever. Gross profit was down by 3% y/y due to heavy campaigning during Black Friday. EBIT was EUR 4.5m vs. our EUR 6.0m (cons. 5.6m) resulting from weakened gross profit. ’19 dividend proposal was in line at EUR 0.21 vs. our EUR 0.21 (cons. 0.21).
Prioritizing profitability in ‘20E
Verkkokauppa.com has normally prioritized growth over profitability, which has weighed down margins, as the competition in the consumer electronics market has been extremely tight and price driven. In ‘20E, the company shifts its focus towards profitability and aims for more moderate growth. We thus expect the growth to be somewhat in line with the market growth (GfK ’19 estimate: 2.9% y/y). In order to strengthen efficiency especially in logistics, the company has commenced to seek opportunities within drop shipping (direct delivery from manufacturer to the customer). This allows Verkkokauppa.com to expand its product assortment without logistical pressures. The company also aims to launch a new subcategory in H1’20E and to increase its private label assortment during 20E, which should have a positive impact on profitability, as private labels normally provide better margins. We expect ‘20E-‘21E sales growth of 3.2-3.5% y/y and EBIT growth of 12-18% y/y.
“HOLD” with TP of EUR 3.5 (3.3)
Verkkokauppa.com guided ‘20E revenue of EUR 510m-530m and EBIT of EUR 12-15m. We have lowered our ‘20E sales estimate by some 5% and expect ‘20E sales of EUR 520m (3.2% y/y), which is at the midpoint of the guidance. Our view of EBIT development is rather conservative as the market is highly competitive and price driven. Despite of the good control over costs we expect to get more visibility on the actions to be taken for more efficient operations. We expect EBIT to grow by ~18% y/y in ‘20E, amounting to EUR 13.3m. On our estimates, Verkkokauppa.com trades at ‘20E-‘21E EV/EBIT multiple of 10.1x and 9.0x, which translates into ~60-70% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 3.5 (3.3).
SSH’s Q4 was broadly in line, capping off a challenging year of sales decline. Given the weak performance in FY’19, SSH’s guidance for 2020 was a small disappointment. We’ve cut our estimates for the coming years and maintain our target price of EUR 1.0, our recommendation is now HOLD (prev. SELL).
Q4 broadly as expected, capping off a disappointing year
Q4 net sales were EUR 4.1 million (vs. 4.7m our Evli). Net sales decreased by -35.8% compared to the previous year mainly due to the end of the patent licensing programme and reduced consulting revenue. Software business sales decreased -11.8% y/y due to the smaller initial project size compared to last year including a large license deal received in Q4’18. Software fees were EUR 1.8 million (2.2m Evli), Professional services were EUR 0.3 million (0.2m Evli), and Recurring revenue was EUR 2.1 million (2.3m Evli). Q4 operating loss was EUR -0.1 million (vs. 0.2m Evli). FY’19 as a whole; net sales of software business (excluding patent income in FY’18) decreased -8% y/y and EBIT was -1.2 MEUR (0.5 MEUR FY’18), attributed to lower sales (despite OPEX reduction), less larger license deals and with significant patent income received in FY’18.
2020 guidance disappointing given 2019 performance
SSH’s expectations for 2020 are revenue growth of 10-15 percent and an improving operating result (-1.2 MEUR FY'19). SSH expect clearly faster growth rates for PrivX and NQX, steady growth for UKM matching the industry growth rate, and modest growth for Tectia, which is the most mature product. The combined effect of these growth rates will result in moderate short-term growth, which SSH expects to accelerate over the next several years. Given the weak performance in SSH’s software business in FY’19, the guidance was a small disappointment and we have consequently cut our sales estimates. We now estimate 16.6 MEUR net sales for 2020E (prev. 17.5MEUR), resulting in 15% y/y growth, which is right at SSH’s guidance upper range. Reaching that level of net sales will require several larger one-off UKM license deals and/or some bigger NQX deals in 2020E. In conjunction with our estimates revision, we have also now amended our estimates regarding the 12 MEUR hybrid loan interest expenses, which as of March 30th 2020 will rise from 7.5% to 11.5%. Management did not provide any new commentary regarding hybrid loan and its possible redemption or re-financing.
Maintain EUR 1.0 target price, recommendation HOLD (prev. SELL)
Despite our estimates cut, the bigger picture remains unchanged in our view; with the underlying question in the investment case still regarding growth. SSH has made progress, but the progress is slow and given SSH’s historical and current growth profile, the question remains will growth materialize. We maintain our target price of EUR 1.0, our recommendation is now HOLD (prev. SELL). As noted before, SSH trades at a clear discount to the cyber security sector. Our target price implies an EV/Sales multiple of 2.4 on our ‘20E estimate, slightly below Nordic software peers, which we see as warranted given weaker metrics and the uncertainty to our estimates.
Fellow Finance’s H2 results fell short of our expectations, with EBIT amounting to EUR 0.3m (Evli 1.0m), affected by non-recurring personnel expense items of EUR 0.7m. Margin pressure is expected to continue in 2020 due to growth investments while accelerated turnover growth is expected in 2021-2022. Fellow Finances BoD proposes that no dividend be paid for FY2019 (Evli EUR 0.04). We retain our HOLD-rating with a target price of EUR 4.0 (4.2).
H2 EBIT below expectations mainly due to NRI’s
Fellow Finance’s H2 results fell short of our expectations. Turnover amounted to EUR 7.0m. Turnover grew 9.1%, driven by an increase in interest yields as commission income decreased slightly. EBIT amounted to EUR 0.3m (Evli 1.0m), impacted by NRI’s of EUR 0.7m. The BoD proposes that no dividend be paid (Evli EUR 0.04 per share). Turnover is expected to grow in 2020 while the operating profit is expected to decrease compared to 2019 (EUR 1.6m) due to growth investments.
Growth investments to lower margins in 2020
We have made downward revisions to our estimates post-H2. We expect an EBIT of EUR 1.3m (prev. 2.1m) and turnover growth of 4% (prev. 6%) in 2020. The consumer lending market in Finland is expected to remain challenging at least during H1/20. We expect limited growth in 2020 as the international operations ramp up and low average consumer loans in Poland, one of the furthest established international markets, will limit the growth pace but offer some upside through higher relative commission yields. We continue to expect growth pick-up in 2021. Profitability will be burdened by higher personnel costs and credit loss reservations associated with scaling up new markets.
HOLD with a target price of EUR 4.0 (4.2)
Fellow Finance’s growth story continues to be challenged by the competitive situation in the consumer lending market in Finland and the visibility into accelerated international growth remains limited. On our revised estimates we adjust our target price to EUR 4.0 (4.2) and retain our HOLD-rating.
Pihlajalinna’s Q4 revenue was as expected at EUR 133.8m (Evli 133.6m) but profitability was weighed down by increased costs. Q4 adj. EBIT amounted to EUR 5.6m (Evli 7.8m). The tender offer by Mehiläinen is currently being reviewed in FCCA and the process is expected to be completed at the end of Q2’20 or latest during Q3’20. For ‘20E we expect a clear improvement in profitability. We keep our rating “HOLD” with TP of EUR 16.
Q4 revenue in line – adj. EBIT missed expectations
Pihlajalinna’s Q4 revenue of EUR 133.8m (5.4% y/y) was as anticipated (Evli/cons EUR 133.6m/134.4m) but adj. EBIT of EUR 5.6m missed the expectations (Evli/cons EUR 7.8m/8.5m). Profitability was hampered by increased costs related to public specialized care which were concentrated towards the end of the year. Volume and profitability developed favorably in sales to insurance companies (revenue up by 18.1% y/y) but also in occupational healthcare, following the acquisition of Terveyspalvelu Verso. Due to the tender offer by Mehiläinen, no dividend for ’19 is proposed (Evli/cons EUR 0.15/0.15).
Expecting a turnaround in profitability
In ’19, the performance especially in occupational healthcare was good as revenue in the segment grew more than 25% y/y. Profitability was positively impacted by increased share of fixed price services and development of operational models. We expect further growth in occupational healthcare but also in sales to insurance companies, of which, the latest agreement with Pohjola Insurance is an example. Due to the uncertainties around the social and healthcare reform, municipalities have become more active on outsourcing projects. In late ’19, Kristiinankaupunki and Pihlajalinna agreed on a partial outsourcing deal, starting in ‘21E, with total value of EUR ~90m. The contract is at least for 15 years. For ‘20E we don’t expect any new outsourcings to occur. We expect profitability (adj. EBIT) to improve by 68% y/y in ’20E and by 7% y/y in ‘21E due to the cost savings resulting from the efficiency improvement program that was launched last summer. We expect ’20E-‘21E revenue growth of ~3-4%.
“HOLD” with TP of EUR 16 intact
The tender offer by Mehiläinen is currently being under review of FCCA. The first phase investigation will be completed by mid-March though it is highly likely that FCCA will initiate continued phase two proceedings after phase one, meaning that the process is likely to be completed at the end of Q2’20E or latest during Q3’20E. According to Pihlajalinna’s guidance, ‘20E revenue and adj. EBIT are expected to increase from ‘19. We expect ‘20E revenue of EUR 538m (3.8% y/y) and adj. EBIT of EUR 35.1 (68% y/y). Our target price is in line with the tender offer price of EUR 16. We keep our rating “HOLD”.
Gofore will report H2 results on February 19th. Revenue in H2 amounted to EUR 30.6m based on reported monthly figures. We expect margin decreases compared to H1/19, driven by the weak development of Gofore’s UK operations and lower revenue, and expect an EBITA-margin of 9.0%. We expect a dividend proposal of EUR 0.20 per share. Growth will in our view slow down clearly in 2020 with a lower impact of inorganic growth and a weaker market outlook. We retain our HOLD-rating and TP of EUR 8.0.
Expecting weaker margins in H2 due to lower revenue
Gofore will report H2 results on February 19th. Revenue in H2 has based on monthly figures been EUR 30.6m, with a y/y growth of 18.4%, of which a majority will have been inorganic growth from the Silver Planet acquisition. Revenue development during H2 has been sub-par, affected partly by a weak development of Gofore’s UK operations, which were divested in early 2020. We expect the revenue development to have had a negative impact on margins and expect the EBITA-margin to decrease to 9.0% (H1/19: 15.1%). Our dividend proposal estimate is EUR 0.20 per share (2019: EUR 0.19).
Relative growth pace seen to slow down
Gofore revised its long-term financial target for growth in December 2019. Growth is still seen to be faster than the target market, but the market growth estimate was lowered from 15-25% to above the general ICT service sector growth but below 10%. Our growth estimate for 2020 is 10.8%, of which some 9% organic (not including possible new M&A activity). Cost savings from divesting the UK operations will have a slight net positive effect on profitability in 2020 and we expect an EBITA-margin of 13.5%.
HOLD with a target price of EUR 8.0
We have not made any notable changes to our estimates pre-H2 apart from adjustments based on monthly revenue figures. We retain our HOLD-rating and target price of EUR 8.0 ahead of the H2 results.
SSH Q4 result was broadly as expected. Outlook for 2020: SSH expects revenue growth of 10-15 percent and an improving operating result.
Marimekko delivered good Q4 result. Sales grew by 17% y/y to EUR 34.7m (Evli 34.6m). Sales growth was strong especially in Finland and APAC region. Adj. EBIT was EUR 3.0m (Evli 2.9m). We keep our rating “HOLD” with TP of EUR 44 (39).
Q4 revenue driven by strong sales in Finland
Marimekko’s Q4 net sales amounted to EUR 34.7m (17% y/y) vs. our EUR 34.6m (cons. 34.3m). Sales performance was strong especially in Finland, driven by increased retail and wholesale sales (retail LFL growth 21% y/y). APAC region performed well also, as revenue was boosted by increased wholesale sales and licensing income. Q4 adj. EBIT was EUR 3.0m vs. our EUR 2.9 (cons. 3.0m). Profitability was driven by strong sales but weighed down by increased fixed costs. Proposed ’19 dividend of EUR 0.90 was below expectations (Evli/cons EUR 1.14/1.08).
Expecting a strong year in home market
We expect the good performance in Finland to continue in ‘20E, driven by broader target audience. Domestic wholesale sales are expected to be substantially higher than in ‘19, due to nonrecurring promotional deliveries. We expect ‘20E sales growth of 12% y/y in Finland, representing some 58% of Marimekko’s total sales in ‘20E. We also expect sales to increase in APAC region, though the coronavirus and political uncertainties could have a negative impact on sales. The actions taken to control the grey export cases in APAC region will also have an impact on sales and result. We expect APAC ‘20E sales growth of 2.5% y/y (H2’19 sales included nonrecurring licensing income of EUR 1.6m).
Increased investments into growth
We expect profitability improvement of ~12-18% y/y in ‘20E-‘21E, supported by strong sales growth and improved gross margin. According to the company, investments into growth will be higher in ‘20E, resulting in increase in personnel and marketing expenses. Store network will be expanded by ~10 new stores and shop-in-shops and some existing stores will be renewed. The company will also develop further its digital business and IT systems. We expect total OPEX to increase by ~10% y/y, hampering profitability development.
“HOLD” with TP of EUR 44 (prev. EUR 39.0)
We have slightly increased our ‘20E sales expectation and expect sales growth of 9.2% y/y (136.9m) while we expect adj. EBIT of EUR 20.1m (17.5% y/y). We see that Marimekko is able to achieve and maintain higher margins than the premium goods peer group, which justifies higher multiples similar to our luxury goods peer group median. On our estimates, Marimekko trades at ‘20E-‘21E EV/EBIT multiple of 16.7x and 14.6x which translates into ~20% discount compared to the luxury peer group. We keep our rating “HOLD” with TP of EUR 44 (EUR 39).
Aspo’s EUR 5.4m Q4 EBIT missed us and consensus by ca. EUR 1.0m. The miss was due to Telko. We believe Aspo has operational upside long-term, however we also view current valuation neutral given the uncertainty surrounding the improvement slope. We have made only minor estimate revisions. Our TP remains EUR 8.25, rating still HOLD.
ESL didn’t disappoint, yet macro uncertainty still weighs
ESL posted EUR 4.4m Q4 EBIT i.e. a 5% y/y increase and slightly above our EUR 4.3m estimate. In our view this was a decent performance considering Q4 cargo volumes declined y/y from 4.5m tonnes to 4.0m tonnes as steel industry shipments fell dramatically. Energy industry shipment volumes were also soft due to warm weather. Aspo sees Baltic Sea steel industry cargo volumes now stabilizing. Even though the LNG-powered vessels as well as AtoB@C are performing well, there’s uncertainty regarding ESL’s EBIT improvement slope this year. Nevertheless, even if steel industry shipments don’t rebound meaningfully in ’20 we would still expect ESL to achieve significantly higher EBIT. Telko’s EUR 0.9m Q4 EBIT didn’t meet our EUR 2.2m estimate and declined significantly y/y from EUR 3.4m. EBIT took a EUR 0.9m hit due to low volumes and raw materials prices, and FX. Telko also destocked low-margin low-turnover inventory, which also had a negative EUR 0.9m effect. Leipurin bakery business seems to be improving especially in Russia, however given the macro uncertainties around ESL’s and Telko’s profit development we don’t see this as a meaningful enough value driver currently.
Aspo guides improving EBIT for this year
We still view ESL able to post some EUR 5-6m in quarterly EBIT; should steel industry volume development turn positive in ’20 the dry bulk carrier should have no trouble achieving EUR 20m (compared to EUR 14.6m last year). Aspo says Telko’s Q1 will still be burdened by destocking measures. In our view Telko should still be able to achieve quarterly EBIT close to EUR 3m this year.
In our view valuation is neutral given uncertainty
There’s significant upside potential relative to Aspo’s long-term targets, however in our opinion the bridge there is not as of now stable enough to turn our view more positive. Our TP is still EUR 8.25, while our rating remains HOLD.
Endomines is nearing commercial production at Friday, after several bumps on the road, and ramp-up to design capacity is expected in March 2020. The production delay has put a clear dent in Endomines’ financial situation and additional financing will in our view be needed in the near-term to bring further assets into production. With the financing risk overshadowing the future potential we downgrade to SELL (HOLD) with a TP of SEK 5.0 (4.7).
Nearing commercial production at Friday
Endomines continued to post meager figures in Q4, as gold concentrate sales from Friday have not yet commenced. Bottom-line figures were as a result clearly in the red, with EBITDA at SEK -15.1m. Endomines expects to ramp-up production at Friday to design capacity (3,445 tonnes/month) in March 2020. The concentrate sales agreement is yet to be confirmed but should in our view be signed during Q1. Built up ore stockpiles will speed up production ramp-up, but we expect head grades to be well below expected typical grades during the first half of 2020.
Financial position again at risk
Endomines financial situation has again become a reason for concern, as group cash fell to SEK 15.7m (Q3/19: SEK 61.9m) in Q4. The Friday production facility investments are largely behind and cash flows will improve once production at Friday picks up. Friday cash flows will however not suffice to develop new assets and Endomines will in our view seek additional financing in the near future. Previous debt-financing options have not been favourable and a rights issue could be on the table.
SELL (HOLD) with a target price of SEK 5.0 (4.7)
Endomines is finally nearing production start at Friday and has continued consolidating its land assets in Idaho and is seeking to expand further through the transaction with Transatlantic. The gold price development has further remained favourable. The positive drivers are in our view, however, overshadowed by the near-term financial risks. We adjust our target price to SEK 5.0 (4.7) and downgrade to SELL (HOLD).
Raute’s Q4 was mixed relative to our estimates. More important was Raute’s commitment to pursue emerging markets growth. We retain our EUR 25 TP and HOLD rating.
Q4 put an end to a year following the record-high one
Raute reported EUR 39.3m in Q4 sales, above our EUR 37.0m estimate but down by 27% y/y. Project deliveries sales declined by 36% y/y to EUR 24.1m, while technology services top line was also soft at EUR 15.2m (down 10% y/y) owing to the low demand for cyclical modernization projects. We had expected Raute to post EUR 3.0m in Q4 EBIT as the company indicated Q4 would be the strongest in ’19 in terms of profitability, however the figure was realized at EUR 1.8m due to certain unforeseen costs owing to the record-high workload in ’18. With regards to order activity, Raute booked EUR 17m in new orders during Q4. The figure was slightly below our EUR 19m expectation and declined by 39% y/y. The EUR 4m project order intake was indeed low, while services orders dropped by 32% to EUR 13m due to lack of modernizations. In our view the cool market is not, at least for now, a major problem for Raute as the company should still be able to post relatively stable top line this year thanks to the EUR 58m Segezha project (and total EUR 88m order book).
Raute guides flat sales and lower EBIT for this year
In our opinion Raute’s decision to guide stable sales development for ’20 wasn’t a surprise. In practice Raute’s guidance policy is rather loose and given the recent order flow we see sales slightly down this year. The picture could of course change swiftly should larger orders materialize. In our view the main takeaway was that Raute expects lower EBIT this year as the company is responding to the market shift by committing itself to increased efforts in R&D and marketing. As European activity remains low due to recent major investment cycle in new capacity, Raute aims to grow in emerging markets more seriously than before by segmenting its equipment to better reach lower price points.
We update our estimates following the report
We have cut our estimates for this year as the market environment has remained cool. While we previously expected Raute’s ‘20e revenue to amount to EUR 148.6m, we now expect EUR 141.8m. With regards to operating profit, we previously expected Raute to achieve EUR 11.1m this year. We now see the figure down to EUR 7.8m as Raute has decided to invest more in developing its offering more attractive for emerging markets. Raute used to spend some EUR 3m annually in R&D; looking at Raute’s latest figures we think the company is on track to spend more than EUR 5m this year. Moreover, the large Segezha order makes up a significant portion of workload this year and thus its lower margin will restrict operating profit potential.
We continue to view valuation neutral
In the long-term an expanded offering could have big financial potential. Still, the current picture is rather murky. We view Raute’s valuation (8x EV/EBITDA and 12x EV/EBIT ‘20e) neutral in the current environment. Our TP is still EUR 25, rating HOLD.
Verkkokauppa.com’s Q4’19 revenue grew by 3% and was EUR 159.9m vs. Evli EUR 168.9m and consensus of EUR 164.0m. Gross profit was EUR 22.2m (13.9% margin) vs. EUR 24.7m (14.6% margin) Evli view. EBIT was EUR 4.5m vs. EUR 6.0m/5.6m Evli/cons. 2020E guidance: The company expects revenue to be 510-530 million euros and comparable operating profit to be 12-15 million euros.
• Q4 revenue was EUR 159.9m vs. EUR 168.9m Evli view and EUR 164.0m consensus. Sales grew by 3% while market growth was 4.4% (GfK estimate). Revenue growth in Q4 was boosted by record sales during Black Friday, additional marketing activities and campaigning. Tax refund changes and Posti’s strike had a negative impact on sales during the Christmas season.
• Q4 gross profit was EUR 22.2m (13.9% margin) vs. EUR 24.7m (14.6% margin) Evli view. Gross profit weakened due to heavy campaigning during Black Friday.
• Q4 EBIT was EUR 4.5m (2.8% margin) vs. EUR 6.0m (3.6% margin) Evli view and EUR 5.6m (3.4% margin) consensus. EBIT decreased mostly due to a lower gross margin.
• Q4 eps was EUR 0.07 vs. EUR 0.10/0.09 Evli/cons.
• 2020 guidance: The company expects revenue to be 510-530 million euros and comparable operating profit to be 12-15 million euros.
• The company also decided on a quarterly dividend of EUR 0.048 per share. Total ’19 dividend is EUR 0.21 vs. our EUR 0.21 and EUR 0.21 consensus.
Pihlajalinna’s Q4’19 revenue amounted to EUR 133.8m vs. EUR 133.6m/134.4m Evli/cons, while adj. EBIT landed at EUR 5.6m vs. EUR 7.8m/8.5m Evli/cons estimates. Organic growth increased by 3.1% y/y. 20E consolidated revenue is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019.
• Q4 revenue was EUR 133.8m vs. EUR 133.6m/134.4m Evli/cons estimates. Revenue grew by 5.4% y/y. Organic growth was 3.1% y/y.
• Q4 adj. EBITDA was EUR 14.4m (10.8% margin) vs. EUR 16.7m/17.5m Evli/cons estimates. Profitability was affected by the costs of public specialized care that were concentrated towards the end of the year. Personnel expenses were also increased by stricter requirements imposed by the authorities.
• Q4 adj. EBIT was EUR 5.6m (4.2% margin) vs. EUR 7.8m/8.5m (5.8%/6.3%) Evli/cons estimates.
• Q4 EPS was EUR 0.16 vs. EUR 0.23/0.21 Evli/cons.
• Due to the Mehiläinen’s tender offer, no dividend for ’19 is proposed (EUR 0.15/0.15 Evli/cons).
• Guidance for 20E: consolidated revenue is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019
Fellow Finance’s H2/2019 results fell short of our expectations. Revenue was as per co’s previous guidance EUR 7.0m, while EBIT and adj. EBIT amounted to EUR 0.3m and EUR 1.0m respectively (Evli EUR 1.0m/1.0m). Fellow Finance’s BoD proposes that no dividend be paid for 2019 (Evli EUR 0.04 per share). Fellow Finance expects turnover to grow in 2020 while growth efforts are expected to decrease the operating profit compared to 2019.
Aspo reported Q4 EBIT at EUR 5.4m i.e. missing our and consensus estimate by about EUR 1.0m. In our view the EBIT miss was wholly attributable to Telko.
Endomines did not sell any gold concentrate from Friday in Q4, with commercial production expected to commence in March 2020. Full production at Friday is sought to be achieved during Q1. No numeric production guidance was given but ramp-up to design capacity (3,445 tonnes per month) is expected in March 2020.
Raute reported Q4 revenue above our expectations, however operating profit fell clearly short of our expectations as Raute discovered costs attributable to ’18 workload. As expected, Raute guides flat sales development for ’20, however we didn’t expect the company to guide lower operating profit for the year.
Vaisala ended a solid 2019 with a good Q4 that beat expectations. The outlook for 2020 was rather cautious with current expectations already at upper range of guidance. Both acquired companies contributed significantly in last year’s growth, and we see further M&A as key to accelerate growth and maintain current valuation. Our estimates remain broadly unchanged post Q4 and thus we maintain previous TP of EUR 29.5. Due to continued share price rally our recommendation is now SELL (prev. HOLD).
A good finish to a solid year
Vaisala ended a solid 2019 with a good Q4 that beat expectations. Q4 net sales grew 9% y/y to 118.1 MEUR (118 Evli, 116 cons) and EBIT improved +27% to 17.7 MEUR (16 MEUR Evli/cons.). Dividend proposal is 0.61 (0.60 Evli/cons.). Net sales growth was driven by good level of delivery volumes thanks to record high order book during end of last year. Q4 EBIT improvement was driven by gross margin improvement of 170 bps due to net sales growth and scale benefits.
Both business areas fuelled by M&A
W&E Q4 net sales grew 5% (1% excl. FX and M&A) to 81.9 MEUR (80.0 Evli), with growth in all regions except China. W&E Q4 EBIT was 12.1 MEUR (10 Evli). W&E order intake growth was -3%, -8% growth excl. FX and M&A, due to less larger projects during Q4. IM Q4 net sales grew 18% (5% excl FX and M&A) to 36.3 MEUR (38.0 Evli) and was strong in all regions. IM Q4 EBIT was 5.5 MEUR (7.6 Evli). IM order intake grew by 19%, 8% excl. FX and M&A. Both acquired companies, i.e. Leosphere (W&E) and K-patents (IM), have been successfully integrated to Vaisala’s platform and contributed significantly in FY’19 growth. Half of IM’s FY’19 net sales growth came from K-Patents acquisition, while W&E FY’19 net sales growth excluding FX and M&A was 2%. Vaisala has indicated the possibility of further add-on acquisitions in liquid measurements area. With its platform, strong balance sheet and current valuation, Vaisala is in a good position to continue value accreditive acquisitions in our view.
2020 outlook slightly soft as expectations already in upper end
Vaisala estimates its 2020 net sales to be in the range of 400–425 MEUR and EBIT in the range of 38–48 MEUR, which practically means 0-5% growth and 9-12% EBIT margins. Given that our previous 2020 estimates, as well as consensus figures (FY’20E net sales 423M, EBIT 48.3 MEUR) were already in the upper end of the outlook, the guidance is cautious. Vaisala expects W&E market segments to be stable or somewhat grow, while industrial and liquid measurement market segments are expected to continue to grow.
Estimates unchanged, valuation is running ahead of things
Apart from a slight trim to our sales estimates, our estimates are unchanged for the coming years. With the acquired businesses integrated into Vaisala’s sales channel and continued stable to good organic momentum in both W&E and IM, we see Vaisala’s targeted above 5% sales growth achievable and road to >12% margins progressing well. The underlying main driver for growth is continued good growth in industrial business supported by further bolt-on acquisitions. As a result, we estimate IM share of Vaisala’s EBIT to grow to 66% in ‘21E (vs. 56-57% in ’17-’18), driving ~10% EBIT growth in coming years. Vaisala’s share har continued to rally, pushing new all-time highs. On our estimates, Vaisala is trading at PPA amortizations adjusted EV/EBIT multiples of 24.7x and 22.4x for ‘20E and ‘21E, a ~50% premium to our peer group median despite exhibiting lower profitability profile than our peer group. On our adjusted ‘20E P/E multiples, premium is roughly 50% as well. Despite Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions, we see current valuation too stretched given our current growth and earnings estimates (which do not account for further M&A). We maintain previous TP of EUR 29.5, which values Vaisala at EV/EBIT 23.5x and 21x on ’20-21E, still at ~40% premium to our peer group. Due to continued share price rally our recommendation is now SELL (prev. HOLD).
Marimekko’s Q4 net sales increased by 17% and amounted to EUR 34.7m vs. EUR 34.6m/34.3m Evli/cons. Adj. EBIT was EUR 3.0m vs. EUR 2.9m/3.0m Evli/cons. In 2020E, revenue is expected to be higher than in the previous year while adj. EBIT is estimated to be approximately at the same level or higher than in the previous year.
Vaisala’s Q4 net sales grew 9% to 118.1 MEUR vs. 118 MEUR our expectation and 116 MEUR consensus. Q4 reported EBIT was 17.7 MEUR vs. our expectation of 16 MEUR (16 MEUR consensus). Dividend proposal is 0.61(0.60 Evli, 0.60 consensus).
• Group level results: Q4 net sales grew 9% to 118.1 MEUR vs. 118 MEUR our expectation and 116 MEUR consensus. Q4 EBIT was 17.7 MEUR vs. our expectation of 16 MEUR (cons. 16 MEUR). EPS was 0.41 (0.35 Evli, 0.34 consensus).
• Dividend proposal is 0.61(0.60 Evli, 0.60 consensus).
• Gross margin was 56.0 % vs. 54.3 % last year.
• Orders received was 103.3 MEUR vs. 99.1 MEUR last year. Orders received increased by 4% and growth without currency impact and acquisitions was -3%.
• Weather & Environment (W&E) net sales grew 5% (1% excl. FX and M&A) to 81.9 MEUR vs. 80.0 MEUR our expectation. EBIT was 12.1 MEUR (10 MEUR Evli). Order intake growth was -3% in Weather and Environment, -8% growth excl. FX and M&A.
• Industrial Measurements (IM) net sales grew 18% (5% excl FX and M&A) to 36.3 MEUR vs. 38.0 MEUR our expectation. EBIT was 5.5 MEUR (7.6 MEUR Evli). Industrial Measurements order intake grew by 19%, 8% excl. FX and M&A.
• Business outlook for 2020: Vaisala estimates its full-year 2020 net sales to be in the range of EUR 400–425 million and its operating result (EBIT) to be in the range of EUR 38–48 million.
Etteplan’s Q4 results were below expectations, driven by the impact of the industrial strike in Finland. The guidance for 2020 EBIT was softer than expected, with some caution being taken due to the unpredictability in the impact of the coronavirus. Demand outlook comments were nonetheless slightly positive based on early 2020 development. We have slightly lowered our 2020 estimates to account for a likely weaker Q1. We retain our HOLD-rating with an ex-div TP of EUR 10.2.
Clear negative impact of industrial strike
Etteplan’s Q4 results were below expectations. Revenue amounted to EUR 71.8m (EUR 72.1m/72.7m Evli/cons.), with 14.2% growth y/y (1.4% organic excl. FX), driven by the mid-2019 acquisitions. EBIT amounted to EUR 5.6m (EUR 6.1m/6.3m Evli/cons.) and EBIT excl. NRI’s to EUR 5.1m. Profitability was below comparison period figures in all service areas, driven mainly by the impact of the industrial strike in Finland in December. Challenges in certain projects also affected profitability of the Software and Embedded Solutions service area. The BoD’s dividend proposal is EUR 0.35 per share (EUR 0.36 Evli/cons.)
Coronavirus prompts EBIT guidance cautiousness
Etteplan expects revenue to grow clearly in 2020 and EBIT to be at the same level or improve compared to 2019. The EBIT guidance was softer than expected, reflective of a more cautious approach due to uncertainty related to the coronavirus. Comments on general demand outlook were slightly more positive, with signs of pick-up following slightly decreased political uncertainty. We have lowered our 2020 EBIT estimate by some 7%, expecting a weaker Q1 due to the coronavirus.
HOLD with an ex-div target price of EUR 10.2
On our revised estimates and slightly increased caution due to the coronavirus uncertainty we adjust our target price to EUR 10.2 ex-div and retain our HOLD-rating, valuing Etteplan at 14x 2020 P/E.
Etteplan's net sales in Q4 amounted to EUR 71.8m, in line with our estimates and consensus (EUR 72.1m/72.7m Evli/cons.). EBIT amounted to EUR 5.6m, below our estimates and below consensus (EUR 6.1m/6.3m Evli/cons.). Dividend proposal: Etteplan proposes a dividend of EUR 0.35 per share (EUR 0.36 Evli/Cons.).
Fellow Finance will report H2/19 results on February 14th. Revenue growth will based on company guidance have been around 10% during H2 despite a minor decline in intermediated loan volumes. We expect the slower growth and increased competition in Finland to have had a negative impact on margins. We expect a dividend proposal of EUR 0.04 per share. We retain our HOLD-rating and lower our target price to EUR 4.2 (5.0) ahead of H2 results.
Slower loan volume growth puts pressure on margins
Company guidance for 2019 puts full-year revenue growth at around 19% and the implied H2/19 growth will be around 10%. Intermediated loan volumes during H2 have seen minor declines compared with H2/18, affected by the increased competition within consumer lending in Finland. Revenue growth is as such expected to be driven by higher interest income. We expect margins to have continued to decline with the slower revenue growth and the impact of the increased competition on broker commissions. We expect a dividend proposal of EUR 0.04 per share (2018: 0.04).
2020 expected to remain a ramp-up year
We expect 2020 to continue to be challenging for Fellow Finance. Fellow Finance’s growth story was heavily dented by the stalling intermediated loan volume development and profitability has declined. We expect 2020 to continue to be a ramp-up year for international operations but do not expect the growth to materialize significantly before 2021. Growth investments are also expected to have an impact on margins, and we expect a minor decline in operating profit in 2020.
HOLD with a target price of EUR 4.2 (5.0)
Without any clear signs of growth pick-up, we find it hard to identify clear near-term upside potential. The 2020 guidance should hopefully provide more light on the matter. We lower our target price to EUR 4.2 (5.0) and retain our HOLD-rating.
DT reported a Q4 that clearly missed ours and market expectations. DT’s lowered medium-term financial target regarding sales growth also put a slight dent in our growth story investment case. Due to the miss and lowered medium-term growth target, we have clearly cut our estimates for the coming years. Despite our estimates cut, we remain, as noted in our preview comment, positive towards the longer-term investment case as we continue to see DT executing well on a growth market with strong drivers. Our target price remains EUR 24, recommendation is now HOLD (prev. BUY).
Q4 result missed clearly expectations, FY’19 growth decent
DT’s Q4 net sales amounted to EUR 25m (-2.5% y/y) vs. EUR 27.7m/27.4m Evli/consensus estimates. Q4 EBIT was EUR 3.2m (12.8% margin) vs. EUR 5.1m/4.7m Evli/cons. R&D costs amounted to EUR 2.66m or 10.6% of net sales. Dividend proposal is 0.38 (0.38 Evli / 0.39 cons.). SBU had net sales of EUR 16.4m vs. EUR 19m Evli estimate. SBU sales grew 6% y/y, but growth was affected by temporarily lower sales in CT products and delayed deliveries to one key customer. MBU delivered net sales of EUR 8.6m which was in line with our estimate of EUR 8.7m. Net sales of MBU decreased by -15.4% y/y due to continued softness in the medical imaging market. In FY’19, DT posted +9.2% growth (+5.5% in FY’18), with 16.6% EBIT-margin (19.7% in FY’18) hampered by increased costs and slowdown in MBU.
Growth to continue in 2020, but circumstances lower visibility
As usual, the visibility in DT’s case is quite low. DT estimates annual growth to remain at previous 5-6% level in all market segments in 2020, but coronavirus may have a temporary adverse impact on growth in H1. DT also estimates the temporary slowdown in the global medical CT market to continue in Q1, and the situation to normalize at the end of 2020. DT still sees H1 growth despite headwinds. DT expects significant sales contribution in 2020E from recently launched Aurora product family for SBU as well as roughly 1 MEUR contribution from X-Panel on MBU side.
Updated financial targets puts slight dent in growth story
DT updated its medium-term financial targets; DT now aims to grow at least 10% (prev. 15%) and achieve EBIT-margin at or above 15% (no change) in medium term. DT announced in Q2’19 its updated strategy until 2025; the new strategic target is to be the growth leader in digital x-ray imaging detector solutions and a significant player in other technologies and applications where the company sees good business opportunities. DT estimates that the market for digital x-ray imaging detector solutions will be around EUR 3 billion in 2025. DT’s previous strategy until 2020 was based on being the leader in computed tomography and line-scan x-ray detectors and solutions. The total market, as per the company's previous strategy, is estimated to be around EUR 700 million in 2020, of which DT has roughly 20% share. Despite a larger market scope, DT sees moderating the sales growth targets as prudent as growth becomes more difficult as a +100 MEUR revenue company. We’ve emphasized the growth story in our investment case based on the strong growth drivers, especially in China, where Beijing’s “Made in China 2025” initiative has led to double digit growth rates for many local Chinese OEM’s that are DT’s clients. Although market drivers remain intact, we lower our sales growth estimates for 2020-21E from 14-15% to 10-12.5% based on the updated financial targets.
Estimates cut, we maintain target price of EUR 24
Based on the Q4 report and lowered longer-term sales growth targets, we have cut our sales estimates 7-9% and our EBIT estimates 17-20% for 2020-21E. We now estimate DT to grow 10% and 12.5% in 2020-21E (prev.14-15%). We estimate 2020E EBIT to grow 12% to 19 MEUR (17% EBIT margin) as SBU’s Aurora volumes ramp-up in H2 and MBU returns to growth mode after temporary slowdown. On our new estimates, DT is trading at ‘20E 17.2x EV/EBIT and 23.6x P/E, which is broadly in line with our peer group. Despite our estimates cut, we remain, as noted in our preview comment, positive towards the longer-term investment case as we continue to see DT executing well on a growth market with strong drivers. We do not however currently have enough conviction in our estimates; therefore, we maintain our target price at EUR 24, recommendation is now HOLD (prev. BUY).
DT’s Q4 net sales at EUR 25m (-2.5% y/y) vs. EUR 27.7m/27.4m Evli/consensus estimates. SBU sales grew +6% to EUR 16.4m (EUR 19m our expectation) and MBU sales declined -15.4% to EUR 8.6m (EUR 8.7m our expectation). DT’s Q4 EBIT came in at EUR 3.2m vs. our estimates of EUR 5.1m (EUR 4.7m cons). EBIT excluding non-recurring items was EUR 3.9 million (4.9 Q4’18). Dividend proposal is 0.38 (0.38 Evli / 0.39 consensus).
• Group level results: Q4 net sales amounted to EUR 25m (-2.5% y/y) vs. EUR 27.7m/27.4m Evli/consensus estimates. Q4 EBIT was EUR 3.2m (12.8% margin) vs. EUR 5.1m/4.7m Evli/cons. R&D costs amounted to EUR 2.66m or 10.6% of net sales. Dividend proposal is 0.38 (0.38 Evli / 0.39 cons.).
• Security and Industrial Business Unit (SBU) had net sales of EUR 16.4m vs. EUR 19m Evli estimate. SBU sales grew 6% y/y but growth was affected by temporarily lower sales in CT products and delayed deliveries to one key customer.
• Medical Business Unit (MBU) delivered net sales of EUR 8.6m which was in line with our estimate of EUR 8.7m. Net sales of MBU decreased by -15.4% y/y due to softening in the medical CT market and the ramp-down of one key MBU customer’s product.
• Outlook update: DT estimates annual growth to remain at previous 5-6% level in all market segments in 2020, but the indirect impacts of the corona virus epidemic in Asia may have a temporary adverse impact on growth in H1. DT also estimates the temporary slowdown in the global medical CT market to continue in Q1, and the situation to normalize at the end of 2020, but demand may fluctuate significantly.
• New financial targets: DT aims to increase sales by at least 10% per annum and to achieve an operating margin at or above 15% in the medium term. (Previous target: to increase sales by at least 15% p.a. and to achieve an EBIT margin at or above 15% in the medium term)
Finnair delivered strong Q4 result. Q4 revenue was EUR 774.9m vs. our 740m (cons. 744m) while adj. EBIT amounted to EUR 31.2m vs. our 8.2m (cons. 9.0m). Finnair expects ‘20E capacity growth of ~4% but didn’t provide more detailed ‘20E guidance due to the coronavirus. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).
Q4 better than expected
Finnair’s Q4 result beat the expectations in terms of both revenue and profitability. Revenue grew by 13.4% y/y and amounted to EUR 774.9m vs. our EUR 740m (cons. 744m). The difference is mainly due to Finnair’s better than anticipated revenue management (i.e. ticket fares). Revenue development was good especially in North America (38.5% y/y) and in Europe (17.3% y/y). Q4 costs were as expected with fuel cost of EUR 171m (Evli 171m) and other OPEX (incl. D&A) of EUR 588m (Evli 580m). Q4 adj. EBIT was EUR 31.2m vs. our EUR 8.2m (cons. EUR 9.0m). Proposed dividend for ’19 is EUR 0.20 vs. our EUR 0.11 (cons 0.10).
Expecting ASK growth of ~4% y/y
Finnair’s capacity (ASK) growth was strong in ’19 (11.3% y/y), driven by two new A350s, received last year and one A350, received in Dec’18. The added capacity was mainly put to Asian routes. Two more A350s are expected to be delivered during H1’20E. For 20E, Finnair guides capacity growth of ~4% y/y while our expectation is at 3.6% y/y. We expect the good performance to continue especially in Europe where many airlines have cut capacity but also in North America. We expect cargo to remain relatively soft in ’20E due to continuing uncertainties around global trade.
Weak visibility due to the coronavirus
Finnair did not provide a revenue estimate for 20E, as the total impacts of the coronavirus are still unknown. Finnair has suspended all the flights to mainland China, which might continue until the end of March. Finnair estimates that the Q1’20E financial impacts remain limited as the post Chinese New Year time is usually relatively quiet in terms of traveling. Due to the coronavirus, one delivery of A350 will be delayed from April to June. We have slightly decreased our Q1’20E revenue expectation (approx. -1%) but expect the impacts for the full year to remain limited.
“HOLD” with TP of EUR 6.3 (6.5)
We expect 20E revenue of EUR 3191m (3% y/y) and adj. EBIT of EUR 171m (5% y/y), resulting in adj. EBIT margin of 5.4%. However, as the visibility of the coronavirus is weak, there are uncertainties especially with our short-term estimates. On our estimates, Finnair trades at ‘20E-'21E EV/EBIT multiple 9.2x and 8.4x, which translates into ~10-20% premium compared to the peers. We keep our rating “HOLD” with TP of EUR 6.3 (6.5).
Raute reports Q4 results on Thu, Feb 13. Our estimates stand unchanged since we see market softness still exists as before. We retain our EUR 25 TP and HOLD rating.
Raute did not disclose any large orders in late ‘19
We see no reason to update our estimates for Q4 and beyond as Raute hasn’t released information regarding any larger booked orders since the company disclosed the record-large EUR 58m Russian project. Raute booked the Segezha order at the end of Q3 and the project will be delivered this year, meaning Raute has a decent backbone from which to work on in an environment of cooling demand. All in all, our view towards Raute hasn’t changed in the sense that we continue to wait to see more positive signals in the market, which is still mostly cooling in the wake of a strong capacity investment boom in Europe.
We expect Q4 order intake to have declined to EUR 19m
Raute’s Q3 revenue decreased by 30% y/y to EUR 33.7m as project deliveries sales fell by 51% y/y to EUR 16.5m. Meanwhile technology services top line grew by 20% y/y to EUR 17.2m. However, we note services order intake fell to only EUR 8m in Q3 because of the slow demand for more cyclical modernization projects (the order intake had averaged some EUR 15m in recent quarters). Overall, Q3 order intake increased to EUR 73m from EUR 42m in Q3’18 owing to the Segezha order. We expect Q4 revenue to decline 32% y/y to EUR 37.0m as we see project deliveries down by 47% to EUR 20.0m and services up marginally to EUR 17.0m. We see Q4 EBIT at EUR 3.0m (EUR 3.4m a year ago); this would make Q4 the strongest quarter of the year in terms of profitability, as Raute suggested before.
Our TP of EUR 25 per share and HOLD rating are unchanged
We don’t expect Raute to report meaningful changes to current market environment i.e. the sentiment is still characterized by uncertainty. We expect Raute to guide flat revenue and EBIT for FY ’20; we see Raute’s profitability improving slightly this year as the company is in a relatively good position thanks to the EUR 58m order. Still, Raute’s conservative guidance policy is unlikely to reflect this. We view valuation (6.5x EV/EBITDA and 8.5x EV/EBIT ‘20e) neutral given the market softness. We believe the BoD will propose a dividend of EUR 1.40 per share.
Consti’s Q4 results were quite in line with our estimates, with net sales at EUR 78.3m (Evli EUR 80.9m) and operating profit at EUR 2.8m (Evli EUR 3.0m). We expect sales to decline around 10% in 2020 due to continued weak order backlog development. The new organization along with the related cost savings should absorb the expected lower volumes and we continue to expect clear earnings improvement. We retain our HOLD-rating with a target price of EUR 8.0 (7.0).
Q4 results largely in line, order backlog continued decline
Consti’s Q4 results were quite in line with our estimates. Net sales amounted to EUR 78.3m (Evli EUR 80.9m) and operating profit to EUR 2.8m (Evli EUR 3.0m). Profitability was still slightly affected by the project that had a significant negative impact on H1/19 profitability. Consti’s BoD proposes a dividend of EUR 0.16 per share (Evli 0.17). The order backlog continued to decline and was down 17.4% y/y at EUR 186m.
Expecting sales declines but clear profitability improvement
Following the continued weak order backlog we have lowered our coming year sales estimates by some 10% and now expect a 9.8% net sales decline in 2020. We expect Consti to be able to absorb the volume declines without major margin pressure due to the new organization and related cost savings. We have slightly raised our 2020 EBIT estimate, now expecting an EBIT of EUR 10.7m. The Q4 results in our view provided continued support for the sustainability of Consti’s successful profitability turnaround.
HOLD with a target price of EUR 8.0 (7.0)
On our slightly raised earnings estimates and increased confidence in the profitability turnaround, we adjust our TP to EUR 8.0 (7.0), valuing Consti at ~7.5x 2020E EV/EBIT, with the Hotel St. George arbitration proceeding still warranting the clear discount to peers. We retain our HOLD-rating.
Tokmanni’s Q4 result was in line with expectations and the company executed well its strategy to improve profitability. We expect further improvement in profitability, driven by gross margin increase. We expect Tokmanni to reach EUR 1bn (6.2% y/y) of sales in 20E and adj. EBIT increase of ~17% y/y (EUR 82m). We keep our rating “BUY” with TP of EUR 16 intact.
Good performance continued
Tokmanni’s Q4 result was broadly in line with expectations with revenue of EUR 284.8 (+6.1% y/y) vs. our EUR 287.7m (cons. 287.0m). Revenue was driven by successful campaigns whereas the timing of tax refunds, late winter in certain areas and the postal strike weighed down sales. Gross margin increased to 35.2% (Q4’18:34.4%) vs. our 35.5%, reflecting the increase in direct import (28.6% vs 26.4% of total sales in Q4’18). Costs were well controlled and the decreased relative share of operating expenses (18.9% vs. 19.8% in Q4’18) impacted positively on adj. EBIT, which improved by ~26.5% y/y to EUR 32.0m vs. our EUR 32.7m (cons. 31.8m). Proposed ’19 dividend is EUR 0.62 (EUR 0.62/0.60 Evli/cons).
Expecting profitability to further improve and sales of EUR 1bn
Tokmanni successfully executed its strategy to improve profitability in ’19 as adj. EBIT margin rose from 6.0% (2018) to 7.5%. In our view, there is still potential for further profitability improvement, especially through gross margin improvement. The company targets to increase its adj. EBIT margin gradually to ~9% and indicated that gross margin improvement potential is some 0.5-1.5% while the operating expenses improvement potential is ~0.5-1.0%. We expect gross margin (34.4% in ’19) to improve to 34.8% in ‘20E and to 35.1% in ‘21E, boosted by increased share of direct import (and own products). We expect the relative share of operating expenses to decrease by 30-40bps in ‘20E-21E, driven by more efficient supply chain. Tokmanni targets to reach revenue of EUR 1bn (timeline not specified) which we expect to be reached during 20E, as increased customer flows and new store openings are boosting revenue growth. We expect LFL sales growth of 2.0% and 1.7% in 20E-21E.
“BUY” with TP of EUR 16 intact
Tokmanni expects good revenue growth in ‘20E and slight growth in LFL sales. The adj. EBIT margin is expected to increase from the previous year. We have slightly increased our estimates and expect 20E sales of EUR 1bn (6.2% y/y) and adj. EBIT of EUR 82.1 (~17% y/y), resulting in adj. EBIT margin of 8.2%. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 14.6x and 13.7x which is on par with its Nordic non-grocery peers and 25-27% discount compared to the international peer group. We keep our rating “BUY” with TP of EUR 16.
Finnair’s Q4’19 adj. EBIT was EUR 31.2m vs. our expectation of EUR 8.2m and consensus of EUR 9.0m. Revenue was EUR 775m vs. our expectation of EUR 740m and consensus of EUR 744m.
• Q4 revenue was EUR 774.9m vs. EUR 740m/744m Evli/cons.
• ASK increased by 10.6% in Q4. RASK increased by 2.5% y/y.
• Q4 adj. EBIT was EUR 31.2m vs. EUR 8.2m/9.0m Evli/cons. Q4 comparable EBITDA was EUR 120.7m vs. EUR 89.7m our view.
• Absolute costs in Q4: Fuel costs were EUR 171m vs. EUR 171m our view. Staff costs were EUR 136m vs. EUR 133m our view. All other OPEX+D&A combined were EUR 451m vs. EUR 447m our view.
• Unit costs: CASK was 6.42 eurocents vs. 6.31 eurocents our view.
• Q4 EPS was EUR 0.17 vs. -0.14/-0.12 Evli/cons.
• 2019 dividend: EUR 0.20 vs. 0.11/0.10 Evli/cons.
• Finnair expects capacity increase of ~4% in 2020 but due to the coronavirus the company does not provide a full year revenue estimate.